Exhibit g(14)
SPECIAL CUSTODY AGREEMENT
(Short Sales)
AGREEMENT, dated as of August 1, 2000, by and among State Street Bank and
Trust Company in its capacity as custodian hereunder ("Custodian"), CGM Trust,
on behalf of its series, CGM Focus Fund ("Customer"), and Xxxxxxx Xxxxx Xxxxxx
Inc. ("Broker").
WHEREAS, Broker is a broker-dealer registered with the Securities and
Exchange Commission and is a member of several national securities exchanges;
and
WHEREAS, Customer is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended; and
WHEREAS, Customer desires from time to time to sell securities "short"
through Broker, such short sales transactions being permitted by Customer's
investment policies, and for that purpose has opened one or more margin accounts
with Broker (each an "Account") and executed Broker's "Institutional Client
Agreement " (the "Margin Agreement"); and
WHEREAS, to facilitate Customer's transactions through Broker, Customer,
Custodian, and Broker desire to establish procedures for the compliance by
Broker with the provisions of Regulation T of the Board of Governors of the
Federal Reserve System and with the provisions of Rule 431 of the New York Stock
Exchange and other applicable margin requirements and for compliance by Customer
with Regulation X of the Board of Governors of the Federal Reserve System and
other requirements ("Margin Rules"); and
WHEREAS, Custodian, as custodian of certain assets of Customer pursuant to
a custody agreement ("Custodian Contract"), is prepared to act as custodian to
hold Collateral (as defined below) according to the terms and conditions of this
Agreement;
NOW, THEREFORE, be it agreed as follows:
1. As used herein, the following terms have the following meanings:
"Adequate Margin" means such Collateral as is adequate in Broker's
judgment under the Margin Rules and the internal policies of Broker and
has been Advised by Broker to Customer in accordance with Paragraph 6. For
purposes hereunder, Broker shall value Collateral at Broker's reasonable
discretion.
"Advice from Broker" or "Advice" means a written notice sent by an
Authorized Representative of Broker (as defined below) to Customer and/or
Custodian, as applicable, or transmitted by a facsimile-sending device,
except that for the purpose of requiring the deposit of initial or
additional Collateral, it shall mean notice by telephone to a person
designated by Customer and Custodian in writing as authorized to receive
such Advice or, in the event that no such person is available, to any
officer of Customer and Custodian and confirmed promptly (and in any event
no later than the close of business in Boston, Massachusetts, on the same
day) in writing thereafter. With respect to any short sale transaction or
Closing Transaction, the Advice from Broker means a standard confirmation
in use by Broker and sent or transmitted to Customer and Custodian. With
respect to substitutions or releases of Collateral, Advice from Broker
means a written notice signed by an Authorized Representative of Broker
and sent or transmitted to Customer and Custodian. Notwithstanding
anything to the contrary, any Advice from Broker communicated to Custodian
and directing the transfer or sale of any financial asset (as defined in
Section 8-102 of NYUCC) comprising Collateral shall constitute an
"entitlement order" (as defined in Section 8-102(a)(8) of NYUCC. An
officer of Broker will certify to Custodian the names and signatures of
those employees who are authorized to sign Advices from Broker (each, an
"Authorized Representative of Broker"), which certification may be amended
from time to time. When used herein the term "Advise" means the act of
sending an Advice from Broker.
"Closing Transaction" means a transaction in which Customer purchases
securities that have been sold short.
"Collateral" means Eligible Collateral (as defined below) credited to the
Special Custody Account.
"Eligible Collateral" means U.S. cash, U.S. government securities
maintained in the Treasury/Reserve Automated Debt Entry System
("TRADES"), or other margin-eligible U.S. securities acceptable to
Broker.
"Insolvency" means, with respect to Customer or Custodian, that (i) an
order, judgment or decree has been entered under the bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law (the "Bankruptcy Law") of any
jurisdiction adjudicating such party insolvent; or (ii) such party has
petitioned or applied to any tribunal for, or trustee, receiver,
liquidator or similar official of, such party, or commenced a voluntary
case under the Bankruptcy Law of the United States or any proceedings
relating to such party under the Bankruptcy Law of any other jurisdiction,
whether now or hereinafter in effect; (iii) any such petition or
application has been filed, or any such proceeding has commenced, against
such party or such party by any act has indicated its approval thereof,
consent thereto or acquiescence therein, or an order for relief has been
entered against such party in an involuntary case under the Bankruptcy Law
of the United States, as now or hereinafter constituted, or an order,
judgment or decree has been entered appointing any such trustee, receiver,
liquidator or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 15 days; (iv) such party shall make a general
assignment for the benefit of creditors; and (v) such party shall admit in
writing its inability to pay its debts as they become due.
