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SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT (hereinafter "Agreement") dated as of August 12, 1994, by and
among State Street Bank and Trust Company, in its capacity as custodian
hereunder (the "Bank"), The MainStay High Yield Corporate Bond Fund, (the
"Customer") and Bear, Xxxxxxx Securities Corp. (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 execute various
security transactions, including short sales (which is permitted by Customer's
investment policies), and in connection therewith has executed Broker's
Customer Agreement which provides for margin transactions; 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 requirements
("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" mans a written notice sent to
Customer and Bank or transmitted by a facsimile sending device, except that
Advice for initial or additional Collateral or with respect to Broker's ability
to effect a short sale for the 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
Advice 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.
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(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 competent 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
competent 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 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 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
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) Opening Custody Account. Bank shall open an account on its books
entitled "Special Custody Account for Bear, Xxxxxxx Securities Corp. as Pledgee
of The MainStay High Yield Corporate Bond 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
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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 any other person claiming through Broker, including the
creditors of the Broker.
(b) Security Interest. 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) Confirmation. 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 transactions 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) Excess Collateral. 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 such exchanges as may
be the primary market or markets for such securities.
(e) Accounts and Records. Bank will maintain accounts and records for
the Collateral in the Special Custody Account as more fully described in
sub-paragraph 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) Short Sales. 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) Open Short Sales Balance. Broker shall, based on the closing
market price 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 on the first business day of the following week (the
"Determination Day") of the amount of the net debit or credit, as the case may
be. If a net debit balance exists on the Determination Day, Customer will cause
an amount equal to such net debit balance to be paid to Broker by the close of
business on the Determination Day. If a net credit balance exists on the
Determination Day, Broker will pay such credit balance to Customer by the close
of business on the Determination Day. As Customers
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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 ORDERS
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 sub-paragraph 5(b) below, shall receive and hold 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 account 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 a 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 Broker and the
Customer and/or Customer's designated agent a monthly statement of the
Collateral held in the Special Custody Account. In addition, the Bank will
advise the Broker and the Customer and/or Customer's designated agent,
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upon request of the Broker or Customer, 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 or substitution 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 arising
out of any action or omission of the Bank in accordance with any Advice, 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 Office of the Controller of the Currency (or the Securities and Exchange
Commission). The Bank shall not be liable to any party for any acts or
omissions of the other parties to this Agreement.
(e) Compensation. 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 Customer 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 promptly 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.
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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.
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 law or regulations or rules of any self
regulatory organization to which the Broker is subject. 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
Attention: The MainStay Funds
Telephone: 000-000-0000
Telecopy: 000-000-0000
(b) if to Customer, to:
New York Life Insurance Company
00 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx Xxxxx
Telephone No: 000-000-0000
Facsimile No: 000-000-0000
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(c) if to Broker, to:
Bear, Xxxxxxx Securities Corp.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxx, Treasurer
Telephone No.: 000-000-0000
Facsimile No.: 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.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers as of the day and year first
above written.
THE MAINSTAY HIGH YIELD CORPORATE BOND
FUND
By:
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Title:
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STATE STREET BANK AND TRUST COMPANY
By:
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Title:
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BEAR, XXXXXXX SECURITIES CORP.
By:
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Title:
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