EXHIBIT 99.8(c)
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FORM OF SPECIAL CUSTODY ACCOUNT AGREEMENT BY AND AMONG THE TRUST,
CUSTODIAL TRUST COMPANY AND BEAR, XXXXXXX SECURITIES CORP.
SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT (the "Agreement") dated as of December __, 1998, by and among
Custodial Trust Company in its capacity as custodian hereunder (the "Bank"),
Undiscovered Managers Funds on behalf of its Behavioral Long/Short 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 is a registered investment company which desires from
time to time to execute various securities transactions, including short sales
(which are 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 (the
"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 herein);
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
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As used herein, the following terms shall 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" shall mean a written notice sent to
Customer and Bank by facsimile, except that an Advice 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 for such purpose and sent to
Customer and Bank by facsimile. With respect to substitutions or
releases of Collateral, Advice from Broker shall mean a written notice
signed by Broker and sent to Customer and Bank by facsimile. An
authorized agent of Broker will certify to Customer and Bank the names
and signatures of those employees who are
authorized to sign an Advice from Broker, which certification may be
amended from time to time. When used herein, the term "Advise" shall
mean the act of sending an Advice from Broker.
(c) "Closing Transaction" shall mean a transaction in which securities
which have been sold short are purchased for Customer.
(d) "Collateral" shall mean cash, U.S. government securities or other
securities acceptable to Broker.
(e) "Custody Agreement" shall mean the agreement for general custodial
services between Bank and Customer, dated as of December __, 1998.
(f) "Insolvency" shall mean 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 Customer insolvent; or (B) 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 Customer, or commenced a voluntary
case under the Bankruptcy Law of the United States or any proceedings
relating to 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 Customer and 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) "Instruction from Customer" or "Instruction" shall mean a request,
direction or certification in writing signed by Customer and sent to
Bank and Broker by facsimile. An officer of Customer will certify to
Bank and Broker the names and signatures of those persons authorized
to sign an Instruction, 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.
2. SPECIAL CUSTODY ACCOUNT
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(a) Opening Custody Account. Bank shall open an account on its books
entitled "Special Custody Account for Bear, Xxxxxxx Securities Corp.
as Pledgee of
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Undiscovered Managers Funds on behalf of its Behavioral Long/Short
Fund" (the "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 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 the
Collateral shall be at least equal to what Broker shall initially and
from time to time Advise Customer is necessary to constitute Adequate
Margin. The 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 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 Collateral in the Special Custody Account in
excess of that which is necessary to constitute Adequate Margin (any
such excess to be referred to hereinafter as "Excess Collateral").
Upon the request of Customer and Bank's receipt of an Advice from
Broker confirming the presence of any Excess Collateral, such Excess
Collateral shall be transferred from the Special Custody Account to an
account of Customer at Bank.
(e) Accounts and Records. Bank will maintain accounts and records for the
Collateral in the Special Custody Account as more fully described in
paragraph 5 hereof. The Collateral shall at all times remain the
property of Customer subject only to the extent of the interest and
rights therein of Broker as the pledgee thereof.
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3. ORIGINAL AND VARIATION MARGIN ON SHORT SALES
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(a) Short Sales. From time to time, Customer may place with Broker orders
for the short sale of securities. Prior to the acceptance of such
orders, Broker will Advise Customer of Broker's ability to borrow
securities or other property and any acceptance of short sale orders
will be contingent thereon.
(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 (each a "Determination Day") of the amount of the net
debit or credit, as the case may be. If a net debit balance exists on
a Determination Day, Customer will cause an amount equal to such net
debit balance to be paid to Broker by the close of business on such
Determination Day. If a net credit balance exists on a Determination
Day, Broker will pay such credit balance to Customer by the close of
business on such 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 pay interest on credit balances, each
as applicable. Balances will be appropriately adjusted when short
sales are closed out.
4. PLACING ORDERS
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It is understood and agreed that Customer, when placing with Broker any
order for the short sale of securities 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 its long account as aforesaid 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 BANK
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(a) Generally. 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 otherwise provided in this Agreement, shall receive and hold
all monies and other property paid, distributed or substituted in
respect of any Collateral or realized on the sale or other disposition
of Collateral; provided, however, that 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. Customer grants its authority to deposit
in the Special Custody Account any money, securities and other
property received by Bank. 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
Bank's records as subject to this Agreement and shall be in a form
that permits transfer without additional authorization or consent of
Customer.
(b) Dividends and Interest. Any interest, dividends or other distributions
paid with respect to Collateral held in the Special Custody Account
shall be retained therein as additional Collateral, subject to the
provision in this Agreement concerning Excess Collateral.
