CRESTAR BANK
CUSTODIAN AGREEMENT
THIS AGREEMENT dated August 1, 1994 between The Arbor Fund (the "Trust"), a
registered open-end series investment company under the Investment Company Act
of 1940, as amended, duly organized and existing under the laws of the
Commonwealth of Massachusetts, and CRESTAR BANK (the "Custodian"), a banking
institution organized under the laws of the State of Virginia, provides as
follows:
WHEREAS, the Fund desires to appoint Crestar Bank as custodian of the
securities and cash of the U.S. Government Securities Money Fund, a portfolio of
the Trust, (the "Fund") and Crestar Bank is willing to act in such capacity upon
the terms and conditions set forth below; and
WHEREAS, Crestar Bank, in its capacity as custodian, will also collect and
apply the dividends and interest on the Securities in the manner and to the
extent set forth below; and
WHEREAS, pursuant to a separate agreement between the Trust and Crestar
Bank (the "Transfer Agent Agreement"), Crestar Bank will perform the duties of
Transfer Agent of the Fund;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the parties do hereby agree as follows:
SECTION 1. The terms, as defined in this Section, whenever used in this
Agreement or in any amendment or supplement hereto, including the companion
Transfer Agent Agreement, shall have the meanings specified below, insofar as
the context will allow.
(a) The Trust: The term Trust shall mean The Arbor Fund, a Massachusetts
Business Trust which issues shares of its common stock in multiple series.
(b) The Fund: The term Fund shall mean the series of the Trust listed on
Schedule A, each of which is managed as a separate portfolio.
(c) Custodian: The term Custodian shall mean Crestar Bank, in its
capacity as custodian under this Agreement.
(d) Securities: The term Securities shall mean bonds, debentures, notes,
stocks, shares, evidences of indebtedness, and other securities and investments
from time to time owned by the Fund.
(e) Shareholders: The term Shareholders shall mean the registered owners
from time to time of the Shares of the Fund.
(f) Shares: The term Shares shall mean the issued and outstanding shares
of common stock of the Fund.
(g) Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to the Custodian in person or by telephone, vocal telegram or
other electronic means, by a person or persons reasonably believed in good faith
by the Custodian to be a person or persons authorized by a resolution of the
Board of Trustees of the Trust to give Oral Instructions on behalf of the Trust
and the Fund.
2
(h) Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to the Custodian in original writing containing original
signatures, or a copy of such document transmitted by telecopy, including
transmission of such signature, or other mechanical or documentary means, at the
request of a person or persons reasonably believed in good faith by the
Custodian to be a person or persons authorized by a resolution of the Board of
Trustees of the Trust to give Written Instructions on behalf of the Trust and
the Fund.
(i) Securities Depository: The term Securities Depository shall mean a
system for the central handling of securities where all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the securities.
(j) Book-Entry Securities: The term Book-Entry Securities shall mean
securities issued by the Treasury of the United States of America and federal
agencies of the United States of America that are maintained in the book-entry
system as provided in Subpart O of Treasury Circular ▇▇. ▇▇▇, ▇.▇.▇. ▇▇▇,
▇▇▇▇▇▇▇ ▇ of 31 C.F.R. 350 and the book-entry regulations of federal agencies
substantially in the form of Subpart O, or in such successor regulations as may
be adopted from time to time.
(k) Fund's Manager: Fund's Manager shall have the meanings provided in
the Transfer Agency Agreement.
3
(l) Book-Entry Account: The term Book-Entry Account shall mean an account
maintained by a Federal Reserve Bank in accordance with the previously described
Circular and regulations.
SECTION 2. The Trust shall, as necessary, file with the Custodian a
certified copy of the operative resolution of the Trust's Board of Trustees
authorizing execution of Written Instructions and the number of signatories
required and setting forth authentic signatures of all signatories authorized to
sign on behalf of the Trust or any Fund thereof. Such resolution shall
constitute conclusive evidence of the authority of all signatories designated
therein to act and shall be considered in full force and effect, with the
Custodian fully protected in acting in reliance thereon, until the Custodian
receives a certified copy of a replacement resolution adding or deleting a
person or persons authorized to give Written Instructions.
The Trust shall, as necessary, file with the Custodian a certified copy of
the operative resolution of the Trust's Board of Trustees authorizing the
transmittal of Oral Instructions and specifying the person or persons authorized
to give Oral Instructions on behalf of the Trust or any Fund thereof. Such
resolution shall constitute conclusive evidence of the authority of the person
or persons designated therein to act and shall be considered in full force and
effect, with the Custodian fully protected in acting in reliance thereon, until
the Custodian actually receives a certified copy of a replacement resolution
adding or deleting a person or persons authorized to give Oral Instructions. If
the officer certifying the resolution is authorized to give Oral Instructions,
the certification shall also be signed by a second officer of the Fund.
