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SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT (hereinafter "Agreement") dated as of February ___, 1998, by
and among Firstar Trust Company, in its capacity as custodian hereunder (the
"Bank"), each series of The Xxxxxxx Funds, each of which shall be considered a
separate party to this Agreement and each of which shall be known as 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 is a registered investment company which 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 Professional Account Agreement (the "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" means 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
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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.
(d) "Collateral" shall mean cash or U.S. Government securities or
other securities acceptable to Broker.
(e) "Custody Agreement" shall mean the agreement for general
custodial services between the Bank and Customer.
(f) "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 in an involuntary case
under the Bankruptcy Law of the United States, as now or
hereinafter constituted, or an order, judgment or decree has
been entered appointing any such trustee, receiver, liquidator
or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 60 days.
(g) "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.
(h) "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
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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.
(i) "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.
(j) "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 Xxxxxxx Financial Alert 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 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.
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(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.
(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 each business day, compute the aggregate net
credit or debit balance on Customer's open short sales and
advise Customer and/or Customer's designated agent by 11:00
A.M. New York time on the next business day (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 Customer's open short positions are
marked-to-market each business day, payments will be made by
or to Customer to reflect changes (if any) in the credit or
debit balances. To the extent payments are not made as
aforesaid, 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.
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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 grants 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 interest, dividends or other
distributions paid with respect to the Collateral held in the
Special Custody Account shall be retained therein as
additional Collateral, unless requested by Customer in
accordance with the provision in this Agreement concerning the
release of excess Collateral.
(c) Reports. The Bank shall, as promptly as practical, provide
Broker and the Customer and/or Customer's designated agent
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, 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 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
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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 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 any failure by Customer to timely comply with any
obligation on Customer's part to be performed or observed under this Agreement
or the Customer Agreement, including, but not limited to, the obligation to
maintain Adequate Margin, or in the event of Customer's Insolvency, Broker may
effect a Closing Transaction or buy-in of any securities of which Customer's
account may be short. In the event of any such default or Customer's Insolvency,
Broker shall also have the right 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 immediate notice to Customer by
telephone of any receipt by Bank of an 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 judgement 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
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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 a proper custody
account of the Customer in the Bank.
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:
Firstar Trust Company
Xxxxx Center
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attn:
Phone:
Facsimile:
(b) if to Customer, to:
The Olstein Funds
000 Xxxxxxxxx Xxxx Xxxxx
Xxxxx Xxxxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxxx
Phone: (000) 000-0000
Facsimile: (000) 000-0000
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(c) if to Broker, to:
Bear, Xxxxxxx Securities Corp.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx Xxxxxxx, Treasurer
Phone: (000) 000-0000
Facsimile: (000) 000-0000
11. CONTROLLING LAW
The construction and enforcement of this Agreement shall be subject to
and governed by the laws of the State of New York.
12. THE AGREEMENT CONTROLS/AMENDMENTS
Customer and Bank agree that the terms of this Agreement shall
supplement and amend the Custody Agreement dated as of August 18, 1995 between
Bank and Customer with respect to the Special Custody Account identified on page
3 hereof, and to the extent inconsistent therewith, the terms of this Agreement
shall control. No amendment of this Agreement shall be effective unless in
writing and signed by an authorized officer of each of Broker, Customer and
Bank.
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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 XXXXXXX FUNDS
By:
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Name:
Title:
FIRSTAR TRUST COMPANY
By:
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Name:
Title:
BEAR, XXXXXXX SECURITIES CORP.
By:
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Name:
Title:
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