SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT (the "Agreement") dated as of ________, 1998, by and among
Custodial Trust Company, in its capacity as custodian hereunder (the "Bank"),
Xxxx Xxxxxxxxx Variable Insurance Trust, on behalf of its Xxxx Xxxxxxxxx VIT
Market Neutral 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
securities transactions, including short sales (which are 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 (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 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,
the latter of which shall be subject to modification by Broker
in its sole and absolute discretion upon prior notice given
orally to Customer and Bank.
(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 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 marginable 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 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.
(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.
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(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 Xxxx
Xxxxxxxxx Variable Insurance Trust, on behalf of its
Xxxx Xxxxxxxxx VIT Market Neutral 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 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. In the event Customer
wishes to add another series of Xxxx Xxxxxxxxx
Variable Insurance Trust to this Agreement, the
title of such account shall be appended to this
Agreement as a schedule.
(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.
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 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.
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".
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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.
(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.
(c) REPORTS. The Bank shall provide Broker and Customer
with written confirmation of each transfer into and
out of the Special Custody Account, in each case as
promptly as practical, but in any event not later
than the next business day. 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.
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(d) LIMITATION OF BANK'S LIABILITY. The Bank's duties
and responsibilities under this Agreement are as set
forth herein. 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 entered
into thereby shall apply with respect to the
responsibilities of the Bank and 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). With respect to all securities, however
registered, it is understood that all voting rights and other
rights and powers shall be exercised exclusively by Customer.
Bank's only duty with respect thereto shall be to mail to
Customer any documents received, including proxy statements
and offering circulars, with any proxies for securities
registered in a nominee name executed by such nominee. 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. DELIVERY OF COLLATERAL TO BROKER
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, provided that Broker shall first use reasonable efforts to
(i) give notice to Customer specifying such default (which notice may be by
telegraph, facsimile transmission or hand delivery) and (ii) hold a discussion
with Customer regarding such default and Broker's intended actions in response
thereto. Notwithstanding the foregoing, neither notice nor a discussion shall be
required in the event market conditions render same impracticable in the
reasonable discretion of Broker. In the event of any default
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as aforesaid, after making a reasonable attempt to give notice to and hold a
discussion with Customer (subject to market conditions as set forth above),
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 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. Subject
to applicable requirements of the New York Uniform Commercial Code, 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 to the
extent that such loss, cost, damage, liability or expense is the result of
Broker's own negligence, recklessness, willful misconduct or bad faith. With
respect to all securities in the Special Custody Account, it is understood that
all voting rights and other rights and powers shall be exercised exclusively by
Customer, and that Broker shall have no responsibilities in connection
therewith, whether pertaining to the delivery of proxy statements or offering
circulars or otherwise.
Notwithstanding the foregoing, no party to this Agreement shall be liable
for any losses caused directly or indirectly by any inability of such party 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 such party's
control, or for any consequential, incidental, punitive, special or indirect
damages, economic loss or lost profits, even if such party has been advised of
the possibility of such damages or loss.
8. CUSTOMER REPRESENTATION
Customer represents and warrants that the Collateral will not be
subject to any other liens or encumbrances other than those granted to the Bank
under the Custodian Agreement.
9. TERMINATION
Any of the parties hereto may terminate this Agreement by 30 days'
notice in writing to the other parties hereto; provided, however, that the
status of any short sales, and of Collateral held at
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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:
Custodial Trust Company
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Vice President - Trust Operations
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to Customer, to:
Xxxx Xxxxxxxxx Variable Insurance Trust
0 Xxxxxx Xxx, Xxxxxxxx X
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(c) if to Broker, to:
Bear, Xxxxxxx Securities Corp.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxx, Treasurer
Telephone: 000-000-0000
Facsimile: 000-000-0000
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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. LIMITATION OF LIABILITY
To the extent that the trustees of Xxxx Xxxxxxxxx Variable Insurance
Trust are regarded as entering into this Agreement, they do so only as trustees
thereof and not individually. The obligations under this Agreement of Xxxx
Xxxxxxxxx Variable Insurance Trust or Xxxx Xxxxxxxxx VIT Market Neutral Fund
shall not be binding upon any trustee, officer or employee of Xxxx Xxxxxxxxx
Variable Insurance Trust individually, or upon any holder of shares issued by
Xxxx Xxxxxxxxx Variable Insurance Trust individually, but shall be binding only
upon the assets and property of Xxxx Xxxxxxxxx VIT Market Neutral Fund. Such
trustees, officers, employees and holders, when acting in such capacities, shall
not be personally liable under this Agreement, and Broker and Bank shall look
solely to the assets and property of Xxxx Xxxxxxxxx VIT Market Neutral Fund for
the performance of this Agreement thereby and for the payment of any claim
against Xxxx Xxxxxxxxx VIT Market Neutral Fund pertaining to 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 day and year first above
written.
XXXX XXXXXXXXX VARIABLE INSURANCE TRUST
ON BEHALF OF ITS
XXXX XXXXXXXXX VIT MARKET NEUTRAL FUND
By:
---------------------------
Name:
Title:
CUSTODIAL TRUST COMPANY
By:
---------------------------
Name:
Title:
BEAR, XXXXXXX SECURITIES CORP.
By:
---------------------------
Name:
Title:
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