4
SECTION 3. For all purposes under this Agreement, the Custodian is
authorized to act upon receipt of the first of any Written or Oral Instructions
it receives. If the first instruction is an Oral Instruction, the Fund shall be
responsible for delivering, or having delivered to the Custodian, a confirmatory
Written Instruction; and in cases where the Custodian receives an Instruction,
whether Written or Oral, with respect to a portfolio transaction, the Fund shall
cause the broker or dealer to send a written confirmation of the transaction to
the Custodian. The Custodian shall be entitled to rely on the first Instruction
received and, for any act or omission undertaken in compliance therewith, shall
be free of liability and fully indemnified and held harmless by the Fund. The
sole obligation of the Custodian with respect to any confirmatory Written
Instruction or broker or dealer written confirmation shall be to make reasonable
efforts to detect any discrepancy between the original Instruction and such
confirmation and to report such discrepancy to the Fund. The Fund shall be
responsible, at the Fund's expense, for taking any action, including any
reprocessing, necessary to correct any discrepancy or error, and to the extent
such action requires the Custodian to act, the Fund shall give the Custodian
specific Written Instructions as to the action required.
The Trust may establish one or more new Funds from time to time and shall
give to the Custodian timely prior written notice thereof. Whereupon, the
Custodian shall have the discretion to accept such new Funds under the terms of
this Agreement, but shall not unreasonably require such acceptance. Acceptance
of any new Fund by the Custodian shall be notified promptly by the Custodian to
the Trust in writing.
5
SECTION 4. The Trust hereby appoints the Custodian as custodian of the
Securities and cash of each Fund. The Securities held by the Custodian, unless
payable to bearer or maintained in a Securities Depository or Book-Entry Account
pursuant to SECTION 5, shall be registered in the name of the Custodian or in
the name of its nominee, or if directed by Written Instructions, in the name of
the Fund or its nominee. Securities, excepting bearer securities, delivered
from time to time to the Custodian shall, in all cases, be in due form for
transfer, or registered as above provided. Such Securities and cash of the Fund
shall be and remain the sole property of the Fund and the Custodian shall have
only custody thereof.
The Custodian shall establish and maintain a segregated account for and on
behalf of each Fund, into which may be transferred cash and all non-cash
property, including each Fund's Securities that are not maintained pursuant to
SECTION 5 in a Securities Depository or Book-Entry Account.
The Custodian shall open and maintain a separate bank account or accounts
in the name of each Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund. Notwithstanding the foregoing, a separate bank account
may be established in the name of each Fund to be used as a ▇▇▇▇▇ cash account
in accordance with Rule 17f-3 of the Investment Company Act of 1940 and the
Custodian shall have no duty or liability with regard to such account.
6
Upon receipt of Written Instructions, funds held by the Custodian for the
Fund may be deposited by the Custodian to its credit in the banking department
of the Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
The Custodian confirms that it meets the qualifications set forth in
Section 17(f)(1) of the Investment Company Act of 1940, and hereby agrees to
notify the Trust, promptly in writing if, at any time, the Custodian shall not
meet said qualifications.
SECTION 5. The Company hereby authorizes the Custodian to deposit assets
of the Fund as follows:
(a) deposit with the Custodian or any other bank licensed and regularly
examined by the United States or any state thereof assets held in the
Option Account created pursuant to SECTION 13(b);
(b) deposit in the Custodian's account(s) with any Securities Depository
registered as a Clearing Agency under Section 17A of the Securities
Exchange Act of 1934 all or any part of the Securities as may from
time to time be held for any Fund; and
(c) deposit Book-Entry Securities belonging to a Fund in a Book-Entry
Account maintained for the Custodian by a Federal Reserve Bank.
So long as any deposit referred to in (b) or (c) above is maintained for
each Fund, the Custodian shall:
7
(i) deposit such Securities in an account that includes only assets
held by the Custodian where the Custodian acts on behalf of its
accounts in a fiduciary or agency capacity;
(ii) send the Fund a confirmation (i.e., an advice or notice of a
transaction) of any transfers of the Fund to or from the
account;
(iii) with respect to Securities of the Fund transferred to the
account, identify those securities belonging to each Fund on
the books of the Securities Depository, the Book-Entry System,
or the Custodian's agent;
(iv) send to the Fund such reports of the systems of internal
accounting control of the Custodian and its agents through
which such Securities are deposited as are available and as the
Fund may reasonably request from time to time.
The Trust warrants that its Board of Trustees has approved the arrangement
for the deposit of Securities in a Securities Depository and Book-Entry System.
The Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from the negligence (including failure to act), fault or willful
misconduct of the Custodian, its agents or employees in selecting a Securities
Depository or Book-Entry Account. The Custodian shall not waive any rights it
may have against a Securities Depository or Federal Reserve Bank. The Fund may
elect to be subrogated to the rights of the Custodian against the Securities
Depository or Federal Reserve Bank or any other person with respect to any claim
that the Custodian may have as a
8
consequence of any such loss or damage, if and to the extent that the Trust or
the Fund has not been made whole for any such loss or damage.
SECTION 6. The Trust, on behalf of the Fund, will initially transfer and
deposit or cause to be transferred and deposited with the Custodian all of the
Securities and cash owned by any Fund at the time this Agreement becomes
effective. Such transfer and deposit shall be evidenced by appropriate schedules
duly executed by the Trust on behalf of the Fund. The Trust may deposit with
the Custodian additional Securities of the Fund and dividends or interest
collected on such Securities as the same are acquired from time to time.
