1
EXHIBIT 10.15(4)
LINCOLN INVESTMENT MANAGEMENT, INC.
INVESTMENT MANAGEMENT AGREEMENT
Client Name: American States Life Insurance Company
------------------------------------------
(the "Account")
Effective Date: May 28, 1996
---------------------------------
The undersigned (the "Client") hereby confirms that it has retained
Lincoln Investment Management, Inc., an Illinois corporation ("LIM"), as
investment adviser for the Account, consisting of those assets identified on
Schedule A attached hereto as well as all other assets which become part of the
Account as a result of transactions therein or additions thereto, and further
that it has, if and to the extent provided herein, retained LIM to provide
certain additional services with respect to the Account, and LIM agrees to
serve on the following terms and conditions:
1. Appointment and Acceptance of LIM. LIM is appointed as investment
adviser for the Account and will provide certain administrative services with
respect to the Account, all as set forth in Section 2 hereof. LIM accepts such
appointment pursuant to the terms and conditions set forth in this Agreement.
2. Powers, Rights and Duties of the Manager.
(a) Investment advisory. LIM shall perform its responsibilities under
this Agreement in accordance with the investment objectives and policies of the
Account described in Section 3 hereof. Subject to such investment objectives
and policies, LIM shall have authority in its sole discretion and without prior
consultation with the Client and as attorney-in-fact with full power and
authority on behalf of the Client:
(i) to make all investment decisions for the Account, it being
understood that LIM shall have complete discretion as to the
nature, amount and timing of all transactions to be effected in the
Account;
(ii) to investigate, analyze, negotiate, purchase, enter into,
monitor, manage, and sell or otherwise dispose of investments of
all types referred to on Schedule B hereto and any additional types
of investments as may be authorized in accordance with Section 3
hereof;
(iii) to negotiate, draft, legally document, execute,
acknowledge, deliver, and if applicable, file or record, or cause
to be filed or recorded, in any appropriate public office, all
types of contracts, documents, agreements and certificates
1
2
relating to investments for the Account, including, without
limitation, brokerage agreements, letters of commitment, guarantees,
stock purchase or subscription agreements, note agreements,
participation agreements, purchase and sale agreements, indemnity
agreements, partnership agreements, limited partnership agreements,
joint venture agreements, option or warrant agreements, swap
agreements, mortgages, correspondent agreements, trust deeds, trusts,
financing statements, assignments, security agreements, pledges,
reorganization agreements, modification agreements, escrow agreements
and instruments of every kind and nature whatsoever, and to modify,
cancel or terminate such contracts, documents, agreements and
certificates;
(iv) after reasonable inquiry or investigation, to make such
representations, warranties, covenants or certifications in the name of
and on behalf of the Client as it believes to be true; to agree to any
terms or conditions to control any investment or investment
transaction; to direct the purchase, sale or exercise of any options,
privileges or rights with respect to any investment; to initiate,
defend or influence the direction of any claim or litigation arising
from or with respect to any investment; to effect any purchase, sale,
exchange, conversion, compromise, settlement or release with respect to
any investment;
(v) to issue directly to brokers, dealers or issuers orders for the
purchase, sale, exchange or other acquisition or disposition of
investments for the Account or any interests therein as it may deem
appropriate;
(vi) to take any action, or render advice respecting the voting
of proxies solicited by or with respect to the issuers of securities in
which assets of the Account may be invested from time to time; and
(vii) in furtherance of the foregoing, to do anything which LIM
shall deem requisite, appropriate or advisable in connection therewith.
LIM, in its sole discretion and at its own expense, shall have authority
to engage the services of a subadviser or subadvisers in connection with the
management of the Account. LIM shall continue to be responsible for all
investment advisory services furnished to the Account by such subadviser or
subadvisers.
(b) Additional Services. In connection with the management of the
Account, LIM shall also provide the additional services listed on Schedule C
hereto.
3. Investment Objectives and Policies. The initial investment objectives
and policies of the Account shall be as set forth in Schedule B hereto. The
Client will notify LIM in writing of any modifications therein from time to
time. LIM is not charged with notice of any modifications in the Client's
investment objectives or policies until such modifications are received in
writing by LIM. In addition, if LIM has obligated itself or the Client to the
purchase
2
3
or sale of an investment for the Client prior to the receipt of notice of such
modification, LIM shall fulfill such purchase or sale obligation on behalf of
the Client.
4. Client's Responsibilities.
Client acknowledges that it (i) is the owner of all of the assets of the
Account; (ii) is responsible to assure that all investments made for the
Account meet the requirements and limitations of any applicable jurisdiction,
contract or instrument; and (iii) is responsible to assure that any limitations
or restrictions arising from applicable law or regulations which in Client's
judgment apply to Client's aggregate holdings of any particular investment or
type of investment are not exceeded.