(c) Reports. Bank shall, as promptly as practical, provide Broker and
Customer and/or Customer's designated agent with written confirmation
of each transfer into and out of the Special Custody Account. Bank
also shall render to Broker and Customer and/or Customer's designated
agent a monthly statement of the Collateral held in the Special
Custody Account. In addition, Bank will notify Broker and Customer
and/or Customer's designated agent, upon request of Broker, Customer,
or Customer's designated agent at any time, of the type and amount of
Collateral held in the Special Custody Account; provided, however,
that Bank shall have no responsibility for making any determination as
to the value of such Collateral.
(d) Limitation of Bank's Liability. Bank's duties and responsibilities are
set forth in this Agreement. Bank shall act only upon receipt of an
Advice from Broker regarding the release or substitution of
Collateral. 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 Bank and Broker,
Broker shall indemnify and hold Bank
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harmless with regard to any losses or liabilities of Bank (including
counsel fees) imposed on or incurred by Bank arising out of any action
or omission of Bank in accordance with any Advice, notice or
instruction of Broker under this Agreement. In matters concerning or
relating to this Agreement, 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). 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. CLOSING/LIQUIDATING TRANSACTIONS; DELIVERY OF COLLATERAL TO BROKER
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In the event of any failure by Customer to comply timely 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 as to which Customer's
account may be short. In the event of any such failure by Customer to comply or
Customer's Insolvency, Broker shall also have the right to sell any and all
Collateral in the Special Custody Account and, by delivery of an Advice to Bank,
to have the Collateral delivered by Bank to Broker free of payment of money or
value. The aforesaid Advice shall state that, pursuant to this Agreement, the
condition precedent to Broker's right to receive such Collateral free of payment
of money or value has occurred. 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 of money or value, 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 TO CUSTOMER
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Broker shall not be liable to Customer 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. Notwithstanding
anything set forth in
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this Agreement, Broker shall not be liable for any losses caused directly or
indirectly by any inability of Broker to perform occasioned by suspension of
trading, wars, civil disturbances, strikes, natural calamities, labor or
material shortages, government restrictions, acts or omissions of exchanges,
specialists, markets, clearance organizations or information providers, delays
in mails, delays or inaccuracies in the transmission of orders or information,
governmental, exchange or self-regulatory organization laws, rules or actions,
or any other causes beyond Broker's control, or for any consequential,
incidental, punitive, special or indirect damages, economic loss or lost
profits, even if Broker is advised of the possibility of such damages or loss.
8. REPRESENTATIONS AND WARRANTIES
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Customer represents that neither the Collateral nor any portion thereof is,
and warrants that neither the Collateral nor any portion thereof will at any
time be, subject to any right, charge, security interest, lien or claim of any
kind, excluding the security interest granted under this Agreement by Customer
to Broker. Bank represents that neither the Collateral nor any portion thereof
is, and warrants that neither the Collateral nor any portion thereof will at any
time be, subject to any right, charge, security interest, lien or claim of any
kind in favor of Bank or any person claiming through Bank.
9. TERMINATION
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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 the Collateral held to margin such short sales at the time such
notice is given, shall not be affected by such termination until the release of
such Collateral pursuant to applicable law, regulations or the rules of any self
regulatory organization to which Broker is subject. In the event of any release
of Collateral, the Collateral released shall be transferred to an account of
Customer at Bank.
10. NOTICES
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Written communications hereunder shall be sent by facsimile as required
herein, or when the 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:
Custodial Trust Company
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attn:
Phone:
Facsimile:
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(b) if to Customer, to:
Undiscovered Managers Funds
Plaza of the Americas
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn:
Phone:
Facsimile:
(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
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The construction and enforcement of this Agreement shall be subject to and
governed by the laws of the State of New York.
12. THIS AGREEMENT CONTROLS; MODIFICATION/AMENDMENT
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To the extent there are inconsistencies between this Agreement and the
Custody Agreement, Customer and Bank agree that the terms of this Agreement
shall control with respect thereto. No modification or amendment of this
Agreement shall be effective unless in writing and signed by each party to this
Agreement.
13. COUNTERPARTS
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This Agreement may be executed in any number of counterparts and shall
become effective at such time as counterparts executed by all of the parties to
this Agreement have been delivered. Each copy of this Agreement which includes
counterparts executed by each party to this Agreement shall be an original
hereof.
14. CAPTIONS/HEADINGS
The captions and headings preceding the text of each paragraph and
sub-paragraph herein shall be disregarded in connection with the interpretation
of this Agreement.
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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 date first above written.
UNDISCOVERED MANAGERS FUNDS on
behalf of its Behavioral Long/Short Fund
By: __________________________________
Name:
Title:
CUSTODIAL TRUST COMPANY
By: __________________________________
Name:
Title:
BEAR, XXXXXXX SECURITIES CORP.
By: __________________________________
Name: Xxxxxxx Xxxxxxx
Title: Treasurer
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