The Trust will cause to be deposited with the Custodian from time to time
(i) the net proceeds of Securities sold, (ii) the applicable net asset value of
Shares sold, whether representing initial issue or any other securities and
(iii) cash as may be acquired. Deposits with respect to sales of Shares shall
be accompanied by Written or Oral Instructions stating (i) the number of Shares
to be issued or reissued, (ii) the applicable net asset value per Share, (iii)
the amount to be deposited with the Custodian and (iv) registration
instructions.
SECTION 7. The Custodian is hereby authorized and directed to disburse
cash from time to time as follows:
(a) for the purchase of Securities by the Fund, upon receipt by the
Custodian of (i) Written or Oral Instructions specifying the
Securities and stating the purchase price and the name of the broker,
investment banker or other party to or upon whose order the purchase
price is to be paid and (ii)
9
either the Securities so purchased, in due form for transfer or
already registered as provided in SECTION 4, or notification by a
Securities Depository or a Federal Reserve Bank that the Securities
have been credited to the Custodian's account with the Securities
Depository or Federal Reserve Bank;
(b) for transferring funds, including ▇▇▇▇-to-the-market payments, in
connection with a repurchase agreement covering Securities that have
been received by the Custodian as provided in sub-paragraph (a) above,
upon receipt by the Custodian of (i) Written or Oral Instructions
specifying the Securities, the purchase price and the party to whom
the purchase price is to be paid and (ii) written agreement to
repurchase the Securities from a Fund;
(c) for transferring funds to a duly-designated redemption or paying agent
to redeem or repurchase Shares, upon receipt of (i) proper redemption
instructions for Shares and (ii) Written or Oral Instructions stating
the applicable redemption price;
(d) for exercising warrants and rights received upon the Securities, upon
timely receipt of Written or Oral Instructions authorizing the
exercise of such warrants and rights and stating the consideration to
be paid;
(e) for repaying, in whole or in part, any loan of a Fund, or returning
cash collateral for Securities loaned by a Fund, upon receipt of
Written or Oral
10
Instructions directing payment and stating the Securities, if any, to
be received against payment;
(f) for paying over to a duly designated dividend disbursing agent such
amounts as may be stated in Written or Oral Instructions, representing
proceeds of the sale of warrants, rights, stock dividends, profits and
increases in values of the Securities, as the Fund deems appropriate
to include in dividends and/or distributions declared on the Fund's
Shares;
(g) for paying or reimbursing the Fund for other corporate expenditures,
upon receipt of Written or Oral Instructions stating that such
expenditures are or were authorized, on behalf of the Fund, by
resolution of the Board of Trustees of the Trust and are or were for
proper corporate purposes and specifying the amount of payment, the
purposes for which such payment is to be made, and the person or
persons to whom payment is to be made;
(h) for transferring funds to any Sub-Custodian, upon receipt of Written
or Oral Instructions and upon agreement by the Custodian.
SECTION 8. The Custodian is hereby authorized and directed to deliver
Securities of the Fund from time to time as follows:
(a) for completing sales of Securities sold by the Fund, upon receipt of
(i) Written or Oral Instructions specifying the Securities sold, the
amount to be received and the broker, investment banker or other party
to or upon whose order the Securities are to be delivered and (ii) the
net proceeds of
11
sale; provided, however, that the Custodian may accept payment in
connection with the sale of Book-Entry Securities and Securities on
deposit with a Securities Depository by means of a credit in the
appropriate amount to the account described in SECTION 5(b) or (c)
above;
(b) for exchanging Securities for other Securities (and cash, if
applicable), upon timely receipt of (i) Written or Oral Instructions
stating the Securities to be exchanged, cash to be received and the
manner in which the exchange is to be made and (ii) the other
Securities (and cash, if applicable) as specified in the Written or
Oral Instructions;
(c) for exchanging or converting Securities pursuant to their terms or
pursuant to any plan of conversion, consolidation, recapitalization,
reorganization, readjustment or otherwise, upon timely receipt of (i)
Written or Oral Instructions authorizing such exchange or conversion
and stating the manner in which such exchange or conversion is to be
made and (ii) the Securities, certificates of deposit, interim
receipts, and/or cash to be received as specified in the Written or
Oral Instructions;
(d) for presenting for payment Securities that have matured or have been
called for redemption;
(e) for delivering Securities upon redemption of Shares in kind, upon
receipt of (i) Share Certificates in due form for transfer, or proper
processing of
12
Shares for which no Share Certificates are outstanding and (ii)
appropriate Written or Oral Instructions;
(f) for depositing with the lender Securities to be held as collateral for
a loan to the Fund or depositing with a borrower Securities to be
loaned by the Fund, upon receipt of (i) Written or Oral Instructions
directing delivery to the lender or borrower and (ii) suitable
collateral, if Securities are loaned;
(g) for complying with a repurchase agreement, upon receipt of Written or
Oral Instructions stating (i) the securities to be delivered and the
payment to be received and (ii) payment;
(h) for depositing with a depository agent in connection with a tender or
other similar offer to purchase portfolio Securities of the Fund, upon
receipt of Written or Oral Instructions;
(i) for depositing Securities with the issuer thereof, or its agents, for
the purpose of transferring such Securities into the name of the Fund,
the Custodian or any nominee of either in accordance with SECTION 4;
(j) for other proper corporate purposes provided that the Custodian shall
receive Written or Oral Instructions requesting such delivery.