The Client is required to notify LIM in writing of changes in the
restrictions, limitations or requirements governing the assets of, and
investments for, the Account and to modify the investment objectives and
policies of the Account as set forth in Schedule B hereto. The Client will
notify LIM in writing as to any investments for the Account that do not meet
the requirements or limitations of any applicable jurisdiction, contract or
instrument. LIM shall arrange to dispose of those assets as agreed upon with
the Client, and such dispositions shall be made in the Client's Account and at
the Client's expense and risk.
The Client acknowledges that it shall be solely responsible for (and LIM
shall have no responsibility for): (i) maintenance of proper accounting records
for the Account; or (ii) with the exception of the SVO filings to be made by
LIM pursuant to Schedule C hereto, all filings required to be made respecting
the Account or assets of the Account with federal or state regulatory
authorities (including, without limitation, verifying and ensuring the accuracy
of all data contained within such filings). Without diminishing or modifying
LIM's obligations under Section 10 hereof, the Client acknowledges that it has
responsibility for the valuation of the assets of the Account for purposes of
the Client's own financial and performance reporting, whether required by law
or regulation or otherwise.
5. Documentation to be Furnished by Client. The Client agrees to furnish
LIM with such authorizations and documentation as LIM may from time to time
require to enable it to carry out its obligations under this Agreement,
including powers of attorney. Without limiting the foregoing, the Client will
direct the Custodian (as defined below) to provide LIM with cash information as
it relates to the Account assets.
6. Custodian. The Client shall be responsible for the appointment and
payment of a custodian (the "Custodian"), acceptable to LIM, who will take
custody of the Account assets and be responsible for the collection of
interest, dividends, distributions and other income (whether in cash or
securities) attributable to the assets in the Account. Although LIM may place
orders directly with brokers for execution of transactions authorized by this
Agreement with respect to the Account, all such transactions shall be carried
out through the Custodian. The Client will direct Custodian to accept
settlement instructions issued by LIM for the Account, and LIM shall not be
liable to the Client for (i) any failure of the Custodian to perform its
responsibilities to the
3
4
Account, including, without limitation, any losses that arise from the failure
of the Custodian to notify LIM of any notices affecting called securities,
deadline expirations, dates and capital reorganization events affecting the
securities in the Account or (ii) any liability or loss with respect to the
transmittal or safekeeping of cash, securities or other assets.
7. Account Modifications. The Client may make additions to the Account
with reasonable advance notice to LIM. The Client may make withdrawals from
the Account subject to industry trade settlement time requirements and any
other market restrictions; provided, however, that LIM may establish additional
restrictions for the withdrawal of certain assets due to the less liquid nature
of such assets.
8. Brokerage.
(a) LIM is hereby authorized on behalf of the Client to place orders
for the Account with brokers and dealers selected exclusively by LIM. LIM will
not be responsible for any act or omission by brokers or dealers selected by
LIM.
(b) In selecting brokers and dealers to execute transactions and in
negotiating commission rates with respect thereto, LIM shall take into account
the financial stability and reputation of brokerage firms and the brokerage and
research services provided by such brokers. The Client may be deemed to be
paying for services (sometimes referred to as "soft dollar" payments) provided
by the broker which are included in the commission rate (as permitted by
Section 28(e) of the Securities Exchange Act of 1934), provided that such
commission rate is reasonable in relation to the value of the brokerage and
research services provided when viewed in terms of either that particular
transaction or LIM's overall responsibilities with respect to the accounts as
to which it exercises investment discretion. The investment advisory fees
described in Section 11 below are based upon the foregoing.
(c) LIM may combine orders for the Account with those on behalf of
other clients. The purchase price paid or the proceeds received in any combined
order will be allocated equitably among those accounts with assets included in
such combined order.
(d) As evidence of LIM's authority to act as investment adviser for the
Account, Client shall, on or before the execution date of this Agreement,
execute a letter in form substantially similar to Exhibit 1 hereto and Client
authorizes LIM to provide copies of such letter to any broker or dealer it may
select pursuant to subparagraph (a) of this Section 8.
9. Account Information. LIM shall deliver or cause to be delivered in
written form at the times set forth in Schedule D the Account information and
reports set forth in Schedule D.
10. Valuation. In determining the value of the Account or any of its
assets, any security listed on one or more national securities exchanges shall
be valued at the last quoted sale price on the valuation date on the principal
exchange or market on which the security is traded.
4
5
Any other security or asset shall be valued as determined in good faith by LIM
to reflect its fair value.
11. Compensation.
(a) The compensation of LIM for its investment advisory services shall
be calculated and paid in accordance with the attached Schedule E on the basis
of asset values determined as provided in this Agreement.
