INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement (this "Agreement") is made as of the
29th day of July, 1994 ("Effective Date"), by and between ARM Financial Group,
Inc., a Delaware corporation, with offices at Louisville, Kentucky ("Provider")
and National Integrity Life Insurance Company, a New York corporation, with
offices at New York, New York ("Company").
WHEREAS, Provider has extensive experience in the management of insurance
company investment portfolios; and
WHEREAS, Company desires that Provider serve as investment adviser with
respect to the investment portfolio maintained by Company; and
WHEREAS, Company has executed a Commitment Agreement to the New York
Insurance Department dated October 29, 1993 regarding the operations of Company,
which contemplates agreements for investment services; and
WHEREAS, Provider and Company contemplate that such an arrangement will
achieve certain operating economies and improve services to the benefit of
Provider, Company, and Company's insureds; and
WHEREAS, Provider and Company wish to assure that all charges for services
incurred hereunder are reasonable; and
WHEREAS, Provider and Company wish to identify the services to be rendered
to Company by Provider and to provide a formula for determining the charges to
be made to Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises set forth herein, and intending to be legally bound hereby, Provider
and Company agree as follows.
1. PERFORMANCE OF SERVICES. Subject to the terms, conditions, and
limitations of this Agreement, Provider agrees to the extent requested by
Company to perform diligently and in a professional manner the services for
Company as Company determines to be reasonably necessary in the conduct of its
investment operations, and as set forth in Appendix A, which is attached hereto
and made a part of this Agreement (collectively, "services").
Provider agrees at all times to maintain sufficient facilities and trained
personnel of the kind necessary to perform this Agreement.
(a) CAPACITY OF PERSONNEL AND STATUS OF FACILITIES. Whenever Provider
utilizes its personnel to perform services for Company pursuant to this
Agreement, such personnel shall at all times be subject to Provider's
direction and control, and Company shall have no liability to such
personnel for their welfare, salaries, fringe benefits, legally required
employer contributions, and tax obligations. No facility of Provider used
in performing services for Company shall be deemed to be transferred,
assigned, conveyed, or leased by performance or use pursuant to this
Agreement.
(b) EXERCISE OF JUDGMENT IN RENDERING SERVICES. In providing
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any services hereunder which require the exercise of judgment by Provider,
Provider shall perform such services in accordance with any standards and
guidelines Company develops and communicates to Provider. In performing
any services hereunder, Provider shall at all times act in a manner
reasonably calculated to be in or not opposed to the best interests of
Company.
(c) CONTROL. The performance of services by Provider for Company pursuant
to this Agreement shall in no way impair the absolute control of the
business and operations of Provider or Company by their respective Boards
of Directors. Provider shall act hereunder so as to assure the separate
operating identity of Company.
2. SERVICES. It is understood that Company has certain obligations under
a Commitment Agreement to the New York Insurance Department dated October 29,
1993 and it is agreed that Provider shall not act or refrain from acting in any
manner to cause Company to breach said obligations. The performance of Provider
under this Agreement with respect to the business and operations of Company
shall at all times be subject to the direction and control of the Board of
Directors of the Company. Subject to the foregoing and to the terms, conditions,
and limitations of this Agreement, Provider shall provide to Company the
services set forth in Appendix A, which is attached hereto and made a part of
this Agreement.
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3. FEES. Company agrees to compensate Provider for services provided by
Provider to Company pursuant to this Agreement. Fees are payable monthly in
arrears and shall be equal to an annual rate of .25% of the Account (as
hereinafter defined in Appendix A) valued at statutory book value as determined
by Provider on the last day of the month. Payments for less than a full month
shall be pro-rated. The fees provided for in this Section 3 are exclusive of any
fees charged or to be charged by any custodian under a separate custody
agreement. Company agrees that Provider may direct custodians of the Account to
make direct payment of fees due hereunder.
Calculation of fees shall be in accordance with the requirements of
regulation 275.205-3 issued under the Investment Advisers Act of 1940 by the
Securities and Exchange Commission, which requires, among other things, that
Company be notified that it is theoretically possible that a fee based in part
on the growth of a client's funds could create an incentive for an advisor to
make investments that are riskier or more speculative than it would make without
a performance-based fee.