SECTION 9. The Custodian will collect from time to time the dividends and
interest on the Securities held by it, to be disbursed from time to time as
follows:
(a) to advance or pay out accrued interest on bonds purchased, dividends
on stocks sold and similar items. In the event that any Securities
are registered in the name of a Fund or its nominee, the Trust, on
behalf of
13
the Fund, will endorse, or cause to be endorsed, to the Custodian
dividend and interest checks, or will issue appropriate orders to the
issuers of the Securities to pay dividends and interest to the
Custodian; and
(b) to disburse the money to or upon the order of the Fund, as it may from
time to time direct for the following purposes:
(i) to pay proper compensation and expenses of the Custodian;
(ii) to transfer funds to a duly designated dividend disbursing
agent to pay dividends and/or distributions that may be
declared by the Board of Trustees of the Trust, upon receipt of
appropriate Written or Oral Instructions;
(iii) to pay, or provide the Fund with money to pay taxes upon
receipt of appropriate Written or Oral Instructions;
(iv) to transfer funds to a separate checking account maintained by
the Trust, on behalf of the Fund, pursuant to Section 17(f) of
the Investment Company Act of 1940, as amended, from time to
time; and
(v) to pay interest, management or supervisory fees,
administration, dividend and transfer agency fees and costs,
compensation of personnel and operating expenses, including but
not limited to fees for legal, accounting and auditing
services. Before making any such payment or disbursement,
however, the Custodian shall
14
receive, and may conclusively rely upon, Written or Oral
Instructions requesting such payment or disbursement and
stating that it is for one or more of the purposes enumerated
above. Notwithstanding the foregoing, the Custodian may
disburse cash for other corporate purposes; provided, however,
that such disbursement may be made only upon receipt of Written
or Oral Instructions stating that such disbursement was
authorized by resolution of the Board of Trustees of the Trust
as a proper corporate purpose.
The determination of the Board of Trustees of the Trust as
to what shall constitute income derived from the Securities, as
distinguished from principal or capital, shall be final and
conclusive upon the Trust, the Fund, the Custodian and the
Shareholders.
SECTION 10. The Fund will cause any bank (including the Custodian) from
which it borrows money pursuant to a loan authorized by specific resolution of
the Trust's Board on behalf of the Fund, using securities as collateral, to
deliver to the Custodian a notice of undertaking in the form currently employed
by the lender setting forth the amount that the lender will loan to the Fund
against delivery of a stated amount of collateral. The Trust, on behalf of each
Fund, shall promptly deliver to the Custodian Written or Oral Instructions for
each loan, stating (i) the name of the lender, (ii) the amount and terms of the
loan, which terms may be specified by incorporating by reference an attached
promissory note or loan agreement duly endorsed by the Trust
15
on behalf of the Fund, (iii) the time and date, if known, on which the loan will
be consummated (the "borrowing date"), (iv) the date on which the loan becomes
due and payable, (v) the total amount payable to the Fund on the borrowing date,
(vi) the market value of Securities to be delivered as collateral for such loan
and (vii) the name of the issuer, the title and the number of shares or
principal amount of the Securities to be delivered as collateral. The Custodian
shall deliver on the borrowing date such specified collateral and the executed
promissory note, if any, and receive from the lender the total amount of the
loan proceeds; provided, however, that no delivery of Securities shall occur if
the amount of the loan proceeds does not conform to the amount set forth in the
Written or Oral Instructions, or if such Instructions do not contain the
requirements of (vii) above. The Custodian may, at the option of the lender,
keep such collateral in its possession; provided such collateral is subject to
all rights given the lender by any promissory note or loan agreement executed by
the Trust on behalf of the Fund.
The Custodian shall deliver, from time to time, any Securities required as
additional collateral for any transaction described in this Section, upon
receipt of Written or Oral Instructions. All Securities released from
collateral status shall be returned directly to the Custodian.
SECTION 11. If, in its sole discretion, the Custodian advances funds to a
Fund to pay for the purchase of Securities, to cover an overdraft of the Fund's
account with the Custodian, or to pay any other indebtedness to the Custodian,
the Fund's indebtedness shall be deemed to be a loan by the Custodian to the
Fund, payable on
16
demand and bearing interest at the rate then charged by the Custodian for such
loans; provided, however, that the Bank shall give the Fund notice of any such
advance that exceeds five percent of the value of the Securities and cash held
by the Custodian at the time of the advance. The Trust, on behalf of the Fund,
hereby agrees that the Custodian shall have a continuing lien and security
interest, to the extent of any such overdraft or indebtedness, in any property
then held by the Custodian or its agents for the benefit of the Fund, or in
which the Fund may have an interest. The Custodian is authorized, in its sole
discretion at any time, to charge any such overdraft or indebtedness, together
with interest due thereon, against any balance then credited to such Fund on the
Custodian's books.