(b) The Client shall pay all expenses related to the Account and
investments of the Account including, without limitation, custodian fees,
brokerage commissions and such other expenses as may be related to the
execution of orders to purchase or sell assets of the Account.
12. Service to Other Clients. It is understood that LIM also provides
investment management services to other clients, and may give advice and take
action with respect to the assets of such clients which may differ from the
advice given, or the timing or nature of action taken, with respect to the
Account. Nothing herein shall restrict LIM, its principals, affiliates or
employees from purchasing or selling any investment for its or their own
accounts. Furthermore, LIM shall have no obligation to purchase or sell for
the Account, or to recommend for purchase or sale for the Account, any
investment which LIM, its principals, affiliates or employees may purchase or
sell for themselves or for any other client.
13. Representations by the Client. The Client represents and warrants
that (i) the retention of LIM pursuant to this Agreement is authorized by any
governing documents relating to Client and the Account; (ii) this Agreement has
been duly authorized by appropriate action and when so executed and delivered
will be binding upon the Client in accordance with its terms; (iii) neither the
execution and delivery of the Agreement by Client nor the performance of its
obligations hereunder conflict with or violate any provision of law, rule or
regulation, or any instrument to which it is a party or to which any of its
property is subject; (iv) the Client has obtained all consents, approvals and
waivers of regulatory authorities which may be required in order for Client to
execute this Agreement and perform its responsibilities hereunder; and (v) the
Client will deliver to LIM such evidence of its authority as LIM may reasonably
require, whether by way of a certified corporate resolution or otherwise.
14. Representations by LIM. LIM represents and warrants that it is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended.
15. Utilization of Attorneys; Scope of Engagement. Client acknowledges
that from time to time during the term of this Agreement, LIM shall obtain
advice from or otherwise be represented by attorneys, including attorneys who
may be employees of LIM and/or its affiliates ("LIM Counsel"), with respect to
matters arising under or in connection with this Agreement, including, without
limitation, the matters described in Section 2 hereof. Client further
acknowledges and agrees that: (i) LIM Counsel (whether or not they are
employees of LIM and/or its affiliates) shall at all times only represent LIM
and/or its affiliates; (ii) that LIM shall
5
6
have no obligation to engage attorneys to represent Client; and (iii) that
Client will retain or engage counsel to represent it as and when it deems such
engagement to be appropriate. Client acknowledges and agrees that it shall
not: (i) be owed any professional duty or obligation by LIM Counsel; (ii) be
deemed to receive any advice or other legal representation from LIM Counsel; or
(iii) be entitled to rely upon, or actually rely upon, any statements of LIM
Counsel.
16. Tax Advice; Scope of Engagement. LIM will not render tax advice in
connection with the performance of its services hereunder. Client acknowledges
that (i) it will not rely on LIM for tax advice, and (ii) it will seek tax
advice, as it deems appropriate, from other qualified experts.
17. Liability. Unless otherwise provided by law, the Client agrees that
neither LIM nor any LIM director, officer, employee or LIM Counsel shall be
liable for any loss due to an error in judgment or for any act or omission to
act by LIM, LIM Counsel, or any broker, dealer or Custodian, except for losses
resulting from LIM's or such director's, officer's, employee's or LIM Counsel's
gross negligence or willful misconduct. The Client shall indemnify and hold
harmless LIM, its directors, officers, employees and LIM Counsel against any
loss, expense or claim arising in connection with the Account or this Agreement
from any act other than their gross negligence or willful misconduct, except
where such indemnification is prohibited by law.
18. Term. This Agreement shall remain in effect for three years from the
Effective Date (the "Initial Term"). Following the Initial Term, this
Agreement will be automatically renewed for additional one year terms, unless
sooner terminated as herein provided.
19. Dispute Resolution. In the event of a dispute arising out of or
relating to this Agreement, or the breach thereof, the parties shall attempt in
good faith to resolve the dispute in the manner set forth in Schedule F.
Nothing in this Section 19 or in Schedule F shall be construed to
constitute a waiver of any right provided by the Investment Advisers Act of
1940.
20. Termination and Assignment.
(a) This Agreement may be terminated by the Client during the Initial
Term if LIM or any of its directors, officers or employees or LIM Counsel
engage in any act or omission which constitutes gross negligence or willful
misconduct, upon written notice to LIM. This Agreement may be terminated by
either party following the Initial Term at any time upon sixty (60) days' prior
written notice to the other party. Upon any termination of the Agreement by
either party, (i) any transaction for the Account initiated prior to the
receipt of written notice of termination shall be consummated, and (ii) LIM
shall not initiate any transactions for the Account subsequent to the receipt
of written notice of termination except at Client's written request.
6
7
(b) No assignment (as defined in the Investment Advisers Act of 1940)
of this Agreement by LIM shall be effective without the written consent of the
Client.
