EXHIBIT 10.5
ALLIANCE CAPITAL MANAGEMENT L.P.
Discretionary Investment Advisory Agreement
with
Commercial Guaranty Assurance, Ltd.
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(Name of Client)
Dated December 18, 1996
(Effective Date)
Alliance Capital management L.P. (the "Adviser") and the undersigned (the
"Client") hereby agree as of the above date that the Adviser shall act as
discretionary investment manager with respect to assets of the Client described
below (the "Investment Account") on the following terms and conditions:
1. The Investment Account
The Investment Account shall initially consist of cash, cash equivalents,
stocks, bonds, and other securities or assets the Client places in the
Investment Account or which shall become part of the Investment Account as a
result of transactions.
The Client may make additions to and withdrawals from the Investment
Account provided the Adviser receives at least five (5) business days' prior
written notice of withdrawals. All cash, securities and other assets in the
Investment Account shall be held by such other party as the client shall
designate as trustee or custodian (the "Custodian"). The Adviser shall not be
responsible for any custodian arrangements involving any assets of the
Investment Account or for the payment of any custodial charges and fees, nor
shall the Adviser have possession or custody of any such assets. All payments,
distributions and other transactions in cash, securities or other assets in
respect of the Investment Account shall be made directly to or from the
Custodian, and the Adviser shall have no responsibility or liability with
respect to transmittal or safekeeping of such cash, securities or other assets
of the Investment Account, or the acts or omissions of the Custodian or others
with respect thereto unless such acts or omissions of the Custodian are a direct
result of the Adviser's negligence, wilful misconduct, fraud, dishonesty or
malfeasance. The Client shall direct the Custodian to furnish to the Adviser
from time to time such reports concerning assets, receipts and disbursements
with respect to the Investment Account as the Adviser shall reasonably request.
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2. Services of Adviser
By execution of this Agreement, the Adviser accepts appointment as
discretionary investment manager for the Investment Account with full discretion
and agrees to supervise and direct the investments of the Investment Account in
accordance with the written investment objectives, policies and restrictions of
the Client previously furnished to the Adviser and attached as Schedule A to
this agreement as the same may be amended by the Client from time to time. In
the performance of its services, the Adviser will not be liable for any error in
judgment or any acts or omissions to act except those resulting from the
Adviser's negligence, wilful misconduct or malfeasance. Nothing herein shall in
any way constitute a waiver or limitation of any right of any person under the
Federal Securities Laws or any State Securities Laws.
The Adviser will render to the Client at least monthly a written report and
inventory of the investments in the Investment Account. It is agreed that the
Adviser, in the maintenance of its records, does not assume responsibility for
the accuracy of information furnished by the Client or any other person not
being an agent or subcontracter of the Adviser.
3. Funding Policy
The Client shall from time to time inform the Adviser in writing of the
funding policy applicable with respect to the Client and of its cash
disbursement requirements. The Adviser shall make its investment decisions for
the Investment Account in accordance with such funding policy and requirements.
4. Investment Objectives, Policies and Restrictions
It will be the Client's responsibility to notify the Adviser in writing of
the investment objectives and policies of the Investment Account, and of any
modifications therein, as well as any specific investment restrictions
applicable thereto and to give the Adviser prompt written notice if the Client
deems any investments made for the Investment Account to be inconsistent with
such objectives, policies or restrictions. The Client is also required to notify
the Adviser in writing of specific restrictions governing the Investment Account
under the current or future laws of any jurisdiction or by virtue of the terms
of any other contract or instrument known by the Client to be binding on the
Client.
5. Delivery of Client Documentation
No later than the date of this Agreement, the Client will provide the
Adviser with copies of all documents relevant to the Adviser's management of the
Investment Account which relate to the Adviser's management of the Investment
Account, including the written statement of the Client's investment objectives,
policies and restrictions referred to above. The Client further agrees to
promptly deliver to the Adviser true and complete copies of all amendments or
supplements to such documents. The Adviser will be indemnified and held harmless
against any and all losses,
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costs, claims and liabilities which it may suffer or incur arising solely out of
the failure by the Client to provide to the Adviser the documents required to be
furnished in accordance with the above provisions.