"Instructions from Customer" or "Instructions" means a request, direction
or certification in writing delivered in the name of Customer by Customer
to Custodian and/or Broker or transmitted by a facsimile sending device
and which is reasonably believed by Broker and/or Custodian in good faith
to be signed by a person authorized to give Instructions on behalf of
Customer as appropriate. An authorized agent of Customer will certify to
Custodian and Broker the names and signatures of those persons authorized
to instruct Custodian and/or Broker, which certification may be amended
from time to time. When used herein, the term "Instruct" means the act of
sending an Instruction from Customer.
"NYUCC" means the Uniform Commercial Code as in effect from time to time
in the State of New York.
2. Custodian shall segregate on its books and records Eligible Collateral
for the benefit of Xxxxxxx Xxxxx Barney Inc. as pledgee of CGM Focus Fund (such
segregated assets referred to herein as "Special Custody Account"). The
establishment of such Special Custody Account as a sub-account of Customer's
custody account shall not adversely affect Broker's rights with respect to the
Collateral as set forth in this Agreement.
Customer agrees to instruct Custodian in Instructions from Customer that
cash and securities specified by Customer qualifying as Eligible Collateral and
at least equal in value to what Broker shall, in accordance with Paragraph 6,
initially and from time to time advise Customer in an Advice from Broker is
necessary to constitute Adequate Margin, are to be accepted by Custodian,
credited to the Special Custody Account, and identified on Custodian's books and
records as pledged to Broker as Collateral. Custodian may in its reasonable
discretion, choose not to act upon Instructions from Customer if any advances
under the Custodian Contract are outstanding at such time and Custodian, acting
reasonably, determines that, if it were to act upon such Instructions from
Customer, Custodian would not have adequate security for such advances. If
Custodian chooses not to act on Instructions from Customer, Custodian shall
promptly notify Customer of Custodian's intention not to act upon such
instructions. Broker shall have all rights and remedies provided under this
Agreement and the Margin Agreement. Customer may substitute or exchange the
Collateral in the Special Custody Account only after Customer notifies Broker of
the contemplated substitution or exchange and Broker promptly Advises Custodian
that such substitution or exchange is acceptable. Customer hereby grants a
continuing lien on and security interest to Broker in the Collateral and the
proceeds thereof while in the Special Custody Account to secure its obligations
to Broker under the Margin Agreement and this Agreement. Custodian shall have no
responsibility for the creation, validity, enforceability, or priority of such
security interest except as specifically set forth in this Agreement.
The parties hereto agree that all Eligible Collateral held in or credited
to the Special Custody Account (other than U.S. cash) will be treated as
financial assets under Article 8 of NYUCC. The parties hereto further agree that
the securities intermediary's jurisdiction, within the meaning of Section
8-110(e) of the NYUCC, in respect of the Special Custody Account and the
Collateral, is the State of New York and agree that none of them has or will
enter into any agreement to the contrary, except that the parties acknowledge
that the Custodian Contract is governed by Massachusetts law. Subject to the
provisions of this Agreement, Custodian hereby agrees to comply with entitlement
orders (as defined under Article 8 of the NYUCC) and other instructions of
Broker with respect to the Special Custody Account and any Collateral without
further consent of Customer. Customer hereby consents to such agreement.
Custodian shall not comply with an entitlement order of Customer withdrawing all
or any portion of the Collateral from the Special Custody Account, nor deliver
any Collateral from the Special Custody Account to Customer, without receiving
Advice from Broker, except as otherwise specified by this Agreement.
3. The Collateral (i) shall be held by Custodian for Broker in the Special
Custody Account subject to the terms and conditions of this Agreement; (ii) may
be released to Broker only in accordance with the terms of Paragraph 8 below;
and (iii) except as permitted to be released hereunder to Broker, shall not be
made available to Broker or to any other person claiming through Broker,
including creditors of Broker. Custodian will hold the Collateral in the Special
Custody Account subject to the security interest therein of Broker as the
pledgee thereof in accordance with the terms of this Agreement. Such security
interest will terminate at such time as Collateral is released to Broker as
provided in Paragraph 8, substituted or exchanged as provided in Paragraph 2 or
withdrawn from the Special Custody Account as provided in Paragraph 6 below. Any
rights that Customer may have in the Collateral shall be subject in all respects
to the security interest of Broker in accordance with this Agreement.
