Exhibit
10.18


 


INVESTMENT
ADVISORY SERVICES AGREEMENT


 


THIS
AGREEMENT (the “Agreement”) is executed as
of                and
made effective as of the 1st day of January, 2002, by and between ACE Guaranty
Re Inc., a Maryland insurance company (the “Client”), and ACE Asset Management
Inc., a Delaware company (“ServiceCo”).


 


W I T N E S S E T H


 


WHEREAS,
the Client and ServiceCo (together, the “Parties” and each a “Party”) are
affiliated corporations wholly-owned indirectly by ACE Limited, a Cayman
Islands limited liability company; and


 


WHEREAS,
the Client wishes to receive and ServiceCo wishes to provide certain investment
advisory services to the Client, and


 


WHEREAS,
the Client wishes to provide fair consideration for the services rendered to it
by ServiceCo;


 


NOW,
THEREFORE, in consideration of the premises and mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the Parties hereby agree as
follows:


 


ARTICLE I

SCOPE OF SERVICES


 


1.1                                 (i) The Parties hereby agree that ServiceCo
shall assist with the evaluation and selection of Client’s investment advisors
and monitor the performance, compliance and risk profile of the Client’s
investment portfolio.


 


(ii)
At any time and from time to time, the Client may request from ServiceCo, and
ServiceCo may elect to provide to the Client, certain additional investment
advisory services, on a consulting and/or administrative support basis.


 


All services set forth above (the “Services”) and
provided hereunder shall be governed by and subject to such guidelines,
procedures, objectives and limitations as may be established and approved from
time to time by the Board of Directors (the “Board”) of the Client (the
“Guidelines”), a copy of which Guidelines, effective as of February 17, 2000,
as may be amended from time to time, is attached as Exhibit A hereto.


 


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1.2                                 The Services may be changed from time to time
by an amendment that has been approved, in writing, by the parties to this
Agreement, provided such amendment is in accordance with the Guidelines.


 


1.3                                 The Client and ServiceCo hereby acknowledge
that all employees rendering Services to the Client pursuant to this Agreement
(each an “Employee”) shall remain at all times an employee of ServiceCo.  In the performance of Services, the Employee
shall report to and be under the sole control of ServiceCo, which shall have
full authority to direct his or her activities in the performance of the
Services provided hereunder. Client shall exercise no control over the Employee
in the performance of his or her activities or of the Services. Subject to the
Guidelines and the ultimate authority of the Board, ServiceCo will retain final
decision-making authority in all matters in respect of which ServiceCo provides
Services under this Agreement.


 


1.4                                 ServiceCo shall perform the Services as an
independent contractor.  Nothing
contained herein shall be construed to create the relation of partner, employer
or employee or of principal and agent between the Client and ServiceCo.
ServiceCo shall have no authority to negotiate or transact business on behalf
of Client without the express written consent of Client.


 


1.5                                 ServiceCo represents that it possesses and
will maintain the appropriate licenses and authority to perform any Services
required and requested hereunder. 
ServiceCo shall discharge its duties hereunder at all times in good
faith and with that degree of prudence, diligence, care and skill which a
prudent person rendering services as an institutional investment adviser would
exercise under similar circumstances.


 


ARTICLE II

COMPENSATION FOR SERVICES


 


2.1                                 For the services rendered by ServiceCo to
Client pursuant to Section 1.1(i) of this Agreement, Client shall pay to
ServiceCo a management fee of 1.5bps (0.015%) based on the average of the
market value of the assets under advisement as reported in the quarterly report
to the Investment Committee of the Client. For the services rendered by ServiceCo
to Client pursuant to Section 1.1(ii) of this Agreement, the parties shall
agree upon a service fee prior to the provision of such services, which fee
shall be subject to the prior approval or non-disapproval of the Maryland
Insurance Commissioner (“Commissioner”). 
ServiceCo will provide client with a bill for services within thirty
(30) days after the end of each three-month period.  Client will pay ServiceCo within fifteen (15) days of receipt of
the bill.


 


2.2                                 ServiceCo and Client acknowledge and agree
that Client shall have the right to offset any amounts due and owing to
ServiceCo from Client under this Agreement against other amounts due and owing
by Client to ServiceCo.


 


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ARTICLE III

BOOKS AND RECORDS


 


3.1                                 The ownership of all books, supplies, records
or other materials (collectively, the “Records”) furnished by or on behalf of
the Client relating to any of the services provided to the Client shall be
vested in, and remain the property of the Client, and all shall be delivered to
the Client immediately upon the termination or cancellation of this Agreement
or at any time upon the request of the Client. All of the Records shall be kept
in accordance with applicable laws and regulations.


 


3.2                                 The Client shall have the right, from time to
time, to conduct reviews, inspections and/or audits of any or all of the
Records and documents related to its business under this Agreement, during
ordinary business hours upon reasonable notice, and ServiceCo shall cooperate
and cause its employees, agents or advisors to cooperate with the Client
conducting such reviews, inspections and audits. In addition, ServiceCo will
provide any materials, reasonably related to the investment advisory services
provided hereunder, as may be reasonably requested in writing by the directors
or officers of the Client or as may be required by any governmental agency with
jurisdiction thereunder.


