SPECIAl CUSTODY AGREEMENT
(Listed and OTC Options)
AGREEMENT, (hereinafter "Agreement") dated as of NOVEMBER 16, 1998, among
The Prudential Series Fund, Inc., Natural Resources Portfolio ("Customer"),
Xxxxxxx, Xxxxx & Co., a New York limited partnership ("Broker") and Investors"
Fiduciary Trust Company as Custodian hereunder ("Custodian")
WHEREAS, Customer has opened a securities account (the "Account") with
Broker to engage in and place orders for transactions in Options (as hereinafter
defined) as contemplated by the Customer's Option Agreement (covering listed
Options) and the Agreements setting forth the General Terms and Conditions
covering OTC Options on debt and equity securities, respectively, which Customer
has, or may hereafter, enter into with Broker and Customer, which Agreements
require Customer to provide Performance Assurance to Broker to assure compliance
by Broker and Customer with applicable laws and regulations including the margin
regulations of the Board of Governors of the Federal Reserve System and of any
relevant securities exchanges and other self-regulatory associations and as
security for the performance of Customer's obligations in connection with the
issuance and sale of Options by Customer;
WHEREAS, to facilitate the provision and maintenance of adequate
Performance Assurance by Customer, Custodian is prepared to act as custodian
hereunder;
NOW, THEREFORE, be it agreed as follows:
(1) As used herein, the following terms have the following meanings:
"Adequate Performance Assurance" shall mean such Collateral placed in the
Special Custody Account (defined in paragraph 3(a) below) as is adequate under
the Margin Rules, Broker's internal policies, or (subject to compliance with the
Margin Rules) as otherwise established by mutual agreement (in the case of OTC
Options).
"Advice from Broker" means a notice in writing delivered to Customer or
Custodian, as applicable hereunder, or transmitted to them by a facsimile
sending device, except that with respect to the cases listed below it shall mean
notice by telephone to a person designated by Customer in writing as authorized
to receive such advice or, in the event that no such person is available, to any
officer of the Customer: (i) calls for initial or additional Collateral, (ii)
notice that an exercise notice filed with 0CC has been assigned to the Customer,
(iii) notice that Broker has exercised an OTC Option issued by Customer, or (iv)
any notice referred to in paragraph 8 hereof.
"Business Day" means a day on which Custodian, Customer and Broker are open
for business.
"Closing Transaction" means, in the case of Listed Options, the purchase of
an Option of the same series as an Option previously written by a party and
still unexpired or unexercised, or the sale of an Option
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of the same series as an Option previously purchased by a party and still
outstanding or unexercised and, with respect to OTC Options, means the
repurchase of an unexpired OTC Option by the writer.
"Collateral" shall mean cash, U.S. Government securities, securities
underlying a Call Option or other margin eligible securities acceptable to
Broker which are pledged to Broker as provided herein.
"Exercise Settlement Amount" means (i) in the case of a Call on a market
index option or cash-settled option on a portfolio of securities, the amount by
which the 'aggregate current index price' of the index Option contract or the
Portfolio Value of the portfolio of securities, as the case may be, is less than
the 'aggregate current index value' of the underlying index or the market value
of the portfolio of securities, as the case may be, plus all applicable
commissions and other charges, or (ii) in the case of a Put, the amount by which
the 'aggregate exercise price' of the index Option contract or the Portfolio
Value of the portfolio of securities, as the case may be, is greater than the
'aggregate current index value' of the underlying index or the market value of
the portfolio of securities, as the case may be, plus all applicable commissions
and other charges.
"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 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 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 hereafter 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 30 days.
"Instructions from Customer" means a request, direction or certification in
writing signed in the name of the Customer by a person authorized by Customer
and delivered to Custodian or transmitted to it by a facsimile sending device
except that instructions to pledge initial or additional collateral may be given
by telephone and thereafter confirmed in writing signed in the name of Customer
by a person authorized in writing by Customer.
"Option" means the right but not the obligation of one party to buy from
("Call Option") or to sell to ("Put Option") the other party a
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specific security, market index or foreign currency issued by the Options
Clearing Corporation ("0CC") and traded on a securities exchange ("Listed
Options") or purchased or sold in privately negotiated transactions between
Customer and Broker ("OTC Options")
"Receipt of Payment" means receipt by Custodian, for Customer, of (i) a
certified or official bank check, (ii) a written or telegraphic advice from a
registered clearing agency that funds have been or will be credited to the
account of Custodian, or (iii) transfer of funds from Broker's account
maintained at Custodian. Instructions accompanying such payment shall identify
the Options Account in which the transaction occurred.