6. Discretionary Authority
It is understood that, to the extent permitted by the written statement of
investment objectives, policies and restrictions referred to in Schedule A, the
Adviser, whenever it deems appropriate and without prior consultation with the
Client, may (i) buy, sell, exchange, convert, liquidate or otherwise trade in
any stock, bonds and other securities (including money market instruments) and
(ii), subject to the provisions of paragraph 7 hereof, place orders for the
execution of such transactions with or through such brokers, dealers or issuers
as the Adviser in its absolute discretion may select.
It is understood that, to the extent permitted by the written statement of
investment objectives, policies and restrictions referred to in Schedule A, the
Adviser may also effect transactions for the Investment Account in options and
financial futures, stock market index futures and other commodity contracts. In
such event, the Client will execute any additional documentation which the
Adviser deems necessary to enable it to engage in such transactions on behalf of
the Investment Account.
7. Allocation of Brokerage
When placing orders for the execution of transactions for the Investment
Account, the Adviser may, unless the Client otherwise directs, allocate such
transactions to such broker-dealers, for execution on such markets, at such
prices and at such commission rates, as in the good faith judgment of the
Adviser will be in the best interests of the Client. In the selection of such
broker-dealers, the Adviser will take into consideration not only the available
prices and rates of brokerage commissions, but also other relevant factors (such
as, without limitation, execution capabilities, research and other services
provided by such broker-dealers which are expected to enhance the general
portfolio management capabilities of the Adviser, and the value of an ongoing
relationship of the Adviser with such broker-dealers) without having to
demonstrate that such factors are of a direct benefit to the Investment Account.
As a result, the commissions charged to the Investment Account with respect to a
particular transaction may be somewhat higher than those another broker-dealer
might charge for the same transaction. The Adviser will exercise good faith in
negotiating the commissions paid by the Investment Account and will seek to
obtain the best price and execution for each transaction for the Investment
Account, taking into consideration the value of any brokerage and research
services provided by the broker-dealer effecting the transaction. As set forth
in Part II of the Adviser's Form ADV Registration Statement on file with the
Securities and Exchange Commission ("Form ADV"), the Adviser will not implement
other arrangements governing the use or selection of affiliated broker-dealers
or their correspondents to effect transactions for the Investment Account
without first obtaining express written consent or direction from the Client,
which consent or direction will constitute a modification to this Agreement.
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8. Aggregation of Transactions
The Client authorizes the Adviser in its discretion to aggregate purchases
and sales of securities for the Investment Account with purchases and sales of
securities of the same issuer for other clients of the Adviser occurring on the
same day. When transactions are so aggregated, the actual prices applicable to
the aggregated transactions will be averaged, and the Investment Account and the
accounts of other participating clients of the Adviser will be deemed to have
purchased or sold their proportionate share of the securities involved at the
average price so obtained.
9. Transaction Procedures
All transactions will be settled by payment to, or delivery by, the
Custodian of all cash, securities or other assets due to or from the Investment
Account. The Adviser may issue such instructions to the Custodian as may be
appropriate in connection with the settlement of transactions initiated by the
Adviser. Instructions of the Adviser to the Custodian shall be transmitted in
writing or, at the option of the Adviser, orally and confirmed in writing as
soon as practical thereafter. The Adviser will take reasonable measures to
ensure that broker-dealers and issuers selected by the Adviser perform their
obligations with respect to the Investment Account.
10. Fees
The compensation of the Adviser for its services under this Agreement shall
be calculated and paid in accordance with the attached Fee Schedule B, as the
same may be amended from time to time by mutual agreement between the Client and
the Adviser. It is understood that, in the event that such fees are to be billed
to and paid by the Custodian, the Client will provide written authorization to
the Custodian to pay the fees of the Adviser directly from the Investment
Account.
11. Confidential Relationship
All information provided by the Client or the Custodian to the Adviser
shall be held as confidential by the Adviser; provided, however, as is necessary
to carry out the purposes of this Agreement or as may be required by law, the
Adviser shall be permitted to disclose or communicate to a proper party any
information received from the Client or the Custodian or developed by the
Adviser under the terms of this Agreement. All recommendations, advice and other
work product of the Adviser developed under the terms of this Agreement and
disclosed to the Client or the Custodian shall be held as confidential, except
as required by law to be disclosed to other persons.
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12. Services to Other Clients
It is understood that the Adviser performs investment advisory services for
various clients including investment companies. The Client agrees that the
Adviser may give advice and take action with respect to any of its other clients
which may differ from advice given, or the timing or nature of action taken,
with respect to the Investment Account, so long as it is the Adviser's policy,
to the extent practical, to allocate investment opportunities to the Investment
Account over a period of time on a fair and equitable basis relative to other
clients.