(c) The provisions of Section 17 of this Agreement shall survive
notwithstanding any termination of this Agreement.
21. Notices. Unless otherwise specified herein, all notices, reports or
other communications provided for herein shall be in writing and delivered by
first-class mail, registered or certified mail, overnight courier service or
facsimile to LIM or to the Client at the addresses appearing below. All
facsimiles which are sent must be telephonically confirmed. The effective date
of any such notice shall be the date such notice is received. Each party to
this Agreement may by written notice to the other party designate a different
address.
22. Confidentiality. LIM and the Client acknowledge and agree that all
information furnished by LIM to the Client in connection with the Account under
this Agreement shall be treated as confidential and shall not be disclosed to
third parties without the prior written consent of LIM, except as required by
applicable law or as required to perform this Agreement.
If the Client participates in a transaction and as a result of such
participation LIM receives confidential information about parties related to
the transaction, LIM shall retain such confidential information at its site.
If the Client is required by regulatory authorities or otherwise by law to
provide such confidential information, LIM, at the written direction of the
Client, shall provide the confidential information directly to the requesting
entity on the Client's behalf.
23. Inspection and Audit of Records. Upon reasonable notice by the
Client, LIM shall make its records relating to the Account available for
inspection and audit by the Client or its representatives and by any state
insurance regulators at all reasonable times during normal business hours.
24. Disclosure Statement. The Client acknowledges receipt of Part II of
LIM's Form ADV filed with the Securities and Exchange Commission at least
forty-eight (48) hours prior to entering into this Agreement.
25. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana without regard to the
principles of conflicts of law contained therein.
26. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof, and may be amended only
by written document signed by the parties.
27. Modification in Conformity with Law. If any provision hereof is, or
at any time should become, inconsistent with any present or future law, rule or
regulation of any exchange or any governmental or regulatory body with
jurisdiction, said provision shall be deemed modified
7
8
to conform to such law, rule or regulation, but in all other respects this
Agreement shall continue and remain in full force and effect.
American States Life Insurance Company
-------------------------------------------
Client's Name
Date: By:
------------------- ------------------------------------
Name:
Title:
Mailing Address:
- ------------------------
Telephone No.
- ------------------------
Fax No.
- ------------------------
Taxpayer I.D. No.
Accepted and Agreed to:
LINCOLN INVESTMENT
MANAGEMENT, INC.
By: Date:
--------------------- -----------------------
Name:
Title:
By: Date:
--------------------- -----------------------
Name:
Title:
200 East Berry Street
Fort Wayne, IN 46802
Attn: Marketing and Client Services
8
9
Schedule A
Listing of Client's Assets
To be provided.
10
Schedule B
STATEMENT OF INVESTMENT POLICY
AMERICAN STATES LIFE INSURANCE COMPANY
Investment Objective:
The primary objective is to maximize total return through a combination of
relatively high current income and capital appreciation. The rate of return on
the portfolio must permit the payment of a competitive crediting rate.
Product Description:
The investment portfolio of American States Life Insurance Company supports the
following accounts: universal life, other whole life, term insurance,
annuities, disability income, and the capital and surplus accounts. Products
are distributed by the large and diverse independent agency system that
supports the American States property/casualty business.
ASL's marketing efforts are targeted at these agents rather than the insured.
The most important competitive factors are the crediting rate and the cash
surrender value.
Performance Measurement:
Portfolio performance will be judged against a benchmark that is appropriate
for a life insurance company.
Asset Categories:
Maximum % of Assets
Uncommitted Cash in Money Market Instruments 20%
Public Bonds 100%
Less Liquid Investments:
Private Placements 40%
Mortgages 15%
TOTAL LESS LIQUID INVESTMENTS 50%
Equity-Related Securities:
Convertible Bonds & Bonds w/warrants 10%
Convertible Preferreds 10%
Common Stocks 10%
TOTAL EQUITY-RELATED SECURITIES 10%
Real Estate 0%
Tax-Advantaged Securities:
Preferred Stocks 10%
Tax Exempts 5%
ESOPs 5%
TOTAL TAX-ADVANTAGED SECURITIES 10%
11
AMERICAN STATES LIFE INSURANCE COMPANY
Derivative Securities:
New programs not permitted.