"Receipt of Securities" means receipt by Custodian for Customer of (i)
definitive or temporary certificates for securities in good deliverable form or
of foreign currency, as applicable or (ii) a written or telegraphic advice from
a registered clearing agency that securities or foreign currency have been or
will be credited to the account of Custodian. Instructions accompanying such
securities or foreign currency payment advice shall identify the Option Account
in which the transaction occurred.
"Same Day" shall mean no later than 2:00 p.m. (New York time) on the same
day that the Broker notifies Customer that an exercise notice has been assigned
to Customer but only if such notification has been given by Broker by 10:00
a.m.. If such notification is given by Broker to Customer after 10:00 a.m., Same
Day shall mean by 2:00 p.m. the following business day.
(2) Customer agrees to provide and maintain Adequate Performance Assurance
for the Option Account(s) at all times.
(3) (a) Custodian shall open an account on its books entitled "Special
Custody Account for Xxxxxxx, Sachs & Co. as Pledgee of The Prudential Series
Fund, Inc., Natural Resources Portfolio ("Special Custody Account") and shall
hold therein for Broker as pledgee upon the terms of this Agreement all
Collateral, all monies or other property paid or distributed with respect
thereto or realized on any sale thereof made pursuant to this Agreement. The
Custodian hereby agrees that any property held in the Special Custody Account
shall be treated as a financial asset for purposes of Revised Article 8 (as
defined below) to the extent the same may be applicable. Customer agrees to
instruct Custodian in Instructions from Customer as to the cash and specific
securities which Custodian 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 Performance Assurance.
(b) Customer, Broker and Custodian agree that Collateral will be held in
the Special Custody Account by Custodian as agent of Broker as pledgee, and in
accordance with this the terms of this Agreement, that
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the Custodian will take such actions with respect to any Collateral (including
without limitation the delivery thereof) as Broker shall direct in an Advice
from Broker in accordance with the terms of this Agreement and that in no event
shall any consent of the Customer be required for the taking of any such action
by Custodian.
(c) Customer hereby grants a continuing security interest to Broker in (i)
the Collateral and any proceeds thereof and (ii) all other property in the
Option(s) Account and the Special Custody Account and any proceeds thereof, to
secure Customer's obligations to Broker under this Agreement. To perfect
Broker's security interest, Custodian will, as a Financial Intermediary as such
term is defined in Section 8-313 of the New York Uniform Commercial Code or as a
Securities Intermediary as defined in Revised Article 8 (with Conforming and
Miscellaneous Amendments to Article 1,4,5,9 and 10) of the Uniform Commercial
Code (1994 Official Text) ("Revised Article 8"), to the extent the same may be
applicable, or in applicable federal law or regulations, hold the Collateral in
the Special Custody Account separate and apart from other property of the
Customer which may be held by Custodian or otherwise register on its books and
records the transfer to Broker of Collateral pledged hereunder as the pledgee
and secured party hereunder in accordance with the terms of this Agreement. Such
security interest will terminate at such time as Collateral is released as
provided herein. Custodian shall have no responsibility for the validity or
enforceability of such security interest.
(4) Custodian will confirm in writing to Broker and Customer within one
Business Day all pledges, releases or substitutions of Collateral and will
supply Customer and Broker with a monthly statement of Collateral in the account
and transactions in the account during the preceding month. Custodian will also
advise Broker or Customer upon request, at any time, of the kind and amount of
Collateral pledged to Broker.
(5) Custodian agrees to release Collateral to Customer from the pledge
hereunder only upon receipt of an Advice from Broker signed by a person
authorized to sign for the Broker as certified in writing by Broker to
Custodian. Broker agrees, upon request of Customer, to provide the Advice to
release Collateral selected by Customer (i) if said Collateral represents an
excess in value of the Collateral necessary to constitute Adequate Performance
Assurance at that time or (ii) against receipt in the Special Custody Account of
substitute Collateral having a value at least equal (with any remaining
Collateral) to Adequate Performance Assurance or (iii) upon termination of the
Account and settlement in full of all transactions therein and any amounts owed
to Broker with respect thereto. It is understood that Broker will be responsible
for valuing Collateral; Custodian at no time has any responsibility for
determining whether the value of Collateral is equal in value to Adequate
Performance Assurance.
