EXHIBIT 99.g1ii
SECOND AMENDMENT
TO
CUSTODY AGREEMENT
This instrument dated _____________ is a Second Amendment to that certain
Custody Agreement between THE PBHG FUNDS, INC., A CORPORATION ORGANIZED UNDER
THE LAWS OF THE STATE OF MARYLAND (the "Fund") and THE NORTHERN TRUST COMPANY
(the "Custodian") dated June 1, 1994 and amended on June 4, 1998 (the "Custody
Agreement").
WHEREAS, the parties desire to amend the Custody Agreement to take into
account Rule 17f-7 under the Investment Company Act of 1940.
NOW THEREFORE, the parties agree that the Agreement shall be amended as
follows:
1. The following definition shall be added to Section 1 of the Custody
Agreement:
" `Rule 17f-7' shall mean Rule 17f-7 under the 1940 Act."
2. The following shall replace the definition of "Sub-Custodian" under
Section 1(o) of the Custody Agreement:
" `Sub-Custodian' shall mean and include (i) any branch of the
Custodian, and (ii) any `eligible foreign custodian,' as that term is
defined in Rule 17f-5 under the 1940 Act, approved by the Fund or a
Delegate of the Fund in the manner required by Rule 17f-5. For the
avoidance of doubt, the term `Sub-Custodian' shall not include any
central securities depository or clearing agency."
3. The following shall replace Sections 3, 3A and 4 of the Custody
Agreement:
"3. Appointment and Removal of Sub-Custodians.
-----------------------------------------
(a) The Custodian may appoint one or more Sub-Custodians to act as
sub-custodian or sub-custodians of Securities and moneys at any time
held in any Portfolio, upon the terms and conditions specified in this
Agreement. The Custodian shall oversee the maintenance by any
Sub-Custodian of any Securities or moneys of any Portfolio.
(b) The Agreement between the Custodian and each Sub-Custodian
described in clause (ii) of Section 1(n) and acting hereunder shall
contain any provisions necessary to comply with Rule 17f-5 under the
1940 Act.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (ii) of Paragraph 1(n), the Fund or a Delegate of the Fund must
approve such Sub-Custodian in the manner required by Rule 17f-5 and
provide the Custodian with satisfactory evidence of such approval.
(d) The Custodian shall promptly take such steps as may be required to
remove any Sub-Custodian that has ceased to be an "eligible foreign
custodian" or has otherwise ceased to meet the requirements under Rule
17f-5. If the Custodian intends to remove any Sub-Custodian previously
approved by the Fund or a Delegate of the Fund pursuant to paragraph
3(c), and the Custodian proposes to replace such Sub-Custodian with a
Sub-Custodian that has not yet been approved by the Fund or a Delegate
of the Fund, it will so notify the Fund or a Delegate of the Fund and
provide it with information reasonably necessary to determine such
proposed Sub-Custodian's eligibility under Rule 17f-5, including a copy
of the proposed agreement with such Sub-Custodian. The Fund shall at
the meeting of the Board of Directors next following receipt of such
notice and information, or a Delegate of the Fund shall promptly after
receipt of such notice and information, determine whether to approve
the proposed Sub-Custodian and will promptly thereafter give written
notice of the approval or disapproval of the proposed action.
(e) The Custodian hereby represents to the Fund that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian in connection with the safekeeping of property of a
Portfolio pursuant to this Agreement afford reasonable care for the
safekeeping of such property based on the standards applicable in the
relevant market.
3A. Delegation of Foreign Custody Management.
-----------------------------------------
(a) The Fund hereby delegates to Custodian the responsibilities set forth
in subparagraph (b) below of this Section 3A, in accordance with Rule 17f-5
with respect to foreign custody arrangements for the Fund's existing and
future investment portfolios, except that the Custodian shall not have such
responsibility with respect to central depositories and clearing agencies
or with respect to custody arrangements in the countries listed on Schedule
I, attached hereto, as that Schedule may be amended from time to time by
notice to the Fund.
