SPECIAL CUSTODY ACCOUNT AGREEMENT
---------------------------------
(Short Sales)
AGREEMENT, dated as of May 9, 1997, by and among State Street Bank and
Trust Company, in its capacity as custodian hereunder (the "Bank"), The Global
Health Sciences Fund (the "Customer") and Herzog, Heine, Geduld, Inc.
(the "Broker").
WHEREAS, Broker is a securities broker-dealer and is a member of
several national securities exchanges; and
WHEREAS, Customer desires from time to time to sell securities "short"
through Broker, such short sales being permitted by Customer's investment
policies, and for that purpose has executed a margin agreement (the "Margin
Agreement"); and
WHEREAS, to facilitate Customer's transactions in short sales of
securities, Customer 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 other applicable law ("Margin
Rules"); and
WHEREAS, to assist Broker and Customer in complying with the Margin Rules,
Bank is prepared to act as custodian to hold Collateral as defined below.
NOW, THEREFORE, be it agreed as follows:
1. DEFINITIONS
-----------
As used herein, the following terms have the following meanings:
(a) "Adequate Margin" in respect of short sales shall mean such Collateral
as is adequate in Broker's reasonable judgment under the Margin Rules
and the internal policies of Broker.
(b) "Advice from Broker" or "Advice" means a written notice sent to
Customer and Bank or transmitted by a facsimile sending device, except
that Advices for initial or additional Collateral or with respect to
Broker's ability to effect a short sale for Customer may be given
orally. With respect to any short sale or Closing Transaction, the
Advice from Broker shall mean a standard confirmation in use by Broker
and sent or transmitted to Customer and Bank. With respect to
substitutions or releases of Collateral, Advice from Broker means a
written notice signed by Broker and sent or transmitted to Customer
and Bank. An authorized agent of Broker will certify to Customer and
Bank the names and signatures of those employees who are authorized to
sign Advices from 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.
(c) "Closing Transaction" is a transaction in which Customer purchases
securities which have been sold short.
(d) "Collateral" shall mean cash or U.S. Government securities or other
securities acceptable to Broker.
(e) "Insolvency" means that (A) an order, judgment or decree has been
entered under the bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or
similar law (herein called the "Bankruptcy Law") of any jurisdiction
adjudicating the Customer insolvent; or (B) the Customer has
petitioned or applied to any tribunal for, or consented to the
appointment of, or taking possession by, a trustee, receiver,
liquidator or similar official, of the Customer, or commenced a
voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Customer under the Bankruptcy Law of any
other jurisdiction, whether now or hereinafter in effect; or (C) any
such petition or application has been filed, or any such proceedings
commenced, against the Customer and the Customer by any act has
indicated its approval thereof, consent thereto or acquiescence
therein, or an order for relief has been entered in an involuntary
case under the Bankruptcy Law of the United States, as now or
hereinafter constituted, or any order, judgment or decree has been
entered appointing any such trust, 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
60 days.
(f) "Instructions from Customer" or "Instructions" means a request,
direction or certification in writing signed by Customer and delivered
to Bank and Broker or transmitted by a facsimile sending device. An
officer of Customer will certify to Bank and Broker the names and
signatures of those persons authorized to sign the instructions, which
certification may be amended from time to time. When used herein, the
term "Instruct" shall mean the act of sending an Instruction from
Customer.
(g) "Receipt of Payment" means receipt by Bank of (1) a certified or
official bank check or wire transfer to Bank; (2) a written or
telegraphic advice from a registered clearing agency that funds have
been or will be credited to the account of Bank, or (3) a transfer of
funds from any of Broker's accounts maintained at Bank.
(h) "Receipt of Securities" means receipt by Bank, of (1) securities in
proper form for transfer or (2) a written or telegraphic advice from a
-2-
registered clearing agency that securities have been credited to the
account of Bank for the Special Custody Account.
(i) "Special Custody Account" shall have the meaning assigned to that term
in Section 2 hereof.
2. SPECIAL CUSTODY ACCOUNT
-----------------------
(a) Bank shall open an account on its books entitled "Special Custody
Account for Herzog, Heine, Geduld, Inc. as Pledgee of The Global
Health Sciences Fund" ("Special Custody Account") and shall hold
therein all securities and similar property as shall be received and
accepted by it therein pursuant to this Agreement. Customer agrees to
instruct Bank in Instructions from Customer as to cash and specific
securities which Bank is to identify on its books and records as
pledged to Broker as Collateral in the Special Custody Account.