Nothing in this Agreement shall limit or restrict the Adviser or any of its
directors, officers, affiliates or employees from buying, selling or trading in
any securities or other assets for its or their own account or accounts, and the
Client acknowledges that the Adviser, its directors, officers, affiliates and
employees, and other clients of the Adviser, may at any time have, acquire,
increase, decrease or dispose of positions in investments which are at the same
time being acquired, held or disposed of for the Investment Account.
The Adviser will not have any obligation to initiate the purchase or sale,
or to recommend for purchase or sale, for the Investment Account any security or
other asset which the Adviser, its directors, officers, affiliates or employees
may purchase, hold or sell for its or their own accounts or for the accounts of
any clients of the Adviser.
13. Information Required by Adviser
The Client agrees to provide or instruct the Custodian to provide to the
Adviser such information as the Adviser may reasonably request as being
necessary or appropriate to the performance of the Adviser's responsibilities to
the Client under this Agreement.
14. Non-Public Information
The Adviser will have no obligation to purchase or sell for the Investment
Account the securities of any issuer on the basis of any material non-public
information as may come into its possession.
15. Proxies
Unless otherwise directed by the Client in writing, the Adviser will not be
required to take any action or render any advice with respect to the voting of
proxies solicited by or with respect to the issuers of securities in which
assets of the Investment Account may be invested from time to time.
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16. Representations by Client
The Client represents and warrants that the employment of the Adviser is
authorized by the governing documents relating to the Investment Account and
that the terms of this Agreement do not violate any obligation by which the
Client is a person other than a natural person, that (i) this Agreement has been
duly authorized by appropriate action and when executed and delivered will be
binding upon the Client in accordance with its terms and (ii) the Client will
deliver to the Adviser such evidence of such authority as the Adviser may
reasonably require, whether by way of a certified resolution or otherwise.
17. Representations by Adviser
The Adviser represents that it is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended.
18. Indemnification
The Client and the Adviser agree to indemnify and hold each other harmless
from any and all expenses, damages, costs and fees, including reasonable
attorney's fees, which may be incurred by reason of the gross negligence,
willful misconduct or malfeasance, (including fraud or dishonesty) on the part
of the offending party.
19. Valuation
In computing the market value of any security held in the Investment
Account which is listed on a national securities exchange, such security shall
be valued at the last quoted sale price on the valuation date on the principal
exchange on which the security is traded. Any other security or asset shall be
valued in a manner determined in good faith by the Adviser to reflect its fair
market value.
20. Receipt of Disclosure Statement
The Client acknowledges receipt of Part II of the Adviser's Form ADV in
compliance with Rule 204-3(b) under the Investment Advisers Act of 1940, as
amended ("Advisers Act") more than 48 hours prior to the date of execution of
this Agreement.
21. Notices
Unless otherwise specified herein, all notices, instructions and advices
with respect to security transactions or any other matters contemplated by this
Agreement shall be in writing and shall be deemed duly given when received by
the Adviser, the Client and the Custodian, as applicable, at their respective
addresses below. The Adviser may rely upon any written notice from
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any person which the Adviser reasonably believes to be an authorized
representative of the Client. Written notice shall include notice sent by telex
or facsimile copier.
22. Specimen Signatures
The Adviser will forward from time to time to the Client and the Custodian
a list of names and specimen signatures of persons authorized to act on behalf
of the Adviser. The Client will forward to the Adviser a list of names and
specimen signatures of persons authorized to act on Client's behalf and shall
cause the Custodian to forward a like list and specimen signatures to the
Adviser.
23. Invalid Provisions
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future law, such provision shall be fully
severable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or its severance from this Agreement.
24. Termination; Assignment; Amendment
This Agreement may be terminated at any time by either party giving to the
other at least thirty (30) days' prior written notice of such termination. Fees
paid in advance of the effectiveness of the termination will be prorated to the
date of termination specified in the notice of termination, and any unearned
portion thereof will be refunded to the Client. No assignment, as that term is
defined in the Advisers Act, shall be made by the Adviser without the written
consent of the Client. No assignment shall be deemed to result from changes in
the directors, officers or employees of the Adviser except as may be provided in
the Advisers Act. The Adviser agrees that it will notify the Client of any
change in the membership of the general partners of the Adviser within a
reasonable time after such change. This Agreement may be amended or modified at
any time by mutual agreement in writing.