(b) With respect to each arrangement with any Sub-custodian regarding the
assets of any investment portfolio of the Fund for which Custodian has
responsibility under this Section 3A (a"Foreign Custodian"), Custodian
shall:
(i) determine that the Fund's assets will be subject to reasonable
care, based on the standards applicable to custodians in the relevant
market, if maintained with the Foreign Custodian, after considering
all factors relevant to the safekeeping of such assets, including,
without limitation, the standards set forth in Rule
17f-5(c)(1)(I)-(iv);
(ii) determine that the written contract with such Foreign Custodian
governing the foreign custody arrangements complies with the
requirements of Rule 17f-5 and will provide reasonable care for the
Fund's assets;
(iii) establish a system to monitor the appropriateness of maintaining
the Fund's assets with such Foreign Custodian and monitor the
performance of the contract governing the Fund's foreign custody
arrangements;
(iv) provide to the Fund's Board of Directors, at least annually,
written reports notifying the Board of the placement of the Fund's
assets with a particular Foreign Custodian and periodic reports of any
material changes to the Fund's foreign custodian arrangements; and
(v) withdraw the Fund's assets from any Foreign Custodian as soon as
reasonably practicable, if the foreign custody arrangement no longer
meets the requirement of Rule 17f-5.
4. Use of Sub-Custodians and Securities Depositories.
-------------------------------------------------
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the particular
Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities placed
in its care to be held in a foreign securities depository, such
Sub-Custodian will be required by its agreement with the Custodian to
identify on its books such Securities as being held for the account of the
Custodian as a custodian for its customers. Any such foreign securities
depository shall be an "eligible foreign securities depository" as defined
in Rule 17f-7(b)(1).
(c) Any Securities held by a Sub-Custodian will be subject only to the
instructions of the Custodian or its agents; and any Securities held in a
foreign securities depository for the account of a Sub-Custodian will be
subject only to the instructions of such Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an account
with a Sub-Custodian which includes exclusively the assets held by the
Custodian for its customers, and will cause such account to be designated
by such Sub-Custodian as a special custody account for the exclusive
benefit of customers of the Custodian.
(e) Before any Securities are placed in a foreign securities depository,
the Custodian shall provide the fund's Board of Directors with an analysis
of the custody risks associated with maintaining assets with the foreign
securities depository.
(f) The Custodian or its agent shall continue to monitor the custody risks
associated with maintaining the Securities with a foreign securities
depository and shall promptly notify the Fund's Board of Directors of any
material changes in said risks."
5. The following shall replace Sections 14(b)(1) and 14(b)(2) of the
Custody Agreement:
"1. The Custodian will use reasonable care, prudence and diligence with
respect to its obligations under this Agreement and the safekeeping of
property of the Portfolios. The Custodian shall be liable to, and shall
indemnify and hold harmless the Fund from and against any loss which shall
occur as the result of the failure of the Custodian or a Sub-Custodian to
exercise reasonable care, prudence and diligence with respect to their
respective obligations under this Agreement and the safekeeping of such
property. The determination of whether the Custodian or Sub-Custodian has
exercised reasonable care, prudence and diligence in connection with their
obligations under this Agreement shall be made in light of prevailing
standards applicable to professional custodians in the jurisdiction in
which such custodial services are performed. In the event of any loss to
the Fund by reason of the failure of the Custodian or a Sub-Custodian to
exercise reasonable care, prudence and diligence, the Custodian shall be
liable to the Fund only to the extent of the Fund's direct damages and
expenses, which damages, for purposes of property only, shall be determined
based on the market value of the property which is the subject of the loss
at the date of discovery of such loss and without reference to any special
condition or circumstances.
2. The Custodian will not be responsible for any act, omission, or default
of, or for the solvency of, any central securities depository or clearing
agency."
6. The following shall replace Section 14(h):
"(h) Indemnification. The Fund agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities arising
under the Securities Act of 1933, the Securities Exchange Act of 1934 and
the 1940 Act and state or foreign securities laws) and expenses (including
reasonable attorneys fees and disbursements) arising directly or indirectly
from any action taken or omitted by the Custodian (i) at the request or on
the direction of or in reliance on the advice of the Fund or in reasonable
reliance upon the Prospectus or (ii) upon an Instruction; provided, that
the foregoing indemnity shall not apply to any loss, cost, tax, charge,
assessment, claim, liability or expense to the extent the same is
attributable to the Custodian's or any Sub-Custodian's negligence, willful
misconduct, bad faith or reckless disregard of duties and obligations under
this Agreement or any other agreement relating to the custody of Fund
property."
In all other respects the Custody Agreement shall remain in full force and
effect as originally written.
IN WITNESS WHEREOF, the parties have executed this First Amendment,
intending it to be effective as of the date written above.
The PBHG Funds, Inc.
By: /s/ Xxx X. Xxxxxxxx
----------------------------
Name: Xxx X. Xxxxxxxx
Title: Chief Financial Officer
The Northern Trust Company
By: /s/ Xxxxxxxxx X. Xxxxxxx
----------------------------
Name: Xxxxxxxxx X. Xxxxxxx
Title: Vice President