Any interest or dividends paid with respect to the Collateral held in the
Special Custody Account shall be credited by Custodian to Customer's custody
account; provided that, upon Advice of Broker to Custodian that a Default (as
defined in Paragraph 8) with respect to Customer has occurred and is continuing,
Custodian shall credit such dividends and interest to the Special Custody
Account or otherwise in accordance with the Advice provided by Broker to
Custodian.
Custodian shall promptly confirm in writing to Broker and Customer all
deliveries, releases or substitutions of Collateral. Custodian shall also advise
Broker and Customer upon reasonable request (and in any event monthly) of the
kind and amount of Collateral pledged to Broker. Broker shall Advise Custodian
and Customer daily of any Collateral in the Special Custody Account in excess of
Adequate Margin as provided in Paragraph 6 below.
4. (a) Customer represents and warrants to Custodian and Broker that
securities included at any time in the Collateral shall be in good deliverable
form (or Custodian shall have the unrestricted power to put such securities into
good deliverable form) in accordance with the requirements of such exchanges as
may be the primary market or markets for such securities. Customer represents
and warrants that the Collateral will not be subject to any other liens, claim,
security interests or encumbrances, other than to the security interest of
Broker granted in accordance with the Margin Agreement and this Agreement,
except as provided in Paragraph 4(b) below.
(b) The Custodian represents that it is and at all times will remain, and
will at all times maintain the Special Custody Account and all Collateral in its
capacity as (i) a "bank" (as defined in Section 3(a)(6) of the Securities
Exchange Act of 1934, as amended), (ii) a "securities intermediary" as defined
in Section 8-102 of Article 8 of NYUCC, and (iii) as appropriate, a participant
in Depository Trust Company ("DTC") or the Federal Reserve Book Entry System
("BES"). Custodian represents that the Collateral is not and will not be subject
to (and the Custodian hereby irrevocably waives) any lien, charge, security
interest or other right or claim of the Custodian or any person claiming through
the Custodian, other than the security interest described in Paragraph 2 hereof,
except for a lien for Custodian's fees, expenses, and advances in connection
herewith or under the Custodian Contract between Customer and Custodian, which
shall be expressly subordinated in right of payment to the security interest of
Broker granted herein.
5. Custodian shall maintain accounts and records for the Eligible
Collateral in the Special Custody Account as a sub-account of Customer's custody
account, separate from all other accounts and records for other property of
Customer held by Custodian. Customer and Broker acknowledge that Custodian holds
securities and cash as custodian for its customers through subcustodians,
depositories and deposit-taking banks, which maintain omnibus accounts on behalf
of customers of Custodian. Securities Collateral may be held at DTC or other
book-entry depository system in the account of the Custodian, except U.S.
Treasury securities may also be held at the Federal Reserve Bank of Boston in
the account of the Custodian. Custodian shall maintain any Collateral held in
its accounts at DTC, BES, other depository or clearing corporations,
subcustodians or deposit-taking banks separate from any of its proprietary
assets. Custodian confirms that it will make entries on its books and records
showing Broker's security interest in the Collateral.
6. Customer agrees to maintain Adequate Margin in the Special Custody
Account at all times in accordance with the Advice of Broker as provided in this
Paragraph 6. Broker shall initially, and from time to time, Advise Customer of
the value of Collateral that is necessary to constitute Adequate Margin. Broker
shall each business day, compute the aggregate net credit or debit balance on
Customer's open short sales and Advise Custodian and Customer by 11:00 a.m. New
York time that day of the amount of the net debit or credit in an Advice from
Broker, as the case may be. If a net debit balance exists on such day, Customer
will cause an amount of Eligible Collateral at least equal to such net debit
balance to be deposited as Collateral into the Special Custody Account no later
than the close of business on the following business day. If a net credit
balance exists on such day, Broker shall, concurrently with Advising Custodian
and Customer of such net credit balance, Advise Custodian to withdraw Collateral
as specified by Customer with the consent of Broker equal to such net credit
balance from the Special Custody Account and credit the same to Customer's
custody account with Custodian. Custodian agrees to comply with any such Advice.
Balances will be appropriately adjusted to reflect each Closing Transaction.
7. It is understood and agreed that Customer, when placing with Broker any
order to sell short for Customer's account, will designate the order as such and
hereby authorizes Broker to xxxx such order as being "short," and when placing
with Broker any order to sell long for Customer's account, will designate the
order as such and hereby authorizes Broker to xxxx such order as being "long."