Customer agrees that the value of such cash and securities shall be at
least equal in value to what Broker shall initially and from time to
time advise Customer in an Advice from Broker is necessary to
constitute Adequate Margin. Such collateral (i) will be held by Bank
for Broker as agent of Broker, (ii) may be released only in accordance
with the terms of this Agreement and (iii) except as required to be
released hereunder to Broker, shall not be made available to Broker or
to any other person claiming through Broker, including the creditors
of the Broker.
(b) Customer hereby grants a continuing security interest to Broker in the
Collateral in the Special Custody Account. To perfect Broker's
security interest, Bank will hold the Collateral in the Special
Custody Account, subject to the interest therein of Broker as the
pledgee and secured party thereof in accordance with the terms of this
Agreement. Such security interest will terminate at such time as
Collateral is released as provided herein. Bank shall have no
responsibility for the validity or enforceability of such security
interest.
(c) Bank will confirm in writing to Broker and Customer all pledges,
releases or substitutions of Collateral and will supply Broker and
Customer with a monthly statement of Collateral and transaction in the
Special Custody Account for such month. Bank will also advise Broker
upon request of the kind and amount of Collateral pledged to Broker.
(d) Upon the request of Customer, Broker shall advise Bank and Customer of
any excess of Collateral in the Special Custody Account. Such excess
shall at Customer's request be transferred therefrom upon Advice from
Broker. Customer represents and warrants to Broker that securities
included at any time in the Collateral shall be in good deliverable
form (or Bank shall have the unrestricted power to put such securities
into good deliverable form) in accordance with the requirements of
-3-
such exchanges as may be the primary market or markets for such
securities.
(e) Bank will maintain accounts and records for the Collateral in the
Special Custody Account as more fully described in subparagraph 5(a)
below. The Collateral shall at all times remain the property of the
Customer subject only to the extent of the interest and rights therein
of Broker as the pledgee thereof.
3. ORIGINAL AND VARIATION MARGIN ON SHORT SALES
--------------------------------------------
(a) From time to time, Customer may place orders with Broker for the short
sale of securities. Prior to the acceptance of such orders Broker will
advise Customer of Broker's ability to borrow such securities or other
properties and acceptance of short sale orders will be contingent upon
same.
(b) Broker shall, on the last business day of each week, compute the
aggregate net credit or debit balance on Customer's open short sales
and advise Customer by 11:00 A.M. New York time of the amount of the
net debit or credit, as the case may be. If a net debit balance exists
on such day, Customer will cause an amount equal to such net debit
balance to be paid to Broker by the close of business on such day. If
a net credit balance exists on such day, Broker will pay such credit
balance to Customer by the close of business on such day. As
Customer's open short positions are marked-to-market each week,
payments will be made by or to Customer to reflect changes (if any) in
the credit or debit balances. Broker will charge interest on debit
balances, and Broker will pay interest on credit balances. Balances
will be appropriately adjusted when short sales are closed out.
4. PLACING ORDER
-------------
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 which Customer shall designate as being for long account as above
provided is for securities then owned by Customer and, if such securities are
not then deliverable by Broker from any account of Customer, the placing of such
order shall constitute a representation by Customer that it is impracticable for
Customer then to deliver such securities to Broker but that Customer shall
deliver them by the settlement date or as soon as possible thereafter.
5. RIGHTS AND DUTIES OF THE BANK
-----------------------------
(a) GENERALLY. The Bank shall receive and hold in the Special Custody
Account, as custodian upon the terms of this Agreement, all Collateral
deposited and maintained pursuant to the terms of this Agreement and,
except as provided in subparagraph 5(b) below, shall receive and hold
-4-
all monies and other property paid, distributed or substituted in
respect of such Collateral or realized on the sale or other
disposition of such Collateral; provided, however, that the Bank shall
have no duty to require any money or securities to be delivered to it
or to determine that the amount and form of assets delivered to it
comply with any applicable requirements. Collateral held in the
Special Custody Account shall be released only in accordance with this
Agreement or as required by applicable law. The Customer warrants its
authority to deposit in such accounts any money, securities and other
property received by the Bank.
The Bank may hold the securities in the Special Custody
Account in bearer, nominee, book entry, or other form and in
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 the Bank's records as subject to this Agreement and shall be in a
form that permits transfer without additional authorization or
consent of the Customer. The Customer and Broker hereby agree to
hold the Bank and its nominees harmless from any liability as holder
of record.
(b) DIVIDENDS AND INTEREST. Any dividends or interest paid with respect to
the Collateral held in the Special Custody Account shall be paid by
the Bank to the Customer when collected unless the Bank has received
contrary instructions from the Customer.
(c) REPORTS. The Bank shall, as promptly as practical, provide Broker and
the Customer with written confirmation of each transfer into and out
of the Special Custody Account. The Bank also shall render to the
Customer and Broker a monthly statement of the Collateral held in the
Special Custody Account. In addition, the Bank will advise the
Customer or Broker upon request at any time of the type and amount of
Collateral held in the account; provided, however, that the Bank shall
have no responsibility for making any determination as to the value of
such Collateral.