SECTION 12. Written or Oral Instructions, on behalf of the Fund, shall be
delivered to the Custodian, within 24 hours after each loan of portfolio
Securities by the Fund, stating (i) the name of the issuer and the title of the
Securities, (ii) [the number of Shares or] the principal amount loaned, (iii)
the date of the loan and delivery of Securities, (iv) the total amount and form
of collateral to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified and (v) the name of the broker or other person to whom the
loan was made. The Custodian shall deliver the Securities loaned to the person
designated in (v) above and receive the total collateral for the loan. The
Custodian may accept payment only in the form of a certified or bank cashier's
check payable to the order of the Fund or the Custodian or as otherwise directed
by the Fund,
17
and may deliver Securities in accordance with the custom prevailing among
dealers in securities.
Upon termination of a loan of Securities by a Fund, the Trust, on behalf of
the Fund, shall promptly deliver Written or Oral Instructions to the Custodian,
stating (i) the name of the issuer and the title of Securities to be returned,
(ii) the number of shares or the principal amount to be returned, (iii) the date
of termination, (iv) the total amount of cash or other collateral to be
delivered by the Custodian (including the cash collateral, minus any offsetting
credits described in the Written or Oral Instructions) and (v) the name of the
broker or other person from whom the Securities will be received. The Custodian
shall receive all Securities returned and pay or deliver to the borrower the
total amount payable upon return of borrowed Securities, as set forth in the
Written or Oral Instructions.
SECTION 13. The Custodian's responsibilities regarding put and call option
contracts will be governed by the following sub-paragraphs:
(a) Unless a sub-paragraph below more particularly describes a situation,
Written or Oral Instructions regarding put and covered call option
contracts purchased or sold by any Series shall state (i) the price at
which the underlying security may be bought or sold, (ii) the issuer,
the title and number of the shares or principal amount of such
security, (iii) the premium to be paid, (iv) the expiration date, (v)
if the transaction is a Closing Sale Transaction, whether the sale
requires delivery of a certificate of ownership to the broker through
whom the sale is made and
18
(vi) if the transaction is a purchase of an option contract, the
requirement that payment of the premium be made only upon receipt of a
certificate of ownership executed by the broker through whom the
purchase is made.
(b) Whenever the Fund sells a put or call option contract, Written or Oral
Instructions to the Custodian must state (i) the identity of the Fund,
(ii) the name of the issuer, (iii) title and number of shares or
principal amount of the Security subject to the option, (iv) exercise
price, (v) expiration date, (vi) premium to be received by the Fund,
(vii) name of the person or broker from whom the premium is to be
received and (viii) if the option is a call, whether it is covered.
If the option sold is a put, the Written or Oral Instructions
shall also state (i) the amount and kind of collateral required by the
broker or (ii) the amount and kind of assets of the Fund, if any, that
shall be segregated from the general assets of the option Fund and
held by the Custodian in a segregated option account (the "Option
Account"). If collateral is required, the Custodian shall deliver the
collateral directly to the broker through whom such option was written
and receive in return a receipt and a confirmation of the option
transaction, in accordance with the customs prevailing among brokers
in such securities. If an Option Account is established, the
Custodian shall maintain it as specified in Written or Oral
Instructions.
19
(c) If the Custodian (i) acts as escrow agent with respect to a covered
call, (ii) maintains securities underlying a covered call with a
Securities Depository or (iii) holds assets in the Option Account in
connection with a put, the Custodian shall deliver, or cause to be
delivered, all receipts required by the customs prevailing among
dealers in such securities.
(d) If an option contract purchased or sold by any Fund expires, the
Trust, on behalf of the Fund, will deliver to the Custodian Written or
Oral Instructions containing the information specified in
sub-paragraph (b) above and instructing the Custodian to (i) delete
such option contract from the list of holdings that the Custodian
maintains for that Fund and (ii) either remove from the Option Account
specified assets held with respect to such option or remove the
restriction on any securities underlying a covered call, as the case
may be. Upon the return and/or cancellation or expiration of any
receipts issued pursuant to sub-paragraph (c) above, the Custodian
shall remove such restriction, delete the option from the list of
holdings maintained by the Custodian and transfer the assets to the
general account maintained by the Custodian for the benefit of the
Fund. Collateral delivered by a broker with whom it was previously
deposited pursuant to sub-paragraph (b) above shall, if identical with
the collateral specified in the receipt previously issued by such
broker, be accepted by the Custodian and held in the general account
maintained by the Custodian for the benefit of the Fund. The
Custodian shall accept
20
delivery of collateral not specified in such a receipt only upon
receipt of Written or Oral Instructions.
(e) If a covered call option sold by a Fund is exercised, the Trust, on
behalf of the Fund, shall promptly furnish the Custodian with Written
or Oral Instructions stating (i) the name of the issuer and title and
number of shares or principal amount of the Security subject to the
option, (ii) the person to whom the underlying Securities are to be
delivered, (iii) the amount to be received and held by the Custodian
upon delivery and (iv) the assets, if any, to be removed from the
Option Account or the collateral, if any, to be returned by a broker
with whom it was deposited under sub-paragraph (b) above.