Any sell order that Customer shall designate as being "long" as provided above
is for securities then owned by Customer.
8. (a) In the event of (i) failure by Customer to maintain Adequate Margin
or to comply with any other obligations hereunder or under the Margin Agreement;
or (ii) Customer's or Custodian's Insolvency (either of (i) and (ii) a
"Default"), Broker shall have the right to provide an Advice of such Default
(including a notice that Broker is exercising exclusive control over the Special
Custody Account) to Customer and Custodian (provided, however, that no Advice or
notice shall be required upon the occurrence of the event described in (ii)
above to the party which is the subject of such Insolvency), and may take any or
all of the following actions: (I) effect one or more Closing Transactions; (II)
cause the Special Custody Account to be re-registered in Broker's own name or
transfer the Special Custody Account to another securities intermediary (as such
term is defined in Section 8-102 of NYUCC) in Broker's sole name; (III) remove
any Collateral from the Special Custody Account or provide Advice to Custodian
to deliver any Collateral free of payment to Broker; (IV) exercise any voting,
conversion, registration, purchase or other rights with respect to the
Collateral; (V) collect, including by legal action, any notes, checks or other
instruments for the payment of money included in the Collateral and compromise
or settle with any obligor of such instruments; or (V) sell, in a commercially
reasonable manner, such Collateral as in Broker's judgment is necessary for the
protection of Broker's interests. In addition, Broker may exercise any rights
against Customer it may have under the Margin Agreement and any rights of a
secured party under Articles 8 and 9 of NYUCC or otherwise available under
applicable law.
(b) Any sale of Collateral made pursuant to this Paragraph 8 must be
made on the exchange or other market where such business is then usually
transacted. Such sale shall be made in a manner commercially reasonable for such
securities. Customer shall remain liable to Broker for any deficiency. Broker
shall promptly notify Customer of any sale of Collateral and any deficiency
remaining in an Advice from Broker. If the proceeds of any such sale exceed the
amount due to Broker under this Agreement and the Margin Agreement, the excess
of the amount due to Broker shall be held, to the extent it comprises Eligible
Collateral, in the Special Custody Account as Collateral, unless otherwise
released or withdrawn as provided hereunder. Broker shall have responsibility
for compliance with provisions of this Paragraph 8(b) relating to the manner of
sale of any Collateral.
9. Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between Customer and Custodian.
10. Broker shall not be liable for any losses, costs, damages, liabilities
or expenses suffered or incurred by Customer as a result of any transaction
executed hereunder, or any other action taken or not taken by Broker or
Custodian hereunder for Customer's account at Customer's direction or otherwise,
except to the extent that such loss, cost, damage, liability or expense is the
direct result of Broker's own gross negligence, recklessness, willful misconduct
or bad faith.
11. Custodian's duties and responsibilities are set forth in this
Agreement. Custodian shall act only upon receipt of Advice from Broker in
accordance with this Agreement regarding release of Collateral, except as
otherwise required under applicable law. Custodian shall not be liable or
responsible for anything done, or omitted to be done, by it in good faith and in
the absence of negligence and may rely and shall be protected in acting upon any
Advice from Broker or any other notice, instruction or other communication which
it reasonably believes to be genuine and authorized. As between Customer and
Custodian, the terms of the Custodian Contract shall apply with respect to any
losses or liabilities of such parties arising out of matters covered by this
Agreement. As between Custodian and Broker, Broker shall indemnify and hold
Custodian harmless with regard to any losses or liabilities of Custodian
(including reasonable counsel fees) imposed on or incurred by Custodian arising
out of any action or omission of Custodian in accordance with any Advice, notice
or instruction of Broker under this Agreement. In matters concerning or relating
to this Agreement, Custodian shall not be responsible for compliance with any
statute or regulation regarding the establishment or maintenance of margin
credit, including but not limited to Regulations T or X of the Board of
Governors of the Federal Reserve System, or with any rules or regulations of the
Securities and Exchange Commission. Custodian shall not be liable to any party
for any acts or omissions of any other party to this Agreement. Custodian shall
have no duty to require any cash or securities to be delivered to it or to
determine that the amount and form of assets deposited in the Special Custody
Account comply with any applicable requirements, except as required by Paragraph
4(a) hereof. Custodian may hold the securities in the Special Custody Account in
bearer, nominee, book-entry, or other form and in any depository or clearing
corporation, with or without indicating that the securities are held hereunder;
provided, however, that all securities held in the Special Custody Account shall
be identified on Custodian's records as subject to this Agreement and pledged to
Broker and shall be in a form that permits transfer without additional
authorization or consent of Customer.