(6) Customer represents and warrants to Broker that securities pledged to
Broker shall be in good deliverable form (or Custodian shall
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have the unrestricted power to put such securities into good deliverable form),
and that the Collateral will not be subject to any liens or encumbrances other
than the lien in favor of Broker contemplated hereby.
(7) 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 and secured party thereof. Custodian represents that Collateral will not
be subject to any other lien, charge, security interest, or other right or claim
of the Custodian or any person claiming through Custodian, and Custodian hereby
waives any lien or right of set off it may have with respect to Collateral.
Custodian shall use its best efforts to notify Broker and Customer as soon as
possible if any notice of levy, lien, court order or other process purporting to
affect the Collateral is received by it.
(8) The occurrence of any of the following constitutes a Customer Default
hereunder:
(a) If Broker advises Customer in an Advice from Broker that an
exercise notice filed with 0CC in respect of one or more Listed
Call Options sold by Customer has been assigned to Customer
through Broker and either (i) Customer does not notify Broker by
telephone on the Same Day of Customer's intention to comply with
the exercise notice by delivery of the underlying securities,
foreign currency or, if applicable, its intention to make payment
of the Exercise Settlement Amount, or (ii) the Customer, having
given such notice, fails to make delivery of such securities or
foreign currency or to cause such delivery to be made against
Receipt of Payment of the gross exercise price for such
securities or foreign currency, less applicable commissions or
other charges, or to make or to cause to be made payment of the
Exercise Settlement Amount on behalf of Customer to Broker; or
(b) Broker advises Customer in an Advice from Broker that an exercise
notice filed with 0CC in respect of one or more Listed Put
Options sold by Customer has been assigned to Customer through
Broker, and (i) Customer does not notify Broker by telephone on
the Same Day of Customer's intention to comply with the exercise
notice by making payment of the gross exercise price plus
applicable commissions or other charges against Custodian's
Receipt of Securities underlying the Put, or to pay the Exercise
Settlement Amount, as the case may be, or if (ii) Customer,
having given such notice, fails to make such payment or cause
such payment to be made against Custodian's Receipt of Securities
underlying the Put, or to pay the Exercise Settlement Amount,
as the case may be; or
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(c) Customer fails to perform any obligation hereunder or under the
Institutional Account Agreement for Listed Options or is in
default under the General Terms and Conditions for OTC Options
including, without limitation, its obligation to maintain
Adequate Performance Assurance as herein provided; or
(d) In the event of Customer's Insolvency,
Broker will immediately notify Customer in an Advice from Broker of such
default on their respective part to be performed or of such Insolvency. No
sooner than 2:00 p.m. New York time on the next Business Day after transmittal
by Broker of such written notice to Customer (which may be given by electronic
facsimile, telegraph or hand delivery), if Customer continues to be in default
or Insolvent at the end of such period, Broker may thereupon close out
transactions in Options, sell any or all property or securities in the Option
Account(s), the Special Custody Account (in which event such Collateral shall be
delivered to Broker as provided in paragraph 10 below), as in Broker's judgment
is necessary for the protection of its or its affiliates' interests. The
foregoing rights and remedies shall be in addition and not a limitation of any
other rights and remedies Broker may have pursuant to the General Terms and
Conditions with respect to OTC Options.
(9) Any sale of Collateral made pursuant to paragraph 8 shall be made in
accordance with the provisions of the New York Uniform Commercial Code in the
principal market for the securities or, if such principal market is closed, such
sale shall be made in a manner commercially reasonable for Collateral. Customer
shall remain liable for any deficiency if sale of such Collateral does not
produce an amount equal to the amount authorized to be reimbursed to Broker
pursuant to paragraph 8 plus reasonable costs and expenses of Broker actually
incurred in the exercise of its rights under this Agreement. Any surplus
resulting from the sale of Collateral shall be transmitted to Custodian for
deposit to the Customer's account at Custodian. Broker shall notify Customer of
any sale of Collateral and any deficiency remaining thereafter in an Advice from
Broker.