(f) If a put option sold by a Fund is exercised, the Trust, on behalf of
the Fund, shall promptly furnish the Custodian with Written or Oral
Instructions stating (i) the name of the issuer and title and number
of shares or principal amount of the Security subject to the option,
(ii) the name of the person whom the Custodian will pay for Securities
subject to the put, in return for receipt of such Securities, (iii)
the amount of such payment and (iv) the assets, if any, to be removed
from the Option Account or the collateral, if any, to be returned by a
broker with whom it was deposited under sub-paragraph (b) above. The
Custodian shall hold all assets of the Fund free of restrictions
imposed by reason of adoption and all collateral returned by a broker
in accordance with this Agreement.
21
(g) In the event the Fund purchases, in a "Closing Purchase Transaction,"
an option identical to a previously sold option in order to liquidate
its position as a seller of a call option, the Fund, on behalf of the
Fund, will deliver to the Custodian Written or Oral Instructions
stating (i) the name of the issuer and title and number of shares or
principal amount of the Security subject to the option, (ii) the
exercise price, (iii) the premium to be paid by the Fund, (iv) the
expiration date and (v) the name of the person to whom the premium is
to be paid. Upon the Custodian's payment of the premium and the
return and/or cancellation of any receipts issued pursuant to
sub-paragraph (c) above, the Custodian shall (i) either remove from
the Option Account the assets held therein or remove the previously
imposed restrictions on the Securities underlying the option that is
liquidated by reason of the Closing Purchase Transaction, (ii) delete
such option from the list of holdings maintained by that Fund and
(iii) transfer such Securities or assets to the general account
maintained by the Custodian for the benefit of the Fund. Collateral
delivered by a broker with whom it was previously deposited pursuant
to sub-paragraph (b) above shall, if identical with the collateral
specified in the receipt previously issued by such broker, be accepted
by the Custodian and transferred to the general account maintained by
the Custodian for the benefit of the Fund. The Custodian shall accept
delivery of collateral not specified in such a receipt only upon
receipt of Written or Oral Instructions.
22
(h) If a Fund exercises an option contract held by the Custodian, the
Trust, on behalf of the Fund, shall deliver to the Custodian, at least
24 hours before the last business day on which such option contract
may be exercised, Written or Oral Instructions containing the
information required under sub-paragraph (a) above and instructing the
Custodian (i) in the case of a put, to deliver the securities subject
to the put to the broker specified in the Written or Oral
Instructions, in return for receipt of the exercise price or (ii) in
the case of a covered call, to pay the exercise price to the broker
specified in the Written or Oral Instructions, in return for receipt
of the Securities subject to the call.
(i) The Custodian shall have no duty or obligation to see that the Fund
has deposited or is maintaining adequate margin, if required, with any
broker in connection with an option contract. The Custodian shall
have no duty or obligation to present such option contract to the
broker unless it receives Written or Oral Instructions from the Fund.
The Custodian shall have no responsibility for (i) the legality of any
put or covered call option contract purchased or sold on behalf of the
Fund, (ii) the propriety of any such purchase or sale and (iii) the
adequacy of any collateral delivered to a broker in connection with an
option or held in the Option Account. By means of illustration and
not limitation, the Custodian shall be under no duty or obligation to
(i) check periodically or notify the Trust or the Fund that the amount
of such collateral held by a broker or assets held in the
23
Option Account is sufficient to protect the broker or the Fund against
any loss, (ii) effect the return of any collateral delivered to the
broker or (iii) advise the Fund that any option it holds has or will
expire. All duties or obligations not the responsibility of the
Custodian shall be the sole responsibility of the Fund.
SECTION 14. The Custodian assumes no duty, obligation or responsibility
whatsoever to exercise any voting or consent powers with respect to the
Securities held by it from time to time hereunder. The Trust or such person or
persons designated by the Trust to act on the Fund's behalf shall have the right
to vote, consent or otherwise act with respect to such Securities. The
Custodian will exercise its best efforts (as defined in SECTION 16) to furnish
to the Fund in a timely manner all proxies or other appropriate authorizations
with respect to the Funds' Securities registered in the name of the Custodian or
its nominee, so that the Fund or its designee may vote, consent or otherwise
act.
SECTION 15. The Trust agrees, on behalf of the Funds, to pay to the
Custodian compensation for its services as set forth in Schedule B hereto
attached, or as shall be set forth in written amendments to such Schedule
approved by the Fund and the Custodian from time to time.
SECTION 16. The Custodian will exercise its best efforts to forward to the
Fund in a timely manner all notices of stockholder meetings, proxy statements,
annual reports, conversion notices, call notices, or other notices or written
materials of any kind (excluding stock certificates and dividend and interest
payments) sent to the
24
Custodian as registered owner of Securities ("notices and materials"). The Fund
and the Funds' investment adviser have primary responsibility for taking action
on such notices and materials. Best efforts as used in this Agreement shall
mean the efforts reasonably believed in good faith by the Custodian to be
adequate in the circumstances.