(d) LIMITATION OF BANK'S LIABILITY. The Bank's duties and responsibilities
are as set forth in this Agreement. The Bank shall act only upon
receipt of Advice from Broker regarding release of Collateral. The
Bank 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 notice, instruction
or other communication which it reasonably believes to be genuine and
authorized. As between Customer and the Bank, the terms of the
Custodian Agreement shall apply with respect to any losses or
liabilities of such parties arising out of matters covered by this
Agreement. As between the Bank and Broker, Broker shall indemnify and
hold the Bank harmless with regard to any losses or liabilities of the
Bank (including counsel fees) imposed on or incurred by the Bank
-5-
arising out of any action or omission of the Bank in accordance with
any notice or instruction of Broker under this Agreement. In matters
concerning or relating to this Agreement, the Bank 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 OCC. The Bank
shall not be liable to any party for any acts or omissions of the
other parties to this Agreement.
(e) Bank 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 Bank.
6. DEFAULT
-------
In the event of a default by Customer of its obligations (i) to maintain
Adequate Margin as herein provided, (ii) to timely comply with any obligation on
Customer's part to be performed or observed under this Agreement or in the
Margin Agreement, (iii) to pay on demand by Broker any losses sustained by
Broker as may occur under circumstances contemplated in paragraph 3 above; or
(iv) in the event of Customer's Insolvency, Broker has the right to give notice
(which notice may be by telegraph, facsimile transmission or hand delivery) to
Customer specifying such default and Broker may, no sooner than 2:00 P.M., New
York time on the next business day after giving such notice to Customer, if
Customer continues to be in default or insolvent at the end of such period,
effect a Closing Transaction or buy-in of any securities of which Customer's
account may be short. In the event of a default specified in subparagraphs (i),
(ii) or (iii) above, Broker shall also have the right, upon like notice and
grace period, to sell any and all Collateral in the Special Custody Account and
to give Advice to Bank to deliver such Collateral free of payment to Broker,
which Advice shall state that, pursuant to this Agreement, the condition
precedent to Broker' s right to receive such Collateral free of payment has
occurred. The Bank will provide prompt telephone notice to Customer of any
receipt by Bank of Advice from Broker to deliver Collateral free of payment, and
shall effect delivery of Collateral to Broker. Such sale or purchase may be made
according to Broker's judgment and may be made at Broker's discretion, on the
principal exchange or other market for such securities, or in the event such
principal market is closed, in a manner commercially reasonable for such
securities.
7. LIMITATION OF BROKER LIABILITY
------------------------------
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 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 result of
Broker's own recklessness, willful misconduct or bad faith.
-6-
8. CUSTOMER REPRESENTATION
-----------------------
Customer represents and warrants that the Collateral will not be subject
to any other liens or encumbrances.
9. TERMINATION
-----------
Any of the parties hereto may terminate this Agreement by notice in
writing to the other parties hereto; provided, however, that the status of any
short sales, and of Collateral held at the time of such notice to margin such
short sales shall not be affected by such termination until the release of such
Collateral pursuant to applicable rules of such national securities exchanges of
which Broker may be a member. In the event of the release of Collateral, the
Collateral shall be transferred to Customer.
10. NOTICE
------
Written communications hereunder shall be telegraphed, sent by facsimile
transmission or hand delivered as required herein, 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 Bank, to:
State Street Bank and Trust Company
0000 Xxxxxxxx Xxxxx
Xxxxx Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxxxxxxx Xxxxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
(b) if to Customer, to:
INVESCO Funds Group, Inc.
0000 X. Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Xxxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
-7-
(c) if to Broker, to:
Herzog, Heine, Geduld, Inc.
000 Xxxxxxxxxx Xxxx.
Xxxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
11. CONTROLLING LAW
---------------
The construction and enforcement of this Agreement shall be subject to and
governed by the laws of the Commonwealth of Massachusetts.
-8-
IN WITNESS WHEREOF, each of the undersigned has caused the Agreement to be
executed in its name and on its behalf by a duly authorized representative as of
the aforementioned day and year.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Xxxxxxx X. Xxxxxxxxxx, Xx.
-----------------------------------
Title: Vice President
-----------------------------------
THE GLOBAL HEALTH SCIENCES FUND
By: /s/ Xxxx X. Xxxxx
-----------------------------------
Title: Secretary
-----------------------------------
HERZOG, HEINE, GEDULD, INC.
By: /s/ Xxxxx Xxxxxx
-----------------------------------
Title: Executive Vice President
-----------------------------------
-9-