4. PAYMENT. Provider shall submit to Company within thirty (30) days of
the end of each month a written statement of the amount owed by Company for
services pursuant to this Agreement in that month, and Company shall pay or have
paid to Provider within thirty (30) days following receipt of such written
statement the amount set forth in the statement.
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5. ACCOUNTING RECORDS AND DOCUMENTS. Provider shall be responsible for
preparing, maintaining, and disseminating full and accurate accounts and records
of all services rendered pursuant to this Agreement, as well as the financial
data with respect to the Account which is necessary to prepare financial
statements and reports on both statutory and GAAP bases, and such additional
information as Company may reasonably request for purposes of its internal
bookkeeping and accounting operations. Provider shall keep such accounts and
records insofar as they pertain to the computation of charges hereunder
available at its principal offices for audit, inspection, and copying by Company
and persons authorized by it or any governmental agency having jurisdiction over
Company during all reasonable business hours.
6. OTHER RECORDS AND DOCUMENTS. All books, records, and files established
and maintained by Provider by reason of its performance under this Agreement
which, absent this Agreement, would have been held by Company, shall be deemed
the property of Company, and shall be subject to examination during all
reasonable business hours by Company and persons authorized by it or any
governmental agency having jurisdiction over Company, and shall be delivered to
Company at least quarterly.
With respect to original documents other than those provided for in
Section 5 hereof which would otherwise be held by Company and which may be
obtained by Provider in performing under this Agreement, Provider shall deliver
such documents to Company
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within thirty (30) days of their receipt by Provider except where continued
custody of such original documents is necessary to perform hereunder.
7. RIGHT TO CONTRACT WITH THIRD PARTIES. Nothing herein shall be deemed to
grant Provider an exclusive right to provide services to Company, and Company
retains the right to contract with any third party, affiliated or unaffiliated,
for the performance of services as are available to or have been requested by
Company pursuant to this Agreement.
It is also understood and agreed that Provider's services are not
exclusively for Company. Provider shall remain free to provide services to other
clients or for its own account, pursuant to objectives which may or may not be
similar to the strategy adopted as appropriate for Company.
8. CONTACT PERSON(S). Company and Provider each shall appoint one or more
individuals who shall serve as contact person(s) for the purpose of carrying out
this Agreement. Such contact person(s) shall be authorized to act on behalf of
their respective parties as to the matters pertaining to this Agreement.
Effective upon execution of this Agreement, the initial contact person(s) shall
be those set forth in Appendix B. Each party shall notify the other, in writing,
as to the name, address, and telephone number of any replacement for any such
designated contact person.
9. TERMINATION. This Agreement shall remain in effect for an
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initial term of one year, unless Company, in its sole discretion, elects to
terminate this Agreement at an earlier time by giving sixty (60) days written
notice to Provider. After the initial one-year term, this Agreement shall renew
automatically for successive one-year terms unless the parties amend it in
writing to provide otherwise. Sixty (60) days written notice of termination
shall be required of either party, provided that Company shall have the right to
elect to continue to receive data processing services and/or to continue to
utilize data processing facilities and related software for up to 180 days from
the date of such notice. Provider agrees not to terminate during the initial
one-year term. Upon termination, Provider shall promptly deliver to Company all
books and records that are, or are deemed by this Agreement to be, the property
of Company.
10. SETTLEMENT ON TERMINATION. No later than sixty (60) days after the
effective date of termination of this Agreement, Provider shall deliver to
Company a detailed written statement for all fees due and not included in any
previous statement to the effective date of termination. The amount owed shall
be due and payable within fifteen (15) days of receipt of such statement.
11. ASSIGNMENT. This Agreement and any rights pursuant hereto shall not be
assignable by either party hereto without the prior written consent of the other
party, except as set forth herein or by operation of law. Except as and to the
extent
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specifically provided in this Agreement, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto, or
their respective legal successors, any rights, remedies, obligations, or
liabilities, or to relieve any person other than the parties hereto, or their
respective legal successors, from any obligations or liabilities that would
otherwise be applicable. The representations, warranties, covenants, and
agreements contained in this Agreement shall be binding upon, extend to and
inure to the benefit of the parties hereto, their, and each of their, successors
and assigns respectively.
12. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed in that State, without regard
to principles of conflict of laws.
13. CONFIDENTIALITY. Company agrees to give Provider any information in
its possession which Company deems relevant to the suitability of the investment
strategy implemented by Provider, including information on Company's
liabilities, whether this information becomes known before or after the adoption
of the strategy. Provider shall keep any information it obtains about Company's
business or investment objectives and results in confidence
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14. ARBITRATION. An unresolved dispute or difference between the parties
arising out of or relating to this Agreement, or the breach thereof shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association and the Expedited Procedures thereof. The
award rendered shall be final and binding upon the parties, and judgment upon
the award rendered by the Arbitrator may be entered in any Court having
jurisdiction thereof. The arbitration shall take place in New York, New York.
15. NOTICE. All notices, statements, or requests provided for hereunder
shall be deemed to have been duly given when delivered by hand to an officer of
the other party, or when deposited with the U.S. Postal Service, as first class
certified or registered mail, postage prepaid, overnight courier service, telex
or telecopier, addressed
(a) If to Provider to:
ARM Financial Group, Inc.
239 S. Fifth Street
Louisville, Kentucky 40202
(b) If to Company to:
National Integrity Life Insurance Company
551 Madison Avenue
New York New York 10019
or to such other persons or places as each party may from time to time designate
by written notice sent as aforesaid.
16. ENTIRE AGREEMENT. This Agreement, together with such amendments as may
from time to time be executed in writing by the
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parties, constitutes the entire agreement and understanding between the parties
in respect of the transactions contemplated hereby and supersedes all prior
agreements, arrangements, and understandings relating to the subject matter
hereof.
17. SECTION HEADINGS. Section headings contained herein are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
18. COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate by their respective officers duly authorized so to do, and their
respective corporate seals to be affixed hereto, as of the date and year first
above written.
ARM Financial Group, Inc.
/s/ John Franco
----------------------------------
John Franco
Co-Chief Executive Officer
/s/ Martin H. Ruby
----------------------------------
Martin H. Ruby
Co-Chief Executive Officer
National Integrity Life Insurance
Company
/s/ David E. Ferguson
----------------------------------
David E. Ferguson
President
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APPENDIX A
INVESTMENT SERVICES
Pursuant to Paragraph 2 of the Investment Advisory Agreement of which this
is Appendix A, Company does hereby appoint Provider to act for Company as its
investment adviser with respect to its general account ("Account") as
constituted on the date hereof and as it may be changed, accreted, or diminished
pursuant hereto, provided that:
1. Company shall retain responsibility, authority, and control with
respect to management and investment of the securities in the Account. Company
shall supervise operations of Provider with respect to the Account. Except as
otherwise expressly provided herein, Provider shall be free to buy, sell,
exchange, convert, or otherwise trade assets in the Account in the exercise of
its sole discretion, provided Provider acts in a manner consistent with general
direction received from Company and the investment strategies specified by the
Company. Provider shall acquire or dispose of any specific investment if so
directed by the Board of Directors of Company.
2. All investments made by Provider on behalf of Company shall be in those
classes of investments prescribed by Section 1405 of the New York Insurance Law
or as otherwise permitted Company by law; provided, however, that nothing
contained herein shall authorize Provider to purchase or dispose of on Company's
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behalf without the Company's prior written approval any interest in real
property, mortgages, or any investment not included within one of the following
categories:
a. Cash Balances - Cash may be invested in U.S. Treasury bills and A1,
P1-rated commercial paper, bankers acceptances and certificates of
deposit.
b. Corporate Bonds - The purchase of corporate bonds may include bonds,
notes, debentures and other evidences of indebtedness issued, assumed or
guaranteed by a corporation incorporated under the laws of the United
States of America, or of any state, district or territorial possession
thereof; or of the Dominion of Canada or any province thereof, provided
that the bonds are rated class 1 or 2 by the Securities Valuation Office
of the National Association of Insurance Commissioners.
c. Government Obligations - The purchase of government obligations may
include bonds, notes, bills and other evidences of indebtedness issued,
assumed or guaranteed by the U.S. Government, its agencies or
instrumentalities or of any state or municipality thereof; or of the
Dominion of Canada or any province thereof; provided the bonds are
investment grade as defined by Moody's and S&P.