Unhedged Non-Dollar Investments 5%
Quality Restrictions:
Minimum % Assets in Government Securities 0%
Maximum % Assets Baa 60%
Maximum % Assets Below Investment Grade 5%
Diversification - Maximum % of Assets:
25 % per Industry 10 % Canadian Governments
- ------ -----
2 % per Non-Government Issuer 10 % Other Foreign (dollar-denominated)
- ------ -----
35 % MBS/ABS/CMBS 10 % Supranationals
- ------ -----
Maturity or Duration Profile:
Target Duration Range: 4-6 years
--------
Maturity Distribution: Min. % of Assets Max. % of Assets
---------------- ----------------
Money Market & Bonds <1 yr. 2% 20%
Intermediates 55% 98%
Long (>10 years) 0% 40%
Date Prepared: February 22, 1996
12
INVESTMENT GUIDELINES
OF
AMERICAN STATES LIFE INSURANCE COMPANY
The following guidelines (the "Guidelines") are to be read in conjunction
with the "Statement of Investment Policy" (individually, the "Policies")
adopted by the captioned insurance company (the "Insurer") and are intended to
assure compliance with the investment limitations set forth in the Indiana
Insurance Code. Lincoln Investment Management, Inc. ("LIM"), which has been
appointed investment manager for the Insurer, may not invest the assets of the
Insurer in any investment unless that investment is permitted under both the
Policies and the Guidelines.
1. Bonds, notes, or other evidences of indebtedness of the United States, any
state, territory, or possession of the United States, the District of Columbia,
the Dominion of Canada, any province of the Dominion of Canada, or of any
administration, agency, authority, or instrumentality of any of the political
units enumerated.
2. Bonds, notes or other evidences of indebtedness guaranteed, supported, or
insured as to principal and interest by the United States, any state,
territory, or possession of the United States, the District of Columbia, the
Dominion of Canada, any province of the Dominion of Canada, or by an
administration, agency, authority, or instrumentality of any of the political
units enumerated.
3. Bonds, notes, or other evidences of indebtedness issued under or pursuant to
the Farm Credit Act of 1971 as in effect on December 31, 1990, or the Federal
Home Loan Bank Act as in effect on December 31, 1990, interest bearing
obligations of the FSLIC Resolution Fund or shares of any institution whose
deposits are insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation to the extent that such shares are insured;
obligations issued or guaranteed by the International Bank for Reconstruction
and Development; obligations issued or guaranteed by the Inter-American
Development Bank; and obligations issued or guaranteed by the African
Development Bank.
4. Bonds, notes, or other evidences of indebtedness issued, guaranteed, or
insured as to principal and interest by a city, county, drainage district, road
district, school district, tax district, town, township, village, or other
civil administration, agency, authority, instrumentality, or subdivision of a
state, territory, or possession of the United States, or the District of
Columbia, or of any province of the Dominion of Canada, providing such
obligations are authorized by law and are:
(a) direct and general obligations of the issuing, guaranteeing
or insuring governmental unit, administration, agency, authority,
district, subdivision, or instrumentality;
1
13
(b) payable from designated revenues pledged to the payment of
the principal and interest thereof; or
(c) Improvement bonds or other obligations constituting a first
lien, against all of the real estate within the improvement district
or on that part of such real estate not discharged from such lien
through payment of the assessment. The area to which such
improvement bonds or other obligations relate shall be situated
within the limits of a town or city and at least fifty percent (50%)
of the properties within such area shall be improved with business
buildings or residences.
5. Loans evidenced by bonds, notes, or other evidences of indebtedness and
secured by first mortgage liens on unencumbered real estate or unencumbered
leaseholds having at least fifty (50) years of unexpired term, such real
estate, or leaseholds to be located in the United States, any territory or
possession of the United States, or the Dominion of Canada. Such loans shall
not exceed eighty percent (80%) of the fair value of the security determined in
a manner satisfactory to the department, except that the percentage stated may
be exceed if and to the extent such excess is guaranteed or insured by:
(A) the United States, any state, territory, or possession of the
United States, the District of Columbia, the Dominion of Canada, any
province of the Dominion of Canada, or by any administration,
agency, authority, or instrumentality of any of such governmental
units; or
(B) a private mortgage insurance corporation approve by the
department.
6. Loans evidenced by bonds, notes, or other evidences of indebtedness
guaranteed or insured, but only to the extent guaranteed or insured, by the
United States, any state, territory, or possession of the United States, the
District of Columbia, the Dominion of Canada, any province of the Dominion of
Canada, or by any agency, administration, authority, or instrumentality of any
of the political units enumerated, and secured by second or subsequent
mortgages or deeds of trust on real estate or leaseholds, provided the terms of
the leasehold mortgages or deeds of trust shall not exceed four-fifths, (4/5)
of the unexpired lease term, including enforceable renewable options remaining
at the time of the loan.
7. Real estate contracts involving unencumbered real estate situated in the
United States, any territory or possession of the United States or the Dominion
of Canada, to be secured by the title to such real estate.
8. Improved or unimproved real property, whether encumbered or unencumbered, or
any interest therein, held directly or evidenced by joint venture interests,
general or limited partnership interests, trust certificates or any other
instruments, and acquired by the life insurance company as an investment, which
real property, if unimproved, is developed within five (5) years, subject to
the following conditions and limitations:
2
14
(a) The real estate shall be located in the United States or
Canada or in a territory or possession of the United States or
Canada.