Upon receipt of warrants or rights issued in connection with the assets of
the Fund, the Custodian shall enter into its ledgers appropriate notations
indicating such receipt and shall notify the Trust and the Fund of such receipt.
However, the Custodian shall have no obligation to take any other action with
respect to such warrants or rights, except as directed in Written or Oral
Instructions.
SECTION 17. The Custodian assumes no duty, obligation or responsibility
whatsoever with respect to Securities not deposited with the Custodian. Common
stocks or other Securities exchanged for Shares shall not be considered
deposited with the Custodian until physically received and registered in
accordance with the provisions of this Agreement.
SECTION 18. The Custodian acknowledges and agrees that all books and
records maintained for the Trust or Fund in any capacity under this Agreement
are the property of the Trust and may be inspected by the Trust or any
authorized regulatory agency at any reasonable time. Upon receipt all such
books and records will be surrendered promptly to the Trust. The Custodian
agrees to make available upon request and to preserve for the periods prescribed
in Rule 31a-2 of the Investment
25
Company Act of 1940 any records related to services provided under this
Agreement and required to be maintained by Rule 31a-1 of such Act.
SECTION 19. The Custodian assumes only the usual duties and obligations
normally performed by custodians of mutual funds. It specifically assumes no
responsibility for the management, investment or reinvestment of the Securities
from time to time owned by the Fund, whether or not on deposit hereunder. The
responsibility for the proper and timely management, investment and reinvestment
of such Securities shall be that of the Funds and their investment advisor.
The Custodian shall not be liable for any taxes, assessments or
governmental charges that may be levied or assessed upon the Securities held by
it hereunder, or upon the income therefrom. Upon Written or Oral Instruction,
the Custodian may pay any such tax, assessment or charge and reimburse itself
out of the monies of the Fund or the Securities held hereunder.
The Custodian may rely upon the advice of counsel, who may be counsel for
the Fund or for the Custodian, and upon statements of accountants, brokers or
other persons believed by it in good faith to be expert in the matters upon
which they are consulted. The Custodian shall not be liable for any action
taken in good faith reliance upon such advice or statements. The Custodian
shall not be liable for action taken in good faith in accordance with any
Written or Oral Instructions, request or advice of the Fund or its officers, or
information furnished by the Fund or its officers. The Custodian shall not be
liable for any non-negligent action taken in good faith and reasonably believed
by it to be within the powers conferred upon it by this Agreement.
26
No liability of any kind, other than to the Trust or the Fund, shall attach
to the Custodian by reason of its custody of the Securities, principal cash and
interest thereon under this Agreement or otherwise as a result of its
custodianship. In the event that any claim shall be made against the Custodian,
it shall have the right to pay the claim and reimburse itself from the assets of
the Funds in its hands; provided, however, that no such reimbursement shall
occur unless the Trust is notified of the claim and is afforded an opportunity
to defend the claim, if it so elects. The Trust, on behalf of the Fund, further
agrees to indemnify and hold the Custodian harmless for any loss, claim, damage
or expense arising out of the Custodian relationship under this Agreement;
provided such loss, claim, damage or expense is not the direct result of the
Custodian's negligence or willful misconduct.
SECTION 20. Upon receipt of Written or Oral Instructions, the Custodian
shall appoint one or more banking institutions licensed and regularly examined
by the United States or any state thereof as Sub-Custodian of Securities and
monies owned by the Funds from time to time; provided, however, that the
Custodian shall have requested appointment of a Sub-Custodian.
The Custodian shall have no liability to the Trust or the Fund or any other
person by reason of any act or omission of any Trust-approved Sub-Custodian, and
the Trust shall indemnify the Custodian and hold it harmless from and against
any and all actions, suits and claims, whether groundless or otherwise, and from
and against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising directly or indirectly out of or in connection
with the performance of any Trust-approved Sub-Custodian; provided, however,
that the Custodian shall, and hereby does, assign to the Trust any and all
claims for any losses, costs, expenses, or
27
damages that may be incurred by the Trust or Fund by reason of the negligence,
gross negligence or misconduct of any Trust-approved Sub-Custodian, or by reason
of the failure of a Trust-approved Sub-Custodian to perform in accordance with
any applicable agreement, including instructions of the Custodian or the Trust.
The Custodian shall be under no obligation to prosecute or to defend any action,
suit or claim arising out of, or in connection with, the performance of any
Sub-Custodian, if, in the opinion of the Custodian's counsel, such action will
involve the Custodian in expense or liability. The Trust shall, upon request,
furnish the Custodian with satisfactory indemnity against such expense or
liability, and upon request of the Custodian, the Trust shall assume the entire
defense of any action, suit, or claim subject to the foregoing indemnity.
All fees and expenses of any Sub-Custodian shall be paid out of the assets
of the Fund.