25. Counterparts
This Agreement may be executed in two or more counterparts, each one of
which shall be deemed to be an original.
26. Governing Law
To the extent Federal law does not apply, this Agreement shall be construed
in accordance with and governed by the laws of the State of New York.
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27. Entire Agreement
This Agreement constitutes the entire agreement of the parties with respect
to management of the Investment Account.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives as of the date first above written.
NAME OF
CLIENT: Commercial Guaranty Assurance Ltd.
-----------------------------------
By: /s/ A.R. XXXXXXXXXX
---------------------------------------
A.R. Xxxxxxxxxx
Pres. & C.E.O.
---------------------------------------
(Print Name and Title)
ADDRESS: Commercial Guaranty Assurance Ltd.
c/o The Xxxxxxx Group
0 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
ALLIANCE CAPITAL MANAGEMENT L.P.
By: ALLIANCE CAPITAL MANAGEMENT
CORPORATION, ITS GENERAL PARTNER
By: /s/ XXXX X. XXXXXX
---------------------------------------
Xxxx X. Xxxxxx
Assistant Secretary
ADDRESS: 0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, X.X. 10105
COMMERCIAL GUARANTY ASSURANCE, LTD.
INVESTMENT GUIDELINES
Schedule A to the Investment Management Agreement dated December 18, 1996
between ________________ and Commercial Guaranty Assurance, Ltd.
Objective
The primary objective of the portfolio is to achieve a total rate of return in
excess of the stated benchmark, consistent with safety of principal and
liquidity. Performance will be measured against the AA or better subset of the
3-5 year Xxxxxxx Xxxxx Eurodollar index.
Guidelines
1) Investment will be primarily in foreign (non-U.S) securities denominated in
U.S. Dollars, as follows: Euro certificates of deposit ("C.D.'s"), Euro
time deposits, Euro medium-term notes, Eurobonds, Yankee bonds, Euro
commercial paper and Euro floating rate notes. Interest rates may be fixed
or variable. No U.S. income source is allowed.
2) In addition, up to 100% of the market value of the portfolio may be
invested in non U.S. dollar denominated foreign (non U.S.) securities,
provided that the foreign exchange exposure thus created is hedged back
into U.S. dollars at all times. Investments in non U.S. dollar denominated
securities may include those outlined above as well as government, agency
and corporate bonds issued in the domestic bond markets of OECD countries.
3) Obligations issued by foreign subsidiaries of U.S. companies, except for
bakes, may be purchased as long as the obligations are not guaranteed by
the U.S. parent company.
4) Credit exposure
Only securities rated double A (Aa3/AA-) or better by Xxxxx'x,
Standard & Poor's or the equivalent rates by Xxxx & Xxxxxx may be
purchased. If an issue is unrated, it may be purchased, provided the
issuer or guarantor has a comparable issue with a Aa3/AA- or higher
rating or, in the opinion of the manager, the issue is equivalent to a
Aa3/AA- or better security.
5) A maximum of 5% of the portfolio may be invested in the securities of any
one corporate obligor and 10% in the securities of non-guaranteed
government agencies of any one country. Non-U.S. Sovereign exposure is
limited to 20% of the portfolio per issuer.
6) Maturity
The portfolio shall be managed with a weighted average duration of not
less than two years nor more than five years.
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7) Derivatives
a) Options are not allowed.
b) Interest rate futures are allowed in order to control overall interest
rate exposure, subject to the following conditions.
i) The notional value of net short futures positions must not exceed
the market value of the portfolio.
ii) The notional value of net long positions must not exceed the
amount of available cash in the portfolio. No leverage of the
portfolio is allowed.
iii) Contracts may only be with offshore exchanges such as LIFFE.
iv) Taking physical ownership of securities underlying the futures
contract is prohibited.
8) No equity exposure, convertible bonds, or equity linked securities are
allowed.
9) No commodity exposure, or commodity linked securities, are allowed.
ALLIANCE CAPITAL MANAGEMENT L.P.
Fee Schedule
The fee for separately managed accounts is billed quarterly based upon
the value of the assets on the last day of the calendar quarter. On an
annualized basis our fee is as follows:
.50% - first $10 million
.35% - next $20 million
.30% - next $20 million
.25% - on balance