(10) Broker hereby covenants, for the benefit of Customer, that Broker will
not instruct Custodian to deliver Collateral free of payment with respect to any
sale of Collateral pursuant to paragraph 8 until after the occurrence of the
events and the expiration of the time periods set forth in paragraph 8. The
foregoing covenant is for the benefit of Customer only and shall in no way be
deemed to constitute a limitation on Broker's right at any time to instruct
Custodian pursuant to an Advice of Broker and Custodian's obligation to act upon
such instructions. Custodian shall not be required to make determination as to
whether such delivery is made in accordance with the provisions of this
Agreement. Custodian will provide prompt telephone notice to an officer of
Customer of receipt by Custodian of Advice from Broker to deliver Collateral.
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(11) It is understood that all determinations and directions for the
purchase or sale of Options for the account of the Customer pursuant to the
terms of this Agreement shall be made by Customer. The Customer is not relying
upon Broker to make recommendations with respect thereto.
(12) Custodian's duties and responsibilities are set forth in this
Agreement. Custodian will not be responsible for the acts, omissions or solvency
of any broker or agent selected by Customer to effect any transactions for the
Special Custody Account and shall not be liable for any action taken by
Custodian in good faith and without negligence in reliance upon Instructions
from Customer or Advice from Broker as provided herein.
(13) All charges for Custodian's services under this Agreement shall be
paid by Customer.
(14) No amendment of this Agreement shall be effective unless in writing
and signed by a general partner of Broker and by an authorized officer of the
Customer.
(15) Written communications hereunder shall be sent by telecopy facsimile
or telegraphed when required herein, hand delivered or mailed first class
postage prepaid, except that written notice of termination shall be sent by
certified mail, in any such case addressed:
(a) if to Customer, to: Prudential Series Fund, Inc., Natural
Resources Portfolio
000 Xxxxxxxx Xxxxxx
Xxxxxxx Center Two, 0xx Xxxxx
Xxxxxx, XX 00000
Attention: Trade Support Manager
Fax No.: 000-000-0000
(b) if to Custodian, to: Investors Fiduciary Trust Company
000 Xxxxxxxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000-0000
Attention: Xxxxx Both
Fax No.: 000-000-0000
(c) if to Broker, to: Xxxxxxx, Sachs & Co.
00 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Client Services Dept.
Fax No.: 000-000-0000
Phone No.: 000-000-0000
Copies of Custodian's confirmations, statements and advices issued
pursuant to Paragraph 4 should be sent to:
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Xxxxxxx, Xxxxx & Co.
00 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxxx
Phone No.: 000-000-0000
(16) Intentionally Omitted.
(17) 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
Collateral pledged to Broker at the time of such notice shall not be affected by
such termination until the release of such pledge pursuant to applicable rules,
laws and regulations (including Regulations T and X, if applicable), rules of
the 0CC and such national securities exchanges of which Broker may be a member.
(18) Nothing in the Agreement will prohibit Broker, Custodian or Customer
from entering into similar agreements with others in order to facilitate option
contract transaction.
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(19) Intentionally Omitted.
(20) If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or self-regulatory agency
or body, such invalidity or unenforceability shall attach only to such provision
or condition. The validity of the remaining provisions and conditions shall not
be affected thereby and this Agreement shall be carried out as if any such valid
or unenforceable provision or condition were not contained herein.
(21) This agreement and its enforcement (including, without limitation, the
establishment and maintenance of the Special Custodial Account and all interest,
duties and obligations related thereto) shall be governed by the laws of the
State of New York. This Agreement shall be binding on the parties and any
successor organizations thereof irrespective of any change or changes in
personnel thereof. This Agreement may not be assigned or transferred by any
party hereto without the consent of the other parties except for an assignment
and delegation of all of Broker's rights and obligations hereunder in whatever
form Broker determines may be appropriate to a partnership, corporation, trust
or other organization in whatever form that succeeds to all or substantially all
of Broker's assets and business and that assumes such obligations by contract,
operation of law or otherwise. Upon any such delegation and assumption of
obligations, Broker shall be relieved of and fully discharged from all
obligations hereunder, whether such obligations arose before or after such
delegation and assumption.
Prudential Series Fund, Inc.,
Natural Resources Portfolio:
By: XXXXX XXXXXX
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Title: TREASURER & PRINCIPAL
FINANCIAL & ACCOUNTING OFFICER
XXXXXXX, SACHS & CO.
By: ILLEGIBLE
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Title: V.P.
Investors" Fiduciary
Trust Company:
By: XXXX XXXXX
------------------------------
Title: V.P..
