SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT (the "Agreement") dated as of December ___, 1997, by and among
Custodial Trust Company, in its capacity as custodian hereunder (the "Bank"),
Xxxx Xxxxxxxxx Series Trust, on behalf of its Xxxx Xxxxxxxxx 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.
(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.
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(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 Series Trust, for its Xxxx Xxxxxxxxx
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 Series 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.
(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
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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".
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
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(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.
(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
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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. 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 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, after giving such notice to Customer and holding a discussion with
Customer, effect a Closing Transaction or buy-in of any securities of which
Customer's account may be short. In the event of any default as aforesaid,
Broker shall also have the right, after giving notice to Customer and holding a
discussion with Customer, 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
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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.
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 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 Series Trust
0 Xxxxxx Xxx, Xxxxxxxx X
0
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
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 Series 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 Series
Trust or Xxxx Xxxxxxxxx Market Neutral Fund shall not be binding upon any
trustee, officer or employee of Xxxx Xxxxxxxxx Series Trust individually, or
upon any holder of shares issued by Xxxx Xxxxxxxxx Series Trust individually,
but shall be binding only upon the assets and property of Xxxx Xxxxxxxxx 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 Market
Neutral Fund for the performance of this Agreement thereby and for the payment
of any claim against Xxxx Xxxxxxxxx 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 SERIES TRUST
ON BEHALF OF ITS
XXXX XXXXXXXXX MARKET NEUTRAL FUND
By:
-------------------------------------
Name:
Title:
CUSTODIAL TRUST COMPANY
By:
-------------------------------------
Name:
Title:
BEAR, XXXXXXX SECURITIES CORP.
By:
-------------------------------------
Name:
Title:
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