Exhibit (g)(1)
CUSTODY AGREEMENT
Dated August 15, 2005
Between
UMB BANK, N.A.
and
FAIRHOLME FUNDS, INC.
TABLE OF CONTENTS
SECTION PAGE
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1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 2
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 4
(e) Purchases of Assets 4
(f) Sales of Assets 5
(g) Options 5
(h) Futures Contracts 6
(i) Segregated Accounts 6
(j) Depositary Receipts 6
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 6
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions 7
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 8
(p) Routine Dealings 8
(q) Collections 8
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 9
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 9
(v) Books and Records 9
(w) Opinion of Fund's Independent Certified Public Accountants 10
(x) Reports by Independent Certified Public Accountants 10
(y) Bills and Others Disbursements 10
5. Subcustodians 10
(a) Domestic Subcustodians 10
(b) Foreign Subcustodians 10
11
(c) Special Subcustodians 11
(d) Termination of a Subcustodian 11
(e) Certification Regarding Foreign Subcustodians 11
(f) Securities Depositories
(g) Limitations on Placement of Foreign Assets
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, ' 12
Etc.
(c) Liability for Past Records 12
(d) Advice of Counsel 12
(e) Advice of the Fund and Others 12
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 13
(a) Domestic Subcustodians 13
(b) Foreign Subcustodians 13
(c) Securities Systems, Interim Subcustodians, Special 13
Subcustodians, Eligible Securities
Depositories
(d) Defaults or Insolvency's of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 14
(a) Indemnification by Fund 14
(b) Indemnification by Custodian 14
9. Advances 14
10. Liens 15
11. Compensation 15
12. Powers of Attorney 15
13. Termination and Assignment 15
14. Additional Funds 15
15. Notices 16
16. Miscellaneous 16
CUSTODY AGREEMENT
This agreement made as of this 15th day of August, 2005, between UMB Bank,
n.a., a national banking association with its principal place of business
located in Kansas City, Missouri (hereinafter "Custodian"), and Fairholme Funds,
Inc., on behalf of each of its series listed on Appendix B hereof, together with
such additional series which may be included in Appendix B hereto (individually,
a "Fund" and collectively, the "Funds").
WITNESSETH:
WHEREAS, Fairholme Funds, Inc. is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended; and
WHEREAS, Fairholme Funds, Inc. desires to appoint Custodian as custodian
for the custody of Assets (as hereinafter defined) owned by each Fund which
Assets are to be held in such accounts as such Fund may establish from time to
time; and
WHEREAS, Custodian is willing to accept such appointment on the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF CUSTODIAN.
Fairholme Funds, Inc., on behalf of each Fund, hereby constitutes and
appoints the Custodian as custodian of Assets belonging to each such Fund which
have been or may be from time to time deposited with the Custodian. Custodian
accepts such appointment as a custodian and agrees to perform the duties and
responsibilities of Custodian as set forth herein on the conditions set forth
herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates and all negotiable or nonnegotiable paper
commonly known as Securities and other instruments or obligations.
(b) "Assets" shall mean Securities, monies and other property held by the
Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a
written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by an Authorized Person; (ii) a telephonic or other oral communication from
a person the Custodian reasonably believes to be an Authorized Person; or (iii)
a communication effected directly between an electro-mechanical or electronic
device or system (including, without limitation, computers) on behalf of a Fund.
Instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in clause
(i) above, but the lack of such confirmation shall in no way affect any action
taken by the Custodian in reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to
record any and all telephonic or other oral Instructions communicated to the
Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such Fund
in writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution does
not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Fairholme Funds, Inc., on behalf of each Fund, has furnished the Custodian
with copies, properly certified or authenticated, with all amendments or
supplements thereto, of the following documents:
(a) Certificate of Incorporation (or equivalent document) of Fairholme
Funds, Inc. as in effect on the date hereof;
(b) By-Laws of Fairholme Funds, Inc. as in effect on the date hereof;
(c) Resolutions of the Board of Directors of Fairholme Funds, Inc.
appointing the Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Fairholme Funds, Inc., on behalf of each Fund, shall promptly furnish the
Custodian with copies of any updates, amendments or supplements to the foregoing
documents.
In addition, Fairholme Funds, Inc., on behalf of each Fund, has delivered
or will promptly deliver to the Custodian, copies of the Resolution(s) of its
Board of Directors or Trustees and all amendments or supplements thereto,
properly certified or authenticated, designating certain officers or employees
of each such Fund who will have continuing authority to certify to the
Custodian: (a) the names, titles, signatures and scope of authority of all
persons authorized to give Instructions or any other notice, request, direction,
instruction, certificate or instrument on behalf of each Fund, and (b) the
names, titles and signatures of those persons authorized to countersign or
confirm Special Instructions on behalf of each Fund (in both cases collectively,
the "Authorized Persons" and individually, an "Authorized Person"). Such
Resolutions and certificates may be accepted and relied upon by the Custodian as
conclusive evidence of the facts set forth therein and shall be considered to be
in full force and effect until delivery to the Custodian of a similar Resolution
or certificate to the contrary. Upon delivery of a certificate which deletes or
does not include the name(s) of a person previously authorized to give
Instructions or to countersign or confirm Special Instructions, such persons
shall no longer be considered an Authorized Person authorized to give
Instructions or to countersign or confirm Special Instructions. Unless the
certificate specifically requires that the approval of anyone else will first
have been obtained, the Custodian will be under no obligation to inquire into
the right of the person giving such Instructions or Special Instructions to do
so. Notwithstanding any of the foregoing, no Instructions or Special
Instructions received by the Custodian from a Fund will be deemed to authorize
or permit any director, trustee, officer, employee, or agent of such Fund to
withdraw any of the Assets of such Fund upon the mere receipt of such
authorization, Special Instructions or Instructions from such director, trustee,
officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to Sections
5(b) or (c) of this Agreement, the Custodian shall have and perform the powers
and duties hereinafter set forth in this Section 4. For purposes of this Section
4 all references to powers and duties of the "Custodian" shall also refer to any
Domestic Subcustodian appointed pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are delivered
to it from time to time. The Custodian shall not be responsible for any property
of a Fund held or received by such Fund and not delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name of
the appropriate Fund or its nominee, or in the name of the Custodian or its
nominee, for whose actions such Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the Custodian shall hold such
Securities in street certificate form, so called, with or without any indication
of fiduciary capacity. However, unless it receives Instructions to the contrary,
the Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of the appropriate Fund or only assets
held by the Custodian as a fiduciary, provided that the records of the Custodian
shall indicate at all times the Fund or other customer for which such Securities
are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The Depository
Trust Company; and (b) any book-entry system as provided in (i) Subpart O of
Treasury Circular Xx. 000, 00 XXX 306.115, (ii) Subpart B of Treasury Circular
Public Debt Series Xx. 00-00, 00 XXX 350.2, or (iii) the book-entry regulations
of federal agencies substantially in the form of 31 CFR 306.115. Upon the
receipt of Special Instructions, the Custodian may deposit and/or maintain
domestic Securities owned by a Fund in any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
SEC to serve in the capacity of depository or clearing agent for the Securities
or other assets of investment companies) which acts as a Securities depository.
Each of the foregoing shall be referred to in this Agreement as a "Securities
System", and all such Securities Systems shall be listed on the attached
Appendix A. Use of a Securities System shall be in accordance with applicable
Federal Reserve Board and SEC rules and regulations, if any, and subject to the
following provisions:
(i) The Custodian may deposit the Securities directly or through one
or more agents or Subcustodians which are also qualified to act as custodians
for investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities in a
Securities System, provided that such Securities are represented in an account
("Account") of the Custodian in the Securities System that includes only assets
held by the Custodian as a fiduciary, custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds which are
maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the account
of a Fund only upon (a) receipt of advice from the Securities System that such
Securities have been transferred to the Account of the Custodian in accordance
with the rules of the Securities System, and (b) the making of an entry on the
records of the Custodian to reflect such payment and transfer for the account of
such Fund. The Custodian shall transfer Securities sold for the account of a
Fund only upon (a) receipt of advice from the Securities System that payment for
such Securities has been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and (b) the making of an
entry on the records of the Custodian to reflect such transfer and payment for
the account of such Fund. Copies of all advices from the Securities System
relating to transfers of Securities for the account of a Fund shall be
maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund
on the next succeeding business day daily transaction reports that shall include
each day's transactions in the Securities System for the account of such Fund.
Such transaction reports shall be delivered to such Fund or any agent designated
by such Fund pursuant to Instructions, by computer or in such other manner as
such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding Securities deposited in the
Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as promptly as
practicable and shall take all actions reasonably practicable to safeguard the
Securities of such Fund maintained with such Securities System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange Securities
held by it in temporary form for Securities in definitive form, to surrender
Securities for transfer into a name or nominee name as permitted in Section
4(b)(2), to effect an exchange of shares in a stock split or when the par value
of the stock is changed, to sell any fractional shares, and, upon receiving
payment therefor, to surrender bonds or other Securities held by it at maturity
or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made only upon
receipt of Securities by the Custodian, a clearing corporation of a national
Securities exchange of which the Custodian is a member, or a Securities System
in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities underlying such
repurchase agreement have been transferred by book-entry into the Account
maintained with such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require that the Securities
System may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits, foreign exchange transactions,
futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m)
hereof, the Custodian may make payment therefor before receipt of an advice of
transaction; and (iii) in the case of Securities as to which payment for the
Security and receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the instrument representing
the Security expected to take place in different locations or through separate
parties, such as commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar Securities, the Custodian may make payment for
such Securities prior to delivery thereof in accordance with such generally
accepted trade practice or the terms of the instrument representing such
Security.
(2) Other Assets Purchased. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall pay for and receive other Assets
for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the Custodian
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national Securities exchange of which
the Custodian is a member; or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the purchase or writing of
the option by a Fund; (b) if the transaction involves the sale of a covered call
option, deposit and maintain in a segregated account the Securities (either
physically or by book-entry in a Securities System) subject to the covered call
option written on behalf of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the
appropriate Fund and the broker-dealer shall enter into an agreement to comply
with the rules of the OCC or of any registered national securities exchange or
similar organizations(s). Pursuant to that agreement and such Fund's
Instructions, the Custodian shall: (a) receive and retain confirmations or other
documents, if any, evidencing the writing of the option; (b) deposit and
maintain in a segregated account, Securities (either physically or by book-entry
in a Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the securities or options exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets held in any
segregated account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements. The
appropriate Fund and such futures commission merchant shall be responsible for
determining the type and amount of Assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and maintain on
its books a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred Assets of such Fund, including
Securities maintained by the Custodian in a Securities System pursuant to
Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered Securities to the depositary used for such Securities by an issuer
of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence satisfactory
to the organization surrendering the same that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such Securities in the
name of the Custodian or a nominee of the Custodian, for delivery in accordance
with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver warrants,
puts, calls, rights or similar Securities to the issuer or trustee thereof (or
to the agent of such issuer or trustee) for the purpose of exercise or sale,
provided that the new Securities, cash or other Assets, if any, acquired as a
result of such actions are to be delivered to the Custodian; and (b) deposit
Securities upon invitations for tenders thereof, provided that the consideration
for such Securities is to be paid or delivered to the Custodian, or the tendered
Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the appropriate Fund of such action in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance of an
act on the last permissible date of a period established by any optional offer
or on the last permissible date for the performance of such act, the Fund shall
hold the Custodian harmless from any adverse consequences in connection with
acting upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase interest
bearing fixed term and call deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of a Fund, the Custodian shall
purchase such Interest Bearing Deposits in the name of such Fund with such banks
or trust companies, including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
(l) Each Fund hereby appoints the Custodian as its agent in the
execution of all currency exchange transactions. The Custodian agrees to provide
exchange rate and U.S. Dollar information, in writing, to the Funds. Such
information shall be supplied by the Custodian at least by the business day
prior to the value date of the foreign exchange transaction, provided that the
Custodian receives the request for such information at least two business days
prior to the value date of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to written Instructions. Custodian shall notify a Fund if the currency
broker or Banking Institution that the Fund has instructed the Custodian to
utilize to settle foreign exchange transactions pursuant to the written
Instructions is unable, or is no longer available, to settle such transactions.
(3) Each Fund accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange. The Custodian shall have no
responsibility or liability with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or the performance of
such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made available
to a Fund its services as a principal in foreign exchange transactions and
subject to any separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by such Fund with various lenders including but not limited to
UMB Bank, n.a.; provided, however, that the Securities shall be released only
upon payment to the Custodian of the monies borrowed, except that in cases where
additional collateral is required to secure existing borrowings, further
Securities may be released or delivered, or caused to be released or delivered
for that purpose upon receipt of Instructions. Upon receipt of Instructions, the
Custodian will pay, but only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any loss arising from the delivery
of Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends, rights, and
other items of like nature and, upon receipt of Instructions, take action with
respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling Securities
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to each Fund with
respect to portfolio Securities and other Assets; (b) promptly credit to the
account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse and deliver any
instruments required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use its best
efforts to collect amounts due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing if any amount payable with respect
to portfolio Securities or other Assets is not received by the Custodian when
due. The Custodian shall not be responsible for the collection of amounts due
and payable with respect to portfolio Securities or other Assets that are in
default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open and operate a bank account or
accounts on the books of the Custodian; provided that such bank account(s) shall
be in the name of the Custodian or a nominee thereof, for the account of one or
more Funds, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to shareholders
of each such Fund and to make payment to shareholders who have requested
repurchase or redemption of their shares of each such Fund (collectively, the
"Shares"), the Custodian shall release cash or Securities insofar as available.
In the case of cash, the Custodian shall, upon the receipt of Instructions,
transfer such funds by check or wire transfer to any account at any bank or
trust company designated by each such Fund in such Instructions. In the case of
Securities, the Custodian shall, upon the receipt of Special Instructions, make
such transfer to any entity or account designated by each such Fund in such
Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing cash payments received for
shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received by the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as of
specified times agreed upon from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares which are deposited to the
accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders Communication
Act of 1985.
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act of 1985
for the specific purpose of direct communications between such issuer and any
such Fund unless a particular Fund directs the Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating to its activities under
this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("xxx 0000 Xxx") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open
for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
The Custodian shall provide accountings relating to its activities under
this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may request to
obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to be paid,
all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians,
Foreign Subcustodians, Interim Subcustodians or Special Subcustodians (each as
hereinafter defined) to act on behalf of any one or more Funds; and (ii) the
Custodian may be directed, pursuant to an agreement between a Fund and the
Custodian ("Delegation Agreement"), to appoint a Domestic Subcustodian to
perform the duties of the Foreign Custody Manager (as such term is defined in
Rule 17f-5 under the 1940 Act) ("Approved Foreign Custody Manager") for such
Fund so long as such Domestic Subcustodian is so eligible under the 1940 Act.
Such Delegation Agreement shall provide that the appointment of any Domestic
Subcustodian as the Approved Foreign Custody Manager must be governed by a
written agreement between the Custodian and the Domestic Subcustodian, which
provides for compliance with Rule 17f-5. The Approved Foreign Custody Manager
may appoint a Foreign Subcustodian or Interim Subcustodian in accordance with
this Section 5. For purposes of this Agreement, all Domestic Subcustodians,
Foreign Subcustodians, Interim Subcustodians and Special Subcustodians shall be
referred to collectively as "Subcustodians."
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint any bank as
defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity,
any of which meet the requirements of a custodian under Section 17(f) of the
1940 Act and the rules and regulations thereunder, to act for the Custodian on
behalf of any one or more Funds as a subcustodian for purposes of holding Assets
of such Fund(s) and performing other functions of the Custodian within the
United States (a "Domestic Subcustodian"). Each Fund shall approve in writing
the appointment of the proposed Domestic Subcustodian; and the Custodian's
appointment of any such Domestic Subcustodian shall not be effective without
such prior written approval of the Fund(s). Each such duly approved Domestic
Subcustodian and the countries where Foreign Subcustodians through which they
may hold securities and other Assets of a Fund shall be as agreed upon by the
parties hereto in writing, from time to time, and shall be reflected on Appendix
A hereto.
(b) Foreign Subcustodians.
(1) Foreign Subcustodians. The Approved Foreign Custody Manager may
appoint any entity meeting the requirements of an Eligible Foreign Custodian, as
such term is defined in Rule 17f-5(a)(1) under the 1940 Act, and which term
shall also include a bank that qualifies to serve as a custodian of assets of
investment companies under Section 17(f) of the 1940 Act or by SEC order is
exempt therefrom (each a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian), provided that the Approved Foreign Custody
Manager's appointments of such Foreign Subcustodians shall at all times be
governed by an agreement that complies with Rule 17f-5.
(2) Interim Subcustodians. Notwithstanding the foregoing, in the event
that a Fund shall invest in a security or other Asset to be held in a country in
which the Approved Foreign Custody Manager has not appointed a Foreign
Subcustodian or for which the Fund has otherwise directed that a specific
Foreign Subcustodian be used, the Custodian shall, or shall cause the Approved
Foreign Custody Manager to, promptly notify the Fund in writing by facsimile
transmission or in such other manner as the Fund and Custodian shall agree in
writing of the unavailability of an approved Foreign Subcustodian in such
country; and upon the receipt of Special Instructions, the Custodian shall, or
shall cause the Approved Foreign Custody Manager to, appoint or approve any
Person (as hereinafter defined) designated by the Fund in such Special
Instructions, to hold such security or other Asset. The subcustodian agreement
between the Custodian and the Interim Subcustodian shall comply with the
provisions of the 1940 Act and the rules and regulations thereunder (including
Rule 17f-5, if applicable) and the terms and provisions of this Agreement. The
Custodian shall comply with Section 5(b)(1) hereof with respect to the
appointment of an Interim Subcustodian. (Any Person appointed or approved as
either a subcustodian or sub-subcustodian pursuant to this Section 5(b)(2) is
herein referred to as an "Interim Subcustodian.")
(3) In the event that the Approved Foreign Custody Manager or its
delegate reasonably determines that such Person will not provide delegation
services (i) in a country in which a Fund has directed that the Fund shall
invest in a security or other Asset or (ii) with respect to a specific Foreign
Subcustodian which the Fund has directed be used, the Approved Foreign Custody
Manager or the Custodian (or the Domestic Subcustodian), as applicable, shall be
entitled to rely on any such instruction provided pursuant to Section 5(b)(2) as
a Special Instruction and shall have no duties or liabilities under this
Agreement with respect to such arrangement save those that it may undertake
specifically in writing with respect to each particular instance; provided that
the Delegation Agreement and this Agreement shall not constitute the Approved
Foreign Custody Manager or the Custodian (or the Domestic Subcustodian), as the
exclusive delegate of the Fund for purposes of Rule 17f-5 and, particularly
where such Person does not agree to provide fully the services under this
Agreement and the Delegation Agreement to the Fund with respect to a particular
country or specific Foreign Subcustodian, the Fund may delegate such services to
another delegate pursuant to Rule 17f-5.
(c) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on behalf of a
Fund, appoint one or more banks, trust companies or other entities designated in
such Special Instructions to act for the Custodian on behalf of such Fund as a
subcustodian for purposes of: (i) effecting third-party repurchase transactions
with banks, brokers, dealers or other entities through the use of a common
custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the appropriate Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(d) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon notification to the
appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance
with the termination provisions under the applicable subcustodian agreement, and
upon the receipt of Special Instructions, the Custodian will terminate any
Subcustodian in accordance with the termination provisions under the applicable
subcustodian agreement.
(e) Certification Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver, or cause any Approved
Foreign Custody Manager to deliver, to the Fund a certificate stating: (i) the
identity of each Foreign Subcustodian then acting on behalf of the Custodian;
(ii) the countries in which the Eligible Securities Depositories (as defined in
Section 5(f)) through which each Foreign Subcustodian is then holding cash,
securities and other Assets of the Fund; and (iii) such other information as may
be requested by the Fund to ensure compliance with rules and regulations under
the 1940 Act.
(f) Securities Depositories.
(1) The Custodian (or the Domestic Subcustodian) may place and
maintain a Fund's Foreign Assets (as defined in Rule 17f-5 under the 0000 Xxx)
with an Eligible Securities Depository (as defined in Rule 17f-7, which term
shall include any other securities depository for which the SEC by exemptive
order has permitted registered investment companies to maintain their assets).
(2) The Custodian (or the Domestic Subcustodian) shall, for evaluation
by the Fund or its adviser, provide an analysis of the custody risks associated
with maintaining the Fund's Foreign Assets with each Eligible Securities
Depository utilized directly or indirectly by the Custodian as of the date
hereof (or, in the case of an Eligible Securities Depository not so utilized as
of the date hereof, prior to the initial placement of the Fund's Foreign Assets
at such depository) and at which any Foreign Assets of the Fund are held or are
expected to be held. The Custodian (or the Domestic Subcustodian) shall monitor
the custody risks associated with maintaining the Fund's Foreign Assets at each
such Eligible Securities Depository on a continuing basis and shall promptly
notify the Fund or its adviser of any material changes in such risks.
(3) Based on the information available to it in the exercise of
diligence, the Custodian (or the Domestic Subcustodian) shall determine the
eligibility under Rule 17f-7 of each foreign securities depository before
maintaining the Fund's Foreign Assets therewith and shall promptly advise the
Fund if any Eligible Securities Depository ceases to be so eligible. A list of
Eligible Securities Depositories used by the Custodian directly or indirectly as
of the date hereof, or as amended from time to time, is attached as Appendix A.
Notwithstanding Subsection 16(c) hereof, Eligible Securities Depositories may,
subject to Rule 17f-7, be added to or deleted from such list from time to time.
(4) Withdrawal of Assets. If an arrangement with an Eligible
Securities Depository no longer meets the requirements of Rule 17f-7, the
Custodian (or the Domestic Subcustodian) will withdraw the Fund's Foreign Assets
from such depository as soon as reasonably practicable.
(5) Standard of Care. In fulfilling its responsibilities under this
Section 5(f), the Custodian will exercise reasonable care, prudence and
diligence.
(g) Limitations on Placement of Foreign Assets.
A Fund shall not place or maintain any of the Fund's Foreign Assets in any
country, and shall as promptly as practicable withdraw the Fund's Foreign Assets
from any country, that is identified in the Global Custody Network Listing
provided by the Custodian (or the Domestic Subcustodian) as a country where the
liability or responsibility of the Approved Foreign Custody Manager or the
Custodian (or the Domestic Subcustodian) is conditioned or predicated on the
ability of the Approved Foreign Custody Manager or the Custodian (or the
Domestic Subcustodian) to recover damages from the Foreign Subcustodian in such
country.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the negligence or willful misfeasance of the Custodian; provided, however, in no
event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Etc.
In no event shall the Custodian incur liability hereunder if the Custodian
or any Subcustodian or Securities System, or any Subcustodian, Eligible
Securities Depository utilized by any such Subcustodian, or any nominee of the
Custodian or any Subcustodian (individually, a "Person") 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 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 subdivision thereof or of any court of competent jurisdiction (and the
Custodian nor any other Person shall not be obligated to take any action
contrary thereto); or (ii) any "Force Majeure," which for purposes of this
Agreement, shall mean any circumstance or event which is beyond the reasonable
control of the Custodian, a Subcustodian or any agent of the Custodian or a
Subcustodian and which adversely affects the performance by the Custodian of its
obligations hereunder, by the Subcustodian of its obligations under its
subcustody agreement or by any other agent of the Custodian or the Subcustodian,
unless in each case, such delay or nonperformance is caused by the negligence,
misfeasance or misconduct of the Custodian. Such Force Majeure events may
include any event caused by, arising out of or involving (a) an act of God, (b)
accident, fire, water damage or explosion, (c) any computer, system or other
equipment failure or malfunction caused by any computer virus or the malfunction
or failure of any communications medium, (d) any interruption of the power
supply or other utility service, (e) any strike or other work stoppage, whether
partial or total, (f) any delay or disruption resulting from or reflecting the
occurrence of any Sovereign Risk (as defined below), (g) any disruption of, or
suspension of trading in, the securities, commodities or foreign exchange
markets, whether or not resulting from or reflecting the occurrence of any
Sovereign Risk, (h) any encumbrance on the transferability of a currency or a
currency position on the actual settlement date of a foreign exchange
transaction, whether or not resulting from or reflecting the occurrence of any
Sovereign Risk, or (i) any other cause similarly beyond the reasonable control
of the Custodian.
Subject to the Custodian's general standard of care set forth in Subsection
6(a) hereof and the requirements of Section 17(f) of the 1940 Act and Rules
17f-5 and 17f-7 thereunder, the Custodian shall not incur liability hereunder if
any Person 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 any (i) "Sovereign Risk," which for the
purpose of this Agreement shall mean, in respect of any jurisdiction, including
the United States of America, where investments are acquired or held under this
Agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion,
(b) the imposition of any investment, repatriation or exchange control
restrictions by any governmental authority, (c) the confiscation, expropriation
or nationalization of any investments by any governmental authority, whether de
facto or de jure, (d) any devaluation or revaluation of the currency, (e) the
imposition of taxes, levies or other charges affecting investments, (f) any
change in the applicable law, or (g) any other economic or political risk
incurred or experienced that is not directly related to the economic or
financial conditions of the Eligible Foreign Custodian, except as otherwise
provided in this Agreement or the Delegation Agreement, or (ii) "Country Risk,"
which for the purpose of this Agreement shall mean, with respect to the
acquisition, ownership, settlement or custody of investments in a jurisdiction,
all risks relating to, or arising in consequence of, systemic and markets
factors affecting the acquisition, payment for or ownership of investments,
including (a) the prevalence of crime and corruption except for crime or
corruption by the Eligible Foreign Custodian, or its employees, directors or
officers for which the liability of the Custodian (or the Domestic Subcustodian)
or the Approved Foreign Custody Manager is not predicated upon recovery of such
damages from the Subcustodian as set forth in the Global Custody Network
Listing, (b) the inaccuracy or unreliability of business and financial
information (unrelated to the Approved Foreign Custody Manager's duties imposed
by Rule 17f-5(c) under the 1940 Act or to the duties imposed on the Custodian by
Rule 17f-7 under the 1940 Act), (c) the instability or volatility of banking and
financial systems, or the absence or inadequacy of an infrastructure to support
such systems, (d) custody and settlement infrastructure of the market in which
such investments are transacted and held, (e) the acts, omissions and operation
of any Eligible Securities Depository, it being understood that this provision
shall not excuse the Custodian's performance under the express terms of this
Agreement and its liability therefor, (f) the risk of the bankruptcy or
insolvency of banking agents, counterparties to cash and securities
transactions, registrars or transfer agents, (g) the existence of market
conditions which prevent the orderly execution or settlement of transactions or
which affect the value of assets, and (h) the laws relating to the safekeeping
and recovery of a Fund's Foreign Assets held in custody pursuant to the terms of
this Agreement; provided, however, that, in compliance with Rule 17f-5, neither
Sovereign Risk nor Country Risk shall include the custody risk of a particular
Eligible Foreign Custodian of a Fund's Foreign Assets.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to receive
and act upon advice of counsel of its own choosing on all matters. The Custodian
and all Domestic Subcustodians shall be without liability for any actions taken
or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the advice of any
Fund and upon statements of such Fund's accountants and other persons believed
by it in good faith to be expert in matters upon which they are consulted, and
neither the Custodian nor any Domestic Subcustodian shall be liable for any
actions taken or omitted, in good faith, pursuant to such advice or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully protected and
indemnified in acting as a custodian hereunder upon any Resolutions of the Board
of Directors or Trustees, Instructions, Special Instructions, advice, notice,
request, consent, certificate, instrument or paper appearing to it to be genuine
and to have been properly executed and shall, unless otherwise specifically
provided herein, be entitled to receive as conclusive proof of any fact or
matter required to be ascertained from any Fund hereunder a certificate signed
by any officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
Without limiting the generality of any other provisions hereof, neither the
Custodian nor any Domestic Subcustodian shall be under any duty or obligation to
inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for
any Fund, the legality of the purchase thereof or evidence of ownership required
to be received by any such Fund, or the propriety of the decision to purchase or
amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund, or
the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings
or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Articles of Incorporation or
By-Laws or votes or proceedings of the shareholders or directors of any such
Fund, or any such Fund's currently effective Registration Statement on file with
the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Foreign Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage to such Fund
caused by or resulting from the acts or omissions of any Foreign Subcustodian to
the extent that, under the terms set forth in the subcustodian agreement between
the Custodian or a Domestic Subcustodian and such Foreign Subcustodian, the
Foreign Subcustodian has failed to perform in accordance with the standard of
conduct imposed under such subcustodian agreement and the Custodian or Domestic
Subcustodian recovers from the Foreign Subcustodian under the applicable
subcustodian agreement. The Custodian represents and warrants that it will
exercise the remedies granted to it under the Custodian Agreement between the
Custodian and the Domestic Subcustodian to seek recovery from the Domestic
Subcustodian of the amount of any such loss or damage caused by or resulting
from the acts or omissions of any Foreign Subcustodian appointed or utilized by
the Domestic Subcustodian.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
Eligible Securities Depositories.
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Eligible Securities Depository unless such loss, damage or
expense is caused by, or results from, the negligence or willful misfeasance of
the Custodian, provided however, that the Custodian shall be liable to such Fund
to the extent the Custodian recovers from the Securities System, Interim
Subcustodian, Special Subcustodian, or Eligible Securities Depository under the
applicable agreement any amount for any loss, damage or expense suffered or
incurred by such Fund and , to the extent permissible, that the Custodian's
rights under the applicable agreement with the Securities System, Interim
Subcustodian, Special Subcustodian, or Eligible Securities Depository are
subrogated to such Fund.
(d) Defaults or Insolvency's of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or expense suffered
or incurred by any Fund resulting from or occasioned by the actions, omissions,
neglects, defaults or insolvency of any broker, bank, trust company or any other
person with whom the Custodian may deal (other than any of such entities acting
as a Subcustodian, Securities System or Eligible Securities Depository, for
whose actions the liability of the Custodian is set out elsewhere in this
Agreement) unless such loss, damage or expense is caused by, or results from,
the negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses
incurred by the Custodian in connection with this Agreement, but excluding
salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each Fund agrees to
indemnify and hold harmless the Custodian and its nominees from all losses,
damages and expenses (including attorneys' fees) suffered or incurred by the
Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in addition to
the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify
and hold harmless each Fund from all losses, damages and expenses suffered or
incurred by each such Fund caused by the negligence or willful misfeasance of
the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Eligible Securities Depository acting either
directly or indirectly under agreement with the Custodian (each of which for
purposes of this Section 9 shall be referred to as "Custodian"), makes any
payment or transfer of funds on behalf of any Fund as to which there would be,
at the close of business on the date of such payment or transfer, insufficient
funds held by the Custodian on behalf of any such Fund, the Custodian may, in
its discretion without further Instructions, provide an advance ("Advance") to
any such Fund in an amount sufficient to allow the completion of the transaction
by reason of which such payment or transfer of funds is to be made. In addition,
in the event the Custodian is directed by Instructions to make any payment or
transfer of funds on behalf of any Fund as to which it is subsequently
determined that such Fund has overdrawn its cash account with the Custodian as
of the close of business on the date of such payment or transfer, said overdraft
shall constitute an Advance. Any Advance shall be payable by the Fund on behalf
of which the Advance was made on demand by Custodian, unless otherwise agreed by
such Fund and the Custodian, and shall accrue interest from the date of the
Advance to the date of payment by such Fund to the Custodian at a rate agreed
upon in writing from time to time by the Custodian and such Fund. It is
understood that any transaction in respect of which the Custodian shall have
made an Advance, including but not limited to a foreign exchange contract or
transaction in respect of which the Custodian is not acting as a principal, is
for the account of and at the risk of the Fund on behalf of which the Advance
was made, and not, by reason of such Advance, deemed to be a transaction
undertaken by the Custodian for its own account and risk. The Custodian and each
of the Funds which are parties to this Agreement acknowledge that the purpose of
Advances is to finance temporarily the purchase or sale of Securities for prompt
delivery in accordance with the settlement terms of such transactions or to meet
emergency expenses not reasonably foreseeable by a Fund. The Custodian shall
promptly notify the appropriate Fund of any Advance. Such notification shall be
sent by facsimile transmission or in such other manner as such Fund and the
Custodian may agree.
10. LIENS.
The Custodian shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Custodian advances cash or securities to the Fund for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of its duties hereunder, except such as may
arise from its or its nominee's negligent action, negligent failure to act or
willful misconduct, any Property at any time held for the Custody Account shall
be security therefor and the Fund hereby grants a security interest therein to
the Custodian. The Fund shall promptly reimburse the Custodian for any such
advance of cash or securities or any such taxes, charges, expenses, assessments,
claims or liabilities upon request for payment, but should the Fund fail to so
reimburse the Custodian, the Custodian shall be entitled to dispose of such
Property to the extent necessary to obtain reimbursement. The Custodian shall be
entitled to debit any account of the Fund with the Custodian including, without
limitation, the Custody Account, in connection with any such advance and any
interest on such advance as the Custodian deems reasonable.
11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is agreed to in
writing by the Custodian and each such Fund from time to time. The parties agree
to the compensation as set forth in Appendix C as attached hereto. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies, powers
of attorney or other instruments as may be reasonable and necessary or desirable
in connection with the performance by the Custodian or any Subcustodian of their
respective obligations under this Agreement or any applicable subcustodian
agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any Fund without the
respective consent of the other, duly authorized by a resolution by its Board of
Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement after the
date hereof by an instrument in writing to such effect signed by such Fund or
Funds and the Custodian. If this Agreement is terminated as to one or more of
the Funds (but less than all of the Funds) or if an additional Fund or Funds
shall become a party to this Agreement, there shall be delivered to each party
an Appendix B or an amended Appendix B, signed by each of the additional Funds
(if any) and each of the remaining Funds as well as the Custodian, deleting or
adding such Fund or Funds, as the case may be. The termination of this Agreement
as to less than all of the Funds shall not affect the obligations of the
Custodian and the remaining Funds hereunder as set forth on the signature page
hereto and in Appendix B as revised from time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to Fairholme Funds, Inc., 00 XXX Xxxxxxx, 0xx Xxxxx, Attn: Xxxxx
Xxxxxxx, Xxxxx Xxxxx, Xxx Xxxxxx 00000, postage prepaid, or to such other
address as any particular Fund may have designated to the Custodian in writing,
shall be deemed to have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the Securities
Administration department of the Custodian at its office at 000 Xxxxx Xxxx., 0xx
Xxxxx, Attn: Xxxxxx Xxxxxxx, Xxxxxx Xxxx, Xxxxxxxx 00000, postage prepaid, or to
such other addresses as the Custodian may have designated to each Fund in
writing, shall be deemed to have been properly delivered or given to the
Custodian hereunder; provided, however, that procedures for the delivery of
Instructions and Special Instructions shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived, in
any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Eligible
Securities Depositories are approved or terminated according to the terms of
this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
Term Section
---- -------
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Approved Foreign Custody Manager 5
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
Country Risk 6(b)
Domestic Subcustodian 5(a)
Force Majeure 6(b)
Foreign Assets 5(f)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Eligible Securities Depositories 5(f)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be illegal,
in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) Entire Agreement. This Agreement and the Delegation Agreement, as
amended from time to time, constitute the entire understanding and agreement of
the parties thereto with respect to the subject matter therein and accordingly,
supercedes as of the effective date of this Agreement any custodian agreement
heretofore in effect between the Funds and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement
to be executed by their respective duly authorized officers.
FAIRHOLME FUNDS, INC.
Attest: By:
/s/ Xxxxx X. Xxxxxxx
----------------------------- ------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Secretary/Treasurer
Date: August 15, 2005
UMB BANK, N.A.
Attest: By:
/s/ Xxxxx X. Xxxxxxx
----------------------------- ------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President
Date: August 15, 2005
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
Citibank (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
--------- --------------------- -----------------
Euroclear
FAIRHOLME FUNDS, INC. UMB BANK, N.A.
By: By:
/s/ Xxxxx X. Xxxxxxx /s/ Xxxxx X. Xxxxxxx
------------------------------------- ------------------------------------
Name: Xxxxx X. Xxxxxxx Name: Xxxxx X. Xxxxxxx
Title: Secretary/Treasurer Title: Senior Vice President
Date: August 15, 2005 Date: August 15, 0000
XXXXXXXX X
CUSTODY AGREEMENT
The Agreement applies with respect to the following series of
Fairholme Funds, Inc. (each a "Fund" and collectively, the "Funds"):
THE XXXXXXXXX XXXX
FAIRHOLME FUNDS, INC.
Attest: By:
/s/ Xxxxx X. Xxxxxxx
----------------------------- ------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Secretary/Treasurer
Date: August 15, 2005
UMB BANK, N.A.
Attest: By:
/s/ Xxxxx X. Xxxxxxx
----------------------------- ------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President
Date: August 15, 2005
APPENDIX C
CUSTODY AGREEMENT
The following schedule of fees applies to the Custody Agreement between the
Fairholme Funds, Inc. and UMB Bank, n.a., unless and until such schedule is
subsequently amended.
Schedule of Fees for Domestic Custody Services
Net Asset Value Fees
To be computed as of month-end on the average net asset value of each
portfolio at the annual rate of:
1.00 basis point on the first $100,000,000 in assets; plus
.75 basis point on the next $100,000,000 in assets; plus
.50 basis point on the assets in excess of $200,000,000;
*Subject to a $250 per month minimum per portfolio
Portfolio Transaction Fees
------------------------------------------------------------------------------
*DTC - Equities $4.00
*DTC - Fixed Income 7.00
*PTC 12.00
*Fed Book Entry 8.00
*Physical 25.00
Principal Paydown 5.00
Option (Initial Only)/Future 25.00
Corporate Action/Call/Reorg 25.00
*Third-Party VRDN (Bank Book Entry) 15.00
*UMB Repurchase Agreement 5.00
*Tri-Party Repurchase Agreement 15.00
Wires In/Out & Checks Issued
(Non-Settlement Related) 8.00
*Fund of Fund Security Transaction
~ In-house Sweep (Scout &/or MMF) no charge
~ Preferred List** 10.00
~ All other 25.00
Fund of Fund Dividend Transaction
~ Sweep Income no charge
~ Preferred List** 5.00
~ All other 10.00
*A transaction includes buys, sells, maturities, or free security movements.
Out-of-Pocket Expenses
------------------------------------------------------------------------------
Includes, but is not limited to, security transfer fees, certificate fees,
shipping/courier fees or charges, FDIC insurance premiums, legal
review/processing of restricted and private placement securities and custom
programming charges.
Schedule of Fees for Global Custody Services
Transaction
Country Annual Asset Charge Charge
------- ------------------- ------
(Basis Points)
Argentina 23 $60
Australia 4.50 $50
Austria 7.25 $45
Bangladesh 60 $150
Belgium (Equity) 5.25 $45
Belgium (Fixed Income) 5.40 $45
Bolivia 50 $110
Botswana 60 $150
Brazil 20 $55
Bulgaria 60 $135
Canada 2.50 $25
Cedel/Euroclear (Equity) 4.50 $17
Cedel/Euroclear (Fixed Income) 2.00 $20
Chile 20 $70
China 20 $70
Colombia 42 $110
Croatia 70 $135
Czech Republic (Equity) 28 $55
Czech Republic (Fixed Income) 19 $55
Denmark 5.00 $45
Ecuador 50 $110
Egypt 45 $130
Estonia 45 $100
Finland 5.00 $45
France 3.50 $30
Germany 3.50 $30
Greece (Equity) 30 $60
Greece (Fixed Income) 20 $60
Hong Kong 4.50 $55
Hungary (Physical Equity) 35 $75
Hungary (Keler, Equity/Fixed 30 $75
Income)
India 40 $90
Indonesia 12 $75
Ireland 4.00 $30
Israel 20 $80
Italy 4.50 $35
Japan 3.30 $28
Jordan 50 $140
Latvia 65 $90
Lithuania 55 $90
Malaysia 10 $65
Mauritius 55 $165
Mexico 6.50 $35
Morocco 40 $135
Netherlands 4.50 $30
New Zealand 5.00 $75
Norway 5.00 $45
Pakistan 40 $110
Xxxxxx 00 x000
Xxxx 45 $100
Philippines 20 $75
Poland 40 $80
Portugal 9.50 $85
Romania 40 $85
Russia (Equity) 65 $110
Russia (Fixed Income) 55 $110
Singapore 5.50 $60
Xxxxxxxx 00 $70
Slovenia 75 $180
South Africa 6.00 $50
South Korea 14 $50
Spain 5.50 $60
Sri Lanka 25 $65
Sweden 4.50 $50
Switzerland 4.50 $45
Taiwan 20 $75
Thailand 9.50 $70
Turkey 20 $70
United Kingdom 3.00 $25
Uruguay 40 $95
Venezuela 42 $90
Zimbabwe 60 $145
Additional Charges, Each
Trade Correction and Cancel $15
Late Instruction $15
Non-Automated Trade Instruction $15
Additional market asset and transaction charges will be negotiated prior to
investment.
------------------------------------------------------------------------------
Out-of-Pocket Expenses
Includes, but is not limited to, all locally mandated charges, depository
charges, Euroclear deposit and withdrawal charges, stamp duties, foreign
investor registration charges, local taxes, certificate fees, proxy fees
and charges, re-registration fees and overnight and other courier services.
Fees for services not contemplated by this schedule will be negotiated on a
case-by-case basis.
FAIRHOLME FUNDS, INC. UMB BANK, N.A.
By: /s/ Xxxxx X. Xxxxxxx By: /s/ Xxxxx X. Xxxxxxx
------------------------------------- ------------------------------------
Name: Xxxxx X. Xxxxxxx Name: Xxxxx X. Xxxxxxx
Title: Secretary/Treasurer Title: Senior Vice President
Date: August 15, 2005 Date: August 15, 2005
22146.0003#656673