(b) The total assets of the life insurance company, as of the end
of the next preceding calendar year, must exceed twenty-five million
dollars ($25,000,000).
(c) Fire insurance shall be maintained in an amount at least
equal to the insurable value of the improvements or the difference
between the value of the land and the value at which such real
estate is carried for statement and deposit purposes, whichever
amount is smaller.
(d) Neither the cost of each parcel or improved real property nor
the aggregate cost of all unimproved real property acquired under
the authority of this paragraph may exceed two percent (2%) of the
Company's assets, determined as of December 31 next preceding the
date of investment.
9. Deposits of cash in certificates of deposit or in any other form in banks or
trust companies which have qualified for the insurance protection afforded by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation.
10. Bank and bankers' acceptances and other bills of exchange of kinds and
maturities eligible for purchase or rediscount by federal reserve banks.
11. Bonds, notes or other evidences of indebtedness issued, guaranteed,
assumed, or supported by a corporation organized under the laws of the United
States, a state or territory of the United States, the District of Columbia,
the Dominion of Canada, or any province of the Dominion of Canada, which bonds,
notes, or other evidences of indebtedness are rated:
(a) BBB-or higher by Standard and Poor's Corporation (or A-2 or
higher in the Case of commercial paper);
(b) Baa 3 or higher by Moody's Investors Service, Inc. (or P-2 or
higher in the case of commercial paper);
(c) BBB-or higher by Duff and Phelps, Inc. (or D-2 or higher in
the case of commercial paper); or
(d) 1 or 2 by the Securities Valuation Office of the National
Association of Insurance Commissioners.
Investments may also be made under this paragraph in bonds, notes, or
other evidences of indebtedness that have not received a rating if the earnings
available for fixed charges of the
3
15
corporation of the period of its five (5) fiscal years next preceding the date
of purchase shall have averaged per year not less than one and one-half (1 1/2)
times its average annual fixed charges applicable to such period and if during
either of the last two (2) years of such period such earnings available for
fixed charges shall have been not less than one and one-half (1 1/2) times its
fixed charges for such year. However, if the corporation is a finance company
or other lending institution at least eighty percent (80%) of the assets of
which are cash and receivables representing loans or discounts made or
purchased by it, the multiple shall be one and one-quarter (1 1/4) instead of
one and one-half (1 1/2).
11(A). Bonds, notes, or other evidence of indebtedness issued, guaranteed, or
assumed by a corporation organized under the laws of the United States, a state
or territory of the United States, the District of Columbia, the Dominion of
Canada, or any province of the Dominion of Canada, which bonds, notes or other
evidences of indebtedness have not received a rating or, if rated, have not
received a rating that would qualify the bonds, notes, or other evidences of
indebtedness for investment under paragraph 11 of this section. Investments
authorized by this paragraph may not exceed ten percent (10%) of the Company's
assets at the end of the preceding calendar year.
12. Preferred stock of, or common or preferred stock guaranteed as to dividends
by, any corporation organized under the laws of the United States, any state,
territory, or possession of the United States, the District of Columbia, the
Dominion of Canada, or any province of the Dominion of Canada, which over the
period of the seven (7) fiscal years immediately preceding the date of purchase
earned an average amount per annum at least equal to five percent (5%) of the
par value of its common and preferred stock (or, in the case of stocks having
no par value, of its issued or stated value) outstanding at date of purchase,
or which over such period earned an average amount per annum at least equal to
two (2) times the total of its annual interest charges, preferred dividends and
dividends guaranteed by it, determined with reference to the date of purchase.
No investment shall be made under this paragraph in a stock upon which any
dividend is in arrears or has been in arrears for ninety (90) days within the
immediately preceding five (5) year period.
13. Common stock of any solvent corporation organized under the laws of the
United States, any state, territory, or possession of the United States, the
District of Columbia, the Dominions of Canada, or any province of the Dominion
of Canada, which over the seven (7) fiscal years immediately preceding purchase
earned an average amount per annum at least equal to six percent (6%) of the
par value of its capital stock (or, in the case of stock having no par value,
of the issued or stated value of such stock) outstanding at date of purchase,
but the conditions and limitations of this paragraph shall not apply to the
special area of investment to which paragraph 23 of this section pertains.
13(A). Stock or share of any regulated investment company formed under the laws
of the United States, any state, territory, or possession of the Untied States,
the District of Columbia, the Dominion of Canada, or any province of the
Dominion of Canada. As used in this paragraph,
4
16
"regulated investment company" means a corporation or company which has been
registered as an investment company with the federal Securities and Exchange
Commission under the Investment Company Act of 1940 as in effect on December
31, 1990, for a period of at least five (5) years immediately preceding the
date of purchase, and which has net assets of not less than twenty-five million
dollars ($25,000,000) at the date of purchase.