d. Mortgage-Backed Securities - The purchase of mortgage-backed securities
will be limited to:
i. The Government National Mortgage Association
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(GNMA);
ii. The Federal National Mortgage Association (FNMA);
iii. The Federal Home Loan Mortgage Corporation (FHLMC);
iv. Any other entity provided that all the underlying loans are
FHA-insured or VA guaranteed loans, or are any other U.S.
instrumentality or U.S. government guaranteed loans.
e. Equity Securities - Equity securities are defined to include preferred
stocks that are rated class 1 or 2 by the Securities Valuation Office of
the National Association of Insurance Commissioners, mutual fund shares
and common stocks which are traded on a national stock exchange.
In the course of its investment management activity for the Company,
Provider MAY NOT engage in or execute transactions in any of the following:
1. Borrow money for any purpose on behalf of the Company.
2. Pledge, mortgage or hypothecate the assets of the Company.
3. Purchase the securities of any non-government issuer if, as a
result, more than 10 percent of the total assets of the portfolio
would be invested in the securities of the issuer.
4. Invest more than 25 percent of the portfolio, measured at the time
of investment, in a single industry. For
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the purpose of this restriction, mortgage-backed securities do not
constitute an industry.
5. Enter into any investment which would violate the New York Insurance
Law.
6. Purchase or sell investments, other than portfolio investments
listed as items a through e above in this paragraph 2, without the
prior written approval of the Company.
3. The Company's investment strategy with respect to the Account, as of
the Effective Date of this Agreement and subject to modifications from
time-to-time by the Company's Board of Directors, is to maintain a predominantly
investment-grade fixed maturity portfolio, provide adequate liquidity for
expected insurance obligations, and maximize total return through prudent
investment management. The Company's current investment strategy does not
contemplate significant investment in mortgage loans or below investment-grade
securities.
4. Provider shall not have custody of any of the assets in the Account.
Custody of all assets of the Account shall at all times be maintained in one or
more custodial accounts selected by Company and held in New York State on behalf
of and in the name of Company with a qualified fiduciary agent. All transactions
authorized by this Agreement shall be carried out through such custodial
accounts. Provider shall not be responsible for any act or omission of any
custodian thereunder.
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5. Provider shall keep and maintain proper books and records wherein shall
be recorded the business transacted by it on behalf of, in the name of, or on
account of Company. Any and all records maintained by Provider hereunder in
behalf of Company shall be and remain the property of Company. Provider shall
make reports to Company as requested, including, but not limited to:
a. delivery on the sixth working day of each month of all investment
accounting data for the previous month, in an electronic format
suitable for use in updating Company's computerized accounting
records;
b. delivery by January 30 of each year of all investment-related
exhibits and schedules for Company's statutory annual statement, in
a printed format suitable for inclusion in Company's statutory
annual statement without modification; and
c. delivery by January 30, April 30, July 31, and October 31 of each
year of such investment-related data as Company needs to file
regulatory reports in a timely manner.
6. Provider does not warrant any rate of return on all or any segment of
the Account. Provider will endeavor to select the most favorable prices and
timing of assets purchases and sales. Provider will select brokers and dealers
on a basis which is favorable to Company, taking into account research services
provided, ability to execute orders promptly and correctly, fee
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charged, and any other factors which Provider deems relevant, and such brokers
and dealers may include affiliates of Provider. Provider will pass along to
Company the cost of any and all brokers' fees, commissions, taxes, and other
custodial charges related to management of the Account.
7. In the event Provider receives and collects monies for the account of
Company, Provider will not commingle such monies with its own, but will deposit
such monies in an appropriate separate account in the name of Company in a bank
domiciled and located in the State of New York.
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Appendix B
CONTACT PERSON(S) FOR PROVIDER:
ARM Financial Group, Inc.
239 South Fifth Street, 12th Floor
Louisville, Kentucky 40202-3271
Telecopier: (502) 582-7903
Attention: Robert H. Scott
Co-Counsel
CONTACT PERSON(S) FOR COMPANY:
National Integrity Life Insurance Company
551 Madison Avenue
New York, New York 10022
Attention: David E. Ferguson
President
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