 


ARTICLE IV

TERM AND TERMINATION


 


4.1                                 This Agreement is effective as of the date
first set forth above, and shall remain in effect up to and including December
31, 2002 (the “Initial Term”), unless earlier terminated pursuant to Clauses
4.2 and 4.3.  At the end of the Initial
Term, or any subsequent term thereof, this Agreement shall automatically be
renewed each year for a period of one year.


 


4.2                                 Either party may elect to terminate this
Agreement at any time and for any reason on sixty (60) days’ prior written
notice to the other Party.


 


4.3                                 Notwithstanding any other provision of this
Agreement, either Party may terminate this Agreement immediately upon written
notice to the other Party in the event that the other Party (i) becomes
insolvent or bankrupt, or admits in writing its inability to pay its debts as
they become due, or makes an assignment for the benefit of creditors, or
applies for or consents to the appointment of a trustee or receiver for the
major part of its property, (ii) becomes the subject of bankruptcy,
reorganization, rearrangement, insolvency or liquidation proceedings, or other
proceedings for relief of creditors and such proceedings are not stayed or
discharged within ninety (90) days after being commenced; (iii) is acquired by
another entity, unless such acquiring entity is wholly owned, directly or
indirectly, by ACE Limited; (iv) fails to obtain or maintain any licenses,
permits or other qualifications that are required by law to fulfill its
obligations under this Agreement and such failure remains uncured after fifteen
(15) days, or (v) commits abandonment, fraud or willful misconduct with the
provision of services under this Agreement.


 


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4.4                                 Termination of this Agreement shall not
relieve either Party of its obligations under this Agreement up to the
effective date of termination. Following any termination, the Parties will
cooperate with each other to provide a smooth transition of services and to
satisfy reasonable requests for information concerning actions taken during the
term.


 


ARTICLE V

INDEMNIFICATION


 


5.1                                 Client agrees to hold harmless and indemnify
ServiceCo and each of its officers, directors, employees, shareholders,
independent contractors and agents (collectively the “ServiceCo Indemnitees”)
from and against any and all claims, suits, causes of action, demands, losses,
damages, fines, penalties, punitive damages, costs or expenses, including
attorneys’ fees, or other liabilities of any nature (“Damages”) based on,
related to or in connection with (i) any action taken or omitted by any of the
ServiceCo Indemnitees solely at the direction of Client; (ii) Damages incurred
by the ServiceCo Indemnitees as a result solely of any negligent, willful or
intentional acts, errors or omissions of Client or its officers, directors,
employees or agents in the performance or breach of this Agreement, and/or
(iii) any litigation, arbitration or other proceeding related to this Agreement
and involving any of the ServiceCo Indemnities in which the plaintiff,
petitioner or other claimant does not allege any fault or wrongdoing on the
part of the ServiceCo Indemnities or any of them.


 


5.2                                 ServiceCo agrees to hold harmless and
indemnify Client and Client’s officers, directors, employees, shareholders,
independent contractors and agents (collectively the “Client Indemnitees”) from
and against any and all Damages based on, related to or in connection with (i)
any action taken or omitted by any of the Client Indemnitees solely at the
direction of ServiceCo, (ii) damages incurred by the Client Indemnities as a
result solely of any negligent, willful or intentional acts, errors or
omissions of ServiceCo or its directors, employees or agents in the performance
or breach of this Agreement; and/or (iii) any litigation, arbitration or other
proceeding relating to this Agreement and involving any of the Client
Indemnitees in which the plaintiff, petitioner or other claimant does not
allege any fault or wrongdoing on the part of the Client Indemnities or any of
them; and/or (iv) based on or related to or in connection with any obligation
to withhold and pay over any taxes based on wages, salary or other compensation
of employees of ServiceCo.


 


5.3                                 The terms of this Article shall survive the
termination of this Agreement.


 


ARTICLE VI

ARBITRATION


 


6.1                                 All disputes between the Parties relating to
or in connection with this Agreement, including but not limited to its
interpretation, performance or breach, shall be submitted to binding
arbitration as described in this Article and shall be in accordance with the
Commercial


 


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Arbitration Rules of the
American Arbitration Association and the Expedited Procedures thereof, except
as expressly set forth in this Article VI.


 


6.2                                 The Party initiating arbitration shall
provide notice of its demand for arbitration, which shall include appointment
of an arbitrator.  The other Party shall
have thirty (30) days from receipt of such demand for arbitration in which to
appoint its arbitrator.  If the
responding Party fails to appoint its arbitrator within such thirty (30)  days, the initiating Party shall be
entitled to choose the second arbitrator. 
Together the two arbitrators shall agree upon a neutral umpire. If no
such agreement is reached within thirty (30) days of the appointment of the
second arbitrator, the umpire shall be chosen by drawing lots.  The arbitrators and the umpire (collectively
the “Panel”) shall be active or retired insurance professionals of
disinterested insurance-related companies not under the control of either Party
or their respective parent companies.


 


6.3                                 Each Party shall submit its case to the Panel
within one (1) month from the date of  the
appointment of the umpire, but this period of time may be extended by unanimous
written consent of the Panel.


 


6.4                                 The Panel shall make its decision with regard
to the custom and usage of the insurance business. The Panel shall be relieved
of all judicial formalities and the strict rules of law.  The written decision of a majority of the
Panel shall be rendered within sixty (60) days following the termination of the
Panel’s hearings, unless the Parties consent to an extension. Such majority
decision of the Panel shall be final and binding upon the Parties both as to
law and fact, and may not be appealed to any court of any jurisdiction.  Judