12
SECOND AMENDMENT TO
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
This Amendment to the Custody Agreement
is made as of _____________May 1, , 2001 by
and between THE QUANT FUNDS, formerly known
as Quantitative Group of Funds (the "Fund")
and STATE STREET BANK AND TRUST COMPANY,
assignee of Investors Fiduciary Trust Company
(the "State Street"). Capitalized terms used
in this Amendment without definition shall
have the respective meanings given to such
terms in the Contract referred to below.
WHEREAS, the Fund and Investors
Fiduciary Trust Company entered into a
Custody Agreement dated as of January 19,
1998, which was assigned from Investors
Fiduciary Trust Company to State Street
effective January 1, 2000 (the "Contract");
and
WHEREAS, the Fund is authorized to issue
shares in separate series, with each such
series representing interests in a separate
portfolio of securities and other assets, and
the Fund has made each such series subject to
the Contract (each such series, together with
all other series subsequently established by
a Fund and made subject to the Contract in
accordance with the terms thereof, shall be
referred to as a "Portfolio," and,
collectively, the "Portfolios"); and
WHEREAS, the Fund and State Street
desire to amend certain provisions of the
Contract to reflect revisions to Rule 17f-5
("Rule 17f-5") and the adoption of Rule 17f-7
("Rule 17f-7") promulgated under the
Investment Company Act of 1940, as amended
(the "1940 Act"); and
WHEREAS, the Fund and State Street
desire to amend and restate certain other
provisions of the Contract relating to the
custody of assets of each of the Portfolios
held outside of the United States.
NOW THEREFORE, in consideration of the
foregoing and the mutual covenants and
agreements hereinafter contained, the parties
hereby agree to amend the Contract, pursuant
to the terms thereof, as follows:
I. Section 3, Paragraph Q of the Contract
is hereby deleted.
II. New Section 3, Paragraph Q of the
Contract is hereby added, as of the
effective date of this Amendment, as set
forth below.
3.Q. Provisions Relating to Rule 17f-5
3.Q.1. Definitions. Capitalized
terms in this Amendment shall have the
following meanings:
"Country Risk" means all factors reasonably
related to the systemic risk of holding
Foreign Assets in a particular country
including, but not limited to, such country's
political environment, economic and financial
infrastructure (including any Eligible
Securities Depository operating in the
country), prevailing or developing custody
and settlement practices, and laws and
regulations applicable to the safekeeping and
recovery of Foreign Assets held in custody in
that country; provided however, country risk
shall not include the custody or settlement
practices, procedures or risks of an Eligible
Foreign Custodian selected by the Foreign
Custody Manager that are not prevailing
practices in the country in which the foreign
assets are held..
"Eligible Foreign Custodian" has the meaning
set forth in section (a)(1) of Rule 17f-5,
including a majority-owned direct or indirect
subsidiary of a U.S. Bank (as defined in Rule
17f-5), a bank holding company meeting the
requirements of an Eligible Foreign Custodian
(as set forth in Rule 17f-5 or by other
appropriate action of the U.S. Securities and
Exchange Commission (the "SEC")), or a
foreign branch of a Bank (as defined in
Section 2(a)(5) of the 0000 Xxx) meeting the
requirements of a custodian under Section
17(f) of the 1940 Act; the term does not
include any Eligible Securities Depository.
"Eligible Securities Depository" has the
meaning set forth in section (b)(1) of Rule
17f-7.
"Foreign Assets" means any of the Portfolios'
investments (including foreign currencies)
for which the primary market is outside the
United States and such cash and cash
equivalents as are reasonably necessary to
effect the Portfolios' transactions in such
investments.
"Foreign Custody Manager" has the meaning set
forth in section (a)(3) of Rule 17f-5.
3.Q.2. Delegation to State Street as
Foreign Custody Manager. The Fund, by
resolution adopted by its Board of Trustees
(the "Board"), hereby delegates to State
Street, subject to Section (b) of Rule 17f-5,
the responsibilities set forth in this
Section 3.Q. with respect to Foreign Assets
of the Portfolios held outside the United
States, and State Street hereby accepts such
delegation as Foreign Custody Manager with
respect to the Portfolios.
3.Q.3. Countries Covered. The
Foreign Custody Manager shall be responsible
for performing the delegated responsibilities
defined below only with respect to the
countries and custody arrangements for each
such country listed on Schedule A to this
Contract, which list of countries may be
amended from time to time by the Fund with
the agreement of the Foreign Custody Manager.
The Foreign Custody Manager shall list on
Schedule A the Eligible Foreign Custodians
selected by the Foreign Custody Manager to
maintain the assets of the Portfolios, which
list of Eligible Foreign Custodians may be
amended from time to time in the sole
discretion of the Foreign Custody Manager.
The Foreign Custody Manager will provide
amended versions of Schedule A in accordance
with Section 3.Q.6 hereof.
Upon the receipt by the Foreign Custody
Manager of Proper Instructions to open an
account or to place or maintain Foreign
Assets in a country listed on Schedule A, and
the fulfillment by the Fund, on behalf of the
Portfolios, of the applicable account opening
requirements for such country, the Foreign
Custody Manager shall be deemed to have been
delegated by the Board on behalf of the
Portfolios responsibility as Foreign Custody
Manager with respect to that country and to
have accepted such delegation. Execution of
this Amendment by the Fund shall be deemed to
be a Proper Instruction to open an account,
or to place or maintain Foreign Assets, in
each country listed on Schedule A in which
State Street has previously placed or
currently maintains Foreign Assets pursuant
to the terms of the Contract. Following the
receipt of Proper Instructions directing the
Foreign Custody Manager to close the account
of a Portfolio with the Eligible Foreign
Custodian selected by the Foreign Custody
Manager in a designated country, the
delegation by the Board on behalf of the
Portfolios to State Street as Foreign Custody
Manager for that country shall be deemed to
have been withdrawn and State Street shall
immediately cease to be the Foreign Custody
Manager of the Portfolios with respect to
that country.
The Foreign Custody Manager may withdraw its
acceptance of delegated responsibilities with
respect to a designated country upon written
notice to the Fund. Thirty Ninety days (or
such longer period to which the parties agree
in writing) after receipt of any such notice
by the Fund, State Street shall have no
further responsibility in its capacity as
Foreign Custody Manager to the Fund with
respect to the country as to which State
Street's acceptance of delegation is
withdrawn.
3.Q.4. Scope of Delegated
Responsibilities:
(a) Selection of Eligible Foreign
Custodians. Subject to the provisions of
Section 3.Q., the Foreign Custody Manager may
place and maintain the Foreign Assets in the
care of the Eligible Foreign Custodian
selected by the Foreign Custody Manager in
each country listed on Schedule A, as amended
from time to time. In performing its
delegated responsibilities as Foreign Custody
Manager to place or maintain Foreign Assets
with an Eligible Foreign Custodian, the
Foreign Custody Manager shall determine that
the Foreign Assets will be subject to
reasonable care, based on the standards
applicable to custodians in the country in
which the Foreign Assets will be held by that
Eligible Foreign Custodian, after considering
all factors relevant to the safekeeping of
such assets, including, without limitation
the factors specified in Rule 17f-5(c)(1).
(b) Contracts With Eligible
Foreign Custodians. The Foreign Custody
Manager shall determine that the contract
governing the foreign custody arrangements
with each Eligible Foreign Custodian selected
by the Foreign Custody Manager will satisfy
the requirements of Rule 17f-5(c)(2).
(c) Monitoring. In each case in
which the Foreign Custody Manager maintains
Foreign Assets with an Eligible Foreign
Custodian selected by the Foreign Custody
Manager, the Foreign Custody Manager shall
establish a system to monitor (i) the
appropriateness of maintaining the Foreign
Assets with such Eligible Foreign Custodian
and (ii) the contract governing the custody
arrangements established by the Foreign
Custody Manager with the Eligible Foreign
Custodian. In the event the Foreign Custody
Manager determines that the custody
arrangements with an Eligible Foreign
Custodian it has selected are no longer
appropriate, the Foreign Custody Manager
shall notify the Board in accordance with
Section 3.Q.6 hereunder.
3.Q.5. Guidelines for the Exercise of
Delegated Authority. For purposes of this
Section 3.Q, the Board shall be deemed to
have considered and determined to accept such
Country Risk as is incurred by placing and
maintaining the Foreign Assets in each
country for which State Street is serving as
Foreign Custody Manager of the Portfolios.
3.Q.6. Reporting Requirements. The
Foreign Custody Manager shall report the
withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement
of such Foreign Assets with another Eligible
Foreign Custodian by providing to the Board
through its duly authorized representative an
amended Schedule A at the end of the calendar
quarter in which an amendment to such
Schedule has occurred. The Foreign Custody
Manager shall make written reports notifying
the Board through its duly authorized
representative of any other material change
in the foreign custody arrangements of the
Portfolios described in this Section 3.Q
after the occurrence of the material change
as required by Section (b)(2) of Rule 17f-5..
3.Q.7. Standard of Care as Foreign
Custody Manager of a Portfolio. In
performing the responsibilities delegated to
it, the Foreign Custody Manager agrees to
exercise reasonable care, prudence and
diligence such as a person having
responsibility for the safekeeping of assets
of management investment companies registered
under the 1940 Act would exercise.
3.Q.8. Representations with Respect
to Rule 17f-5. The Foreign Custody Manager
represents to the Fund that it is a U.S. Bank
as defined in section (a)(7) of Rule 17f-5.
The Fund represents to State Street that the
Board, in reliance upon certain
representations from the Foreign Custody
Manager, has determined that it is
reasonable for the Board to rely on State
Street to perform the responsibilities
delegated pursuant to this Contract to State
Street as the Foreign Custody Manager of the
Portfolios.
3.Q.9. Effective Date and Termination
of State Street as Foreign Custody Manager.
The Board's delegation to State Street as
Foreign Custody Manager of the Portfolios
shall be effective as of the date hereof and
shall remain in effect until terminated at
any time, without penalty, by written notice
from the terminating party to the non-
terminating party. Termination will become
effective thirty ninety (3090) days after
receipt by the non-terminating party of such
notice. The provisions of Section 3.Q.3
hereof shall govern the delegation to and
termination of State Street as Foreign
Custody Manager of the Portfolios with
respect to designated countries.
3.Q.10. Analysis and Monitoring. State
Street shall (a) provide the Fund (or its
duly-authorized investment manager or
investment adviser) with an analysis of the
custody risks associated with maintaining
assets with the Eligible Securities
Depositories set forth on Schedule B hereto
in accordance with section (a)(1)(i)(A) of
Rule 17f-7, and (b) monitor such risks on a
continuing basis, and promptly notify the
Fund (or its duly-authorized investment
manager or investment adviser) of any
material change in such risks, in accordance
with section (a)(1)(i)(B) of Rule 17f-7.
3.Q.11. Standard of Care. State Street
agrees to exercise reasonable care, prudence
and diligence in performing the duties set
forth in Section 3.Q.10.
III. New Section 3, Paragraph Y of the
Contract is hereby added, as of the effective
date of this Amendment, as set forth below.
3.Y. Provisions Relating to Custody of Assets
Held Outside the United States
3.Y.1. Duties of State Street with
Respect to Property of the Portfolios
Held Outside the United States.
Definitions. Capitalized terms in
this Section 3.Y shall have the following
meanings:
"Foreign Securities System" means an Eligible
Securities Depository listed on Schedule B
hereto.
"Foreign Sub-Custodian" means a foreign
banking institution serving as an Eligible
Foreign Custodian.
3.Y.2. Holding Securities. State
Street shall identify on its books as
belonging to the Portfolios the foreign
securities held by each Foreign Sub-Custodian
or Foreign Securities System. State Street
may hold foreign securities for all of its
customers, including the Portfolios, with any
Foreign Sub-Custodian in an account that is
identified as belonging to State Street for
the benefit of its customers, provided
however, that (i) the records of State Street
with respect to foreign securities of the
Portfolios which are maintained in such
account shall identify those securities as
belonging to the Portfolios and (ii), to the
extent permitted and customary in the market
in which the account is maintained, State
Street shall require that securities so held
by the Foreign Sub-Custodian be held
separately from any assets of such Foreign
Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
3.Y.3. Foreign Securities Systems.
Foreign securities shall be maintained in a
Foreign Securities System in a designated
country through arrangements implemented by
State Street or a Foreign Sub-Custodian, as
applicable, in such country.
3.Y.4. Transactions in Foreign Custody
Account.
3.Y.5. Delivery of Foreign Assets.
State Street or a Foreign Sub-Custodian shall
release and deliver foreign securities of the
Portfolios held by State Street or such
Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt
of Proper Instructions, which may be
continuing instructions when deemed
appropriate by the parties, and only in the
following cases:
(i) upon the sale of such foreign
securities for the Portfolio in
accordance with commercially
reasonable market practice in the
country where such foreign
securities are held or traded,
including, without limitation: (A)
delivery against expectation of
receiving later payment; or (B) in
the case of a sale effected through
a Foreign Securities System, in
accordance with the rules governing
the operation of the Foreign
Securities System;
(ii) in connection with any repurchase
agreement related to foreign
securities;
(iii) to the depository agent in
connection with tender or other
similar offers for foreign
securities of the Portfolios;
(iv) to the issuer thereof or its agent
when such foreign securities are
called, redeemed, retired or
otherwise become payable;
(v) to the issuer thereof, or its
agent, for transfer into the name
of State Street (or the name of the
respective Foreign Sub-Custodian or
of any nominee of State Street or
such Foreign Sub-Custodian) or for
exchange for a different number of
bonds, certificates or other
evidence representing the same
aggregate face amount or number of
units;
(vi) to brokers, clearing banks or other
clearing agents for examination or
trade execution in accordance with
market custom; provided that in any
such case the Foreign Sub-Custodian
shall have no responsibility or
liability for any loss arising from
the delivery of such securities
prior to receiving payment for such
securities except as may arise from
the Foreign Sub-Custodian's own
negligence or willful misconduct;
(vii) for exchange or conversion
pursuant to any plan of merger,
consolidation, recapitalization,
reorganization or readjustment of
the securities of the issuer of
such securities, or pursuant to
provisions for conversion contained
in such securities, or pursuant to
any deposit agreement;
(viii) in the case of warrants,
rights or similar foreign
securities, the surrender thereof
in the exercise of such warrants,
rights or similar securities or the
surrender of interim receipts or
temporary securities for definitive
securities;
(ix) for delivery as security in
connection with any borrowing by
the Portfolios requiring a pledge
of assets by the Portfolios;
(x) in connection with trading in
options and futures contracts,
including delivery as original
margin and variation margin;
(xi) in connection with the lending of
foreign securities; and
(xii) for any other purpose, but
only upon receipt of Proper
Instructions specifying the foreign
securities to be delivered and
naming the person or persons to
whom delivery of such securities
shall be made.
3.Y.6. Payment of Portfolio Monies.
Upon receipt of Proper Instructions, which
may be continuing instructions when deemed
appropriate by the parties, State Street
shall pay out, or direct the respective
Foreign Sub-Custodian or the respective
Foreign Securities System to pay out, monies
of a Portfolio in the following cases only:
(i) upon the purchase of foreign
securities for the Portfolio,
unless otherwise directed by Proper
Instructions, by (A) delivering
money to the seller thereof or to a
dealer therefor (or an agent for
such seller or dealer) against
expectation of receiving later
delivery of such foreign
securities; or (B) in the case of a
purchase effected through a Foreign
Securities System, in accordance
with the rules governing the
operation of such Foreign
Securities System;
(ii) in connection with the conversion,
exchange or surrender of foreign
securities of the Portfolio;
(iii) for the payment of any expense
or liability of the Portfolio,
including but not limited to the
following payments: interest,
taxes, investment advisory fees,
transfer agency fees, fees under
this Contract, legal fees,
accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign
exchange or foreign exchange
contracts for the Portfolio,
including transactions executed
with or through State Street or its
Foreign Sub-Custodians;
(v) in connection with trading in
options and futures contracts,
including delivery as original
margin and variation margin;
(vi) for payment of part or all of the
dividends received in respect of
securities sold short;
(vii) in connection with the
borrowing or lending of foreign
securities; and
(viii) for any other purpose, but
only upon receipt of Proper
Instructions specifying the amount
of such payment and naming the
person or persons to whom such
payment is to be made.
3.Y.7. Market Conditions.
Notwithstanding any provision of this
Contract to the contrary, settlement and
payment for Foreign Assets received for the
account of the Portfolios and delivery of
Foreign Assets maintained for the account of
the Portfolios may be effected in accordance
with the customary established securities
trading or processing practices and
procedures in the country or market in which
the transaction occurs, including, without
limitation, delivering Foreign Assets to the
purchaser thereof or to a dealer therefor (or
an agent for such purchaser or dealer) with
the expectation of receiving later payment
for such Foreign Assets from such purchaser
or dealer.
State Street shall provide to the Board the
information with respect to custody and
settlement practices in countries in which
State Street employs a Foreign Sub-Custodian
described on Schedule C hereto at the time or
times set forth on such Schedule. State
Street may revise Schedule C from time to
time, provided that no such revision shall
result in the Board being provided with
substantively less information than had been
previously provided hereunder.
3.Y.8. Registration of Foreign
Securities. The foreign securities
maintained in the custody of a Foreign Sub-
Custodian (other than bearer securities)
shall be registered in the name of the
applicable Portfolio or in the name of State
Street or in the name of any Foreign Sub-
Custodian or in the name of any nominee of
the foregoing, and the Fund on behalf of such
Portfolio agrees to hold any such nominee
harmless from any liability as a holder of
record of such foreign securities. State
Street or a Foreign Sub-Custodian shall not
be obligated to accept securities on behalf
of a Portfolio under the terms of this
Contract unless the form of such securities
and the manner in which they are delivered
are in accordance with reasonable market
practice.
3.Y.9. Bank Accounts. State Street
shall identify on its books as belonging to
the Fund cash (including cash denominated in
foreign currencies) deposited with State
Street. Where State Street is unable to
maintain, or market practice does not
facilitate the maintenance of, cash on the
books of State Street, a bank account or bank
accounts shall be opened and maintained
outside the United States on behalf of a
Portfolio with a Foreign Sub-Custodian. All
accounts referred to in this Section shall be
subject only to draft or order by State
Street (or, if applicable, such Foreign Sub-
Custodian) acting pursuant to the terms of
this Agreement to hold cash received by or
from or for the account of the Portfolio.
Cash maintained on the books of State Street
(including its branches, subsidiaries and
affiliates), regardless of currency
denomination, is maintained in bank accounts
established under, and subject to the laws
of, The Commonwealth of Massachusetts.
3.Y.10. Collection of Income. State
Street shall use reasonable commercial
efforts to collect all income and other
payments with respect to the Foreign Assets
held hereunder to which the Portfolios shall
be entitled and shall credit such income, as
collected, to the applicable Portfolio. In
the event that extraordinary measures are
required to collect such income, the Fund and
State Street shall consult as to such
measures and as to the compensation and
expenses of State Street relating to such
measures.
3.Y.11. Shareholder Rights. With
respect to the foreign securities held
pursuant to this Article 0, Xxxxx Xxxxxx will
use reasonable commercial efforts to
facilitate the exercise of voting and other
shareholder rights, subject always to the
laws, regulations and practical constraints
that may exist in the country where such
securities are issued. The Fund acknowledges
that local conditions, including lack of
regulation, onerous procedural obligations,
lack of notice and other factors may have the
effect of severely limiting the ability of
the Fund to exercise shareholder rights.
3.Y.12. Communications Relating to
Foreign Securities. State Street shall
transmit promptly to the Fund written
information with respect to materials
received by State Street via the Foreign Sub-
Custodians from issuers of the foreign
securities being held for the account of the
Portfolios (including, without limitation,
pendency of calls and maturities of foreign
securities and expirations of rights in
connection therewith). With respect to
tender or exchange offers, State Street shall
transmit promptly to the Fund written
information with respect to materials so
received by State Street from issuers of the
foreign securities whose tender or exchange
is sought or from the party (or its agents)
making the tender or exchange offer. State
Street shall not be liable for any untimely
exercise of any tender, exchange or other
right or power in connection with foreign
securities or other property of the
Portfolios at any time held by it unless (i)
State Street or the respective Foreign Sub-
Custodian is in actual possession of such
foreign securities or property and (ii) State
Street receives Proper Instructions with
regard to the exercise of any such right or
power, and both (i) and (ii) occur at least
three business days prior to the date on
which State Street is to take action to
exercise such right or power.
3.Y.13. Liability of Foreign Sub-
Custodians. Each agreement pursuant to which
State Street, acting solely in its capacity
as Custodian, employs a Foreign Sub-Custodian
shall, to the extent possible, require the
Foreign Sub-Custodian to exercise reasonable
care in the performance of its duties, and to
indemnify, and hold harmless, State Street
from and against any loss, damage, cost,
expense, liability or claim arising out of or
in connection with the Foreign Sub-
Custodian's performance of such obligations.
At the Fund's election, the Portfolios shall
be entitled to be subrogated to the rights of
State Street with respect to any claims
against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost,
expense, liability or claim if and to the
extent that the Portfolios have not been made
whole for any such loss, damage, cost,
expense, liability or claim.
3.Y.14. Tax Law. State Street, acting
solely in its capacity as Custodian, shall
have no responsibility or liability for any
obligations now or hereafter imposed on the
Fund, the Portfolios or State Street as
custodian of the Portfolios by the tax law of
the United States or of any state or
political subdivision thereof. It shall be
the responsibility of the Fund to notify
State Street of the obligations imposed on
the Fund with respect to the Portfolios or
State Street as custodian of the Portfolios
by the tax law of countries other than those
mentioned in the above sentence, including
responsibility for withholding and other
taxes, assessments or other governmental
charges, certifications and governmental
reporting. The sole responsibility of State
Street with regard to such tax law shall be
to use reasonable efforts to assist the Fund
with respect to any claim for exemption or
refund under the tax law of countries for
which the Fund has provided such information.
3.Y.15. Liability of Custodian. Except
as may arise from State Street's own
negligence or willful misconduct or the
negligence or willful misconduct of a Sub-
Custodian, State Street shall be without
liability to the Fund for any loss,
liability, claim or expense resulting from or
caused by anything which is part of Country
Risk. State Street shall be liable for the
acts or omissions of a Foreign Sub-Custodian
to the same extent as set forth with respect
to sub-custodians generally in the Contract
and, regardless of whether assets are
maintained in the custody of a Foreign Sub-
Custodian or a Foreign Securities System,
State Street shall not be liable for any
loss, damage, cost, expense, liability or
claim resulting from nationalization,
expropriation, currency restrictions, or acts
of war or terrorism, or any other loss where
the Sub-Custodian has otherwise acted with
reasonable care.
IV. Except as specifically superseded or
modified herein, the terms and
provisions of the Contract shall
continue to apply with full force and
effect. In the event of any conflict
between the terms of the Contract prior
to this Amendment and this Amendment,
the terms of this Amendment shall
prevail. If State Street is delegated
the responsibilities of Foreign Custody
Manager pursuant to the terms of Section
3, Paragraph Q hereof, in the event of
any conflict between the provisions of
Section 3, Paragraph Q and Section 3,
Paragraph Y hereof, the provisions of
Section 3, Paragraph Q shall prevail.
IN WITNESS WHEREOF, each of the parties
has caused this Amendment to be executed in
its name and behalf by its duly authorized
representative as of the date first above
written.
STATE STREET BANK
and TRUST COMPANY
By:
Name:
____________________________________
Title:
____________________________________
THE QUANT FUNDS
By:
Name:
____________________________________
Title:
____________________________________