14. Loans upon the pledge of any of the investments described in this section
other than real estate and those qualifying solely under paragraph 20, but the
amount of such a loan shall not exceed seventy-five percent (75%) of the value
of the investment pledged.
15. Tangible personal property, equipment trust obligations, or other
instruments evidencing an ownership interest or other interest in tangible
personal property when there is a right to receive determined portions of
rental, purchase, or other fixed obligatory payments for the use of such
personal property from a corporation whose obligations would be eligible for
investment under the provision of paragraph 11, provided, that the aggregate of
such payments together with the estimated salvage value of such property at the
end of its minimum useful life, and the estimated tax benefits to the insurer
resulting from ownership of such property, is adequate to return the cost of
the investment in such property, and provided further, that each net investment
in tangible personal property for which any single private corporation is
obligated to pay rental, purchase, or other obligatory payments thereon does
not exceed one-half of one percent ( 1/2%) of the Company's assets at the end
of the preceding calendar year; and the aggregate net investments made under
the provision of this paragraph do not exceed five percent (5%) of the
Company's assets at the end of the preceding calendar year.
16. Loans to policyholders of the Company in amounts not exceeding in any case
the reserve value of the policy at the time the loan is made.
17. Bonds, notes, or other evidences of indebtedness payable in United States
dollars and issued, guaranteed, or assumed by a foreign government or by a
corporation incorporated under the laws of a foreign government, if they carry
at least the second highest rating conferred by Moody's Investors Service, Inc.
or by Standard & Poor's Corporation, or if the earnings available for fixed
charges of such corporation for a period of five (5) fiscal years preceding the
date of purchase have averaged at least three (3) times its average fixed
charges applicable to such period, and if during either of the last two (2)
years of such period, the earnings available for fixed charges were at least
three (3) times its fixed charges for such year.
18. Investments although not conforming to the categories, conditions,
limitations, and standards contained in paragraphs 1 through 11, 12 through 17,
and 21 through 22, but limited in aggregate amount to the lesser of; (a) ten
percent (10%) of the Company's assets at the end of the preceding calendar
year; or (b) the aggregate of the Company's capital, surplus, and contingency
reserves at the end of the preceding calendar year.
19. Investments in bonds, notes, other evidences of indebtedness (other than
real estate
5
17
mortgage indebtedness) and capital stock of, and in real estate and tangible
personal property leased to, a single private corporation, shall not exceed two
percent (2%) of the company's assets at the end of the preceding calendar year.
20. Investments in: (1) preferred stock, and (2) common stock shall not, as to
either of such classes of stock separately considered, exceed ten percent (10%)
of the Company's assets at the end of the preceding calendar year.
21. The Company may invest in agreements, commonly known as repurchase
agreements, that provide for:
(1) the transfer of securities issued or fully insured or guaranteed by
the United States or any United States government agency against the
transfer of funds by the transferee of the securities; and
(2) the retransfer of the securities to the transferor on demand or
within one (1) year after the initial transfers against retransfer of
the funds.
The value of the securities transferred is their market value on the
effective date of the agreement and must equal or exceed the value of the funds
transferred. Investments under this paragraph may not exceed five percent (5%)
of the assets of the Company at the end of the preceding calendar year.
22. The Company may invest in bonds, notes, or other evidences of indebtedness,
regardless of the issuer, which are secured by:
(a) investments authorized by paragraphs 1, 2, 3, 4 or 11; or
(b) collateral with the characteristics and limitations
prescribed for loans under paragraph 5.
6
18
Schedule C
List of Additional Services
Accounting services to include the following:
- Process cash and trade activity within Prism
- Monthly projections of prepayment speeds on MBS/ABS (within 10
days of month end)
- Quarterly GAAP reserve recommendation for permanent declines in
market value on fixed income securities and equity securities
- Complete and file applications for registration of securities with
Securities Valuation Office of the NAIC ("SVO") (as required by
SVO filing deadlines)
- Quarterly Schedule D, Part 3, Part 4 and Part 1B information*
- Monthly Interest Maintenance Reserve (IMR) amortization report*
- Quarterly Asset Valuation Reserve (AVR) report*
- Monthly Schedule Ds, all parts*
* The data contained in these reports is not reviewed by LIM, and the
Client is responsible for the accuracy of the final reports.