SECTION 21. This Agreement may be amended from time to time with respect
to any or all of the Trust's Funds without notice to or approval of the
Shareholders by a written supplemental agreement executed by the Trust and the
Custodian provided this Agreement may not be amended in any manner which would
substantially increase the Trust's or a Fund's obligations hereunder unless the
amendment is first approved by the Trust's Board of Trustees, including a
majority of the Trustees who are not a party to this Agreement or interested
persons of any such party, at a meeting called for such purpose, and thereafter
is approved by such Fund's shareholders. The parties hereto may adopt
procedures as may be appropriate or practical under the circumstances and the
Bank may conclusively rely on the determination of the Trust, on behalf of the
Fund,
28
that any procedure approved by the Trust, on behalf of the Fund, does not
conflict with or violate any requirement of the Trust's Agreement and
Declaration of Trust, By-Laws or Prospectus, or any rule, regulation or
requirement of any regulatory body.
SECTION 22. This Agreement may be terminated by either party upon notice
to the other. The termination shall become effective at the time specified in
the notice but no earlier than sixty (60) days after the date of the notice.
Upon notice of termination, the Fund shall use its best efforts to obtain a
successor custodian. If a successor custodian is not appointed within ninety
(90) days after the date of the notice of termination, the Board of Trustees of
the Trust shall, by resolution, designate the Trust as its own Custodian. Each
successor custodian shall be a person qualified to serve under the Investment
Company Act of 1940, as amended from time to time. Upon receipt of written
notice from the Trust of the appointment of a successor custodian and upon
receipt of Written or Oral Instructions, the Custodian shall deliver all
Securities and cash it then holds directly to the successor custodian and shall,
upon request of the Trust and the successor custodian and upon payment of its
charges and disbursements, execute and deliver to the successor custodian an
instrument approved by its counsel transferring to the successor custodian all
the rights, duties and obligations of the Custodian. Upon delivery of the
Securities and other assets of the Funds, the Custodian shall have no further
duty or liability hereunder. Every successor custodian appointed hereunder
shall execute and deliver an appropriate written acceptance of its appointment
and shall thereupon become vested with the rights, powers, obligations and
custody of the predecessor custodian.
29
SECTION 23. Nothing contained in this Agreement is intended to or shall
require the Custodian in any capacity hereunder to perform any functions or
duties on any holiday, weekend or weekday on which the Custodian or the New York
Stock Exchange is closed. Functions or duties normally scheduled to be
performed on such days shall be performed on, and as of, the next business day
on which both the New York Stock Exchange and the Custodian are open, unless
otherwise required by law; provided, however, that all purchase or redemption
requests received by the Fund for a date on which the Exchange is open but the
Custodian is not shall be priced and executed "as of" such date on the next
business day the Custodian is open, unless otherwise required by law.
SECTION 24. Unless otherwise agreed by the parties, this Agreement shall
become effective on the last date executed by a party hereto as set forth below.
SECTION 25. This Agreement may be executed in more than one counterpart,
each of which shall be deemed to be an original and all of which shall be deemed
to be one and the same Agreement.
SECTION 26. This Agreement shall extend to and bind the parties hereto and
their respective successors and permitted assigns; provided, however, that this
Agreement shall not be assignable by the Trust without the written consent of
the Custodian, or by the Custodian without the written consent of the Trust,
authorized or approved by a resolution of the Trust's Board of Trustees.
Notwithstanding the foregoing, either party may assign this Agreement without
the consent of the other party so long as the assignee is an affiliate, parent
or subsidiary of the assigning party and
30
the assignee of the Custodian is qualified to serve as custodian under the
Investment Company Act of 1940, as amended from time to time.
SECTION 27. This Agreement shall be governed by the laws of the State of
Virginia.
SECTION 28. Notwithstanding the provisions of Section 27, a copy of the
Agreement and Declaration of Trust of the Trust is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees, and
are not binding upon any of the Trustees, officers, or shareholders of the
Trust individually but binding only upon the assets and property of the Trust.
31
WITNESS the following signatures
The Arbor Fund
BY: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
TITLE: Vice President
----------------------------
DATE:
-----------------------------
CRESTAR BANK
BY: /s/ ▇. ▇▇▇▇▇▇▇ Wohlfred
-------------------------------
TITLE: Executive Vice President
----------------------------
DATE:
-----------------------------
32
SCHEDULE A
U.S. Government Securities Money Fund
33
SCHEDULE B
-ACCOUNT ADMINISTRATIVE FEE- $.35/1000. Based on the fair market value of
custody assets. Market value charges will be based on the average size of the
account during the year using quarterly valuations.
-HOLDING FEE PER ISSUE- $18.00/Book entry item and $30.00/Physical item per
annum, and $40.00/Mortgage backed item. Charges are based on the average number
of assets held during the year using quarterly valuations.
-TRANSACTION FEE- $18.00/Book entry transaction and $30.00/Physical transaction
for any asset movement defined as a purchase or sale. No transaction charge
will be made for the initial receipt of securities related to the opening of an
account.
The custodian's fee for any fiscal year of the Fund will not exceed, with
respect to the Fund, .04% of the Fund's average daily net assets.
An interest credit adjustment will be calculated monthly on average monthly cash
balances (including overdrafts). The interest credit adjustment will be applied
at the average monthly fed funds rate less reserves of 10%.
34