12. No modification or amendment of this Agreement shall be effective
unless in writing and signed by an authorized officer of each of the parties
hereto.
13. This Agreement may be executed in one or more counterparts, all of
which together shall constitute but one and the same instrument.
14. It is agreed that, notwithstanding any language to the contrary in
Custodian's form of confirmation, Custodian holds the Collateral for the benefit
of Broker as specified in this Agreement and not as escrow agent.
15. Any of the parties hereto may terminate this Agreement by thirty days
notice in writing to the other parties hereto; provided, however, that (a) the
status of any short sales transactions, and of Collateral held at the time of
such notice to margin such short sales transactions, shall not be affected by
such termination until the release of such Collateral pursuant to applicable law
or rules or regulations of such national securities exchanges or self-regulatory
organization of which Broker may be a member or to which Broker is subject; (b)
Customer shall not be entitled to terminate this Agreement unless and until
Customer shall have indefeasibly paid in full to Broker all outstanding
obligations to Broker under this Agreement and the Margin Agreement (or paid in
full such obligations to Broker and provided Broker with reasonable indemnity
against any rescission of any such payment) or has arranged for transfer of the
assets of the Special Custody Account to a successor custodian acceptable to
Broker; and (c) Custodian shall not be entitled to terminate this Agreement
unless and to the extent that, immediately before such termination, (i) Customer
shall have also been entitled to terminate this Agreement or (ii) the Collateral
shall have been transferred to Broker or a successor custodian acceptable to
Broker. Upon termination of the Custodian Contract, this Agreement shall also
terminate on a date specified by Instructions from Customer within 30 days
thereafter and all assets of Customer held in the Special Custody Account shall
be transferred to Broker or to a successor custodian acceptable to Broker.
16. Written communications hereunder shall be sent by facsimile
transmission, overnight delivery, or hand delivered as required herein; or, when
another method of delivery is not specified, may be mailed first class postage
prepaid, except that written notice of termination shall be sent by certified
mail, addressed:
(a) If to Custodian, to:
State Street Bank and Trust Company
Xxxxxx Xxxxxx Building One JPB/4N
Xxx Xxxxxxxx Xxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
(b) If to Customer, to:
CGM Trust, on behalf of its series
CGM Focus Fund
c/o Capital Growth Management
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
(c) If to Broker, to:
Xxxxxxx Xxxxx Barney Inc.
00 Xxxxx Xxxxxx, 00xx xxxxx
Xxxxxx, XX 00000
Attention: Xxxx Xxxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
17. This Agreement will be governed by the laws of the State of New York
applicable to transactions entered into and to be performed wholly within the
State of New York.
18. No amendment shall be effective unless made in writing and signed by
all parties hereto. This Agreement supplements and does not nullify the terms of
the Margin Agreement. In the event of an inconsistency between the Margin
Agreement and this Agreement, this Agreement shall prevail with respect to the
subject matter of such inconsistency.
19. A copy of the Declaration of Trust of CGM Trust (the "Trust") is on
file with the Secretary of State of The Commonwealth of Massachusetts. Custodian
and Broker acknowledge that (i) this Agreement was executed or made by or on
behalf of Customer by the undersigned as trustee or officer of the Trust and
(ii) the obligations of or arising out of this Agreement are not binding upon
any of the Trust's trustees, officers, employees, agents or shareholders
individually, but are binding solely upon the assets and property of such Trust.
If this Agreement is executed by the Trust on behalf of one or more series of
the Trust, Custodian and Broker further acknowledge that the assets and
liabilities of each series of the Trust are separate and distinct and that the
obligations of or arising out of this Agreement are binding solely upon the
assets or property of the series on whose behalf the Trust has executed this
Agreement.
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IN WITNESS WHEREOF, the parties hereof have executed this Special Custody
Agreement as of the date first above written.
STATE STREET BANK AND TRUST COMPANY
As Custodian
By: /s/ Xxxxxx X. Xxxxx
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Title: Vice Chairman
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CGM TRUST
On behalf of its series,
CGM Focus Fund
As Customer
By: /s/ Xxxxxx X. Xxxx
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Title: President
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XXXXXXX XXXXX BARNEY INC.
As Broker
By: /s/ Xxxxxx X. Xxxxxxx
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Title: MD
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