19
Schedule D
Account Information
Monthly:
within 10 business days:
asset inventory listing
within 20 business days:
portfolio performance report
Quarterly:
within 25 business days:
management reports
summary of derivatives activity
performance summaries
20
Schedule E
Fees for Investment Advisory Services
Based upon the objectives and policies of the Account as set forth in
Schedule B and the additional services set forth in Schedule C, the annualized
fee shall be thirteen (13) basis points.* Fees are calculated each quarter by
applying the above rate to the aggregate value of assets held in the Account as
of the last business day of each calendar quarter. The value of assets in the
Account is to be determined in accordance with Section 10 of the Agreement.
LIM's minimum total quarterly fee is $12,500. The Client will be charged
additional amounts for the management of its equity securities based upon the
fees charged LIM by the applicable subadvisers.
LIM will bill the Client for its quarterly fee and the fees of any
subadvisers, and such fees will be due immediately upon receipt of each
invoice. Notwithstanding the foregoing, for any calendar quarter during which
this Agreement is not in effect for the full calendar quarter, the fees for
investment advisory services shall be prorated for the period during which the
Agreement is in effect.
For each portfolio created subsequent to the Effective Date, there is a
one time initialization fee of $10,000 per portfolio.
If at any time while this Agreement shall be in effect the Client desires
services or account information from the Manager other than those specifically
delineated in this Agreement and all Schedules hereto, and the Manager agrees
to provide such services or account information, a fee for such services or
account information shall be determined through good faith negotiations. In
addition, LIM reserves the right to increase its fees if the Client modifies
the objectives and policies of the Account as set forth in Schedule B or
requests additional services to be set forth in Schedule C. LIM also reserves
the right to charge the Client such additional amounts as determined from time
to time by LIM if any of the following occur: (i) LIM is required to spend
additional time to process the Client's transactions due to the Client's choice
of Custodian; or (ii) if the Client desires to have on-line access to LIM's
computer systems and executes a separate agreement with LIM relating to such
access. Any increase in fees or additional amounts described in this paragraph
shall be effective upon written notice to the Client by LIM.
- -----------
* After the Initial Term, fees may be amended by LIM upon 90 days' prior
written notice to the Client.
21
Schedule F
Alternative Dispute Resolution
NEGOTIATION BETWEEN EXECUTIVES. The parties shall attempt in good faith
to resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy.
Any party may give the other party written notice of any dispute not resolved
in the normal course of business. Within 20 days after delivery of said
notice, executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of the
controversy or claims as provided hereinafter.
If a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
MEDIATION. If the dispute has not been resolved by negotiation as
provided herein, the parties shall endeavor to settle the dispute by mediation
under the then current Center for Public Resources ("CPR") Model Procedures for
Mediation of Business Disputes. The neutral third party will be selected from
the CPR Panel of Neutrals. If the parties encounter difficulty in agreeing on
a neutral, they will seek the assistance of CPR in the selection process.
ARBITRATION UNDER THE CPR RULES. Any dispute arising out of or relating
to this Agreement or the breach, termination or validity thereof, which has not
been resolved by Mediation as provided above within 60 days of the initiation
of such procedure (unless the parties mutually agree to extend such timeframe),
shall be finally settled by arbitration conducted expeditiously in accordance
with the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes by three independent and impartial arbitrators, of whom each
party shall appoint one, provided, however, that if one party has requested the
other to participate in a non-binding procedure and the other has failed to
participate, the requesting party may initiate arbitration before expiration of
the above period. Any arbitrator not appointed by a party shall be selected
from the CPR Panels of Neutrals. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The arbitrators are not empowered to award damages in excess of
compensatory damages and each party hereby irrevocably waives any arbitration
damages in excess of compensatory damages.
22
Exhibit 1
ATTACHMENT TO INVESTMENT MANAGEMENT AGREEMENT
Lincoln Investment Management, Inc.
200 E. Berry Street
Fort Wayne, Indiana 46802
Re:
---------------------------------
(Name of Account)
Ladies and Gentlemen:
This letter confirms the appointment of Lincoln Investment Management,
Inc. ("Manager") as investment adviser with authority as attorney-in-fact on
behalf of the Account (a) to purchase any and all securities and other property
and investments for the Account at any time or from time to time; (b) to sell
any and all securities and other property and investments held in the Account
at any time or from time to time; (c) to place orders for the execution of such
transactions with or through such brokers and dealers as the Manager may
select; and (d) to execute any and all documents which may be deemed necessary
or desirable to effectuate such transactions.
It is further understood that the Manager may deliver to any broker or
dealer executing transactions on behalf of the Account a copy of this document
as evidence of the authority of the Manager to act for and on behalf of the
Account. In the event this authority is terminated, any party to whom a copy
of this document has been delivered as evidence of the Manager's authority will
be held harmless from any loss or liability incurred as a result of any action
taken in reliance thereon after such termination but before notice of such
termination has been received by such party.
Very truly yours,
Date:
------------------------- ----------------------------------
(Client)
By:
-------------------------------
Its:
-------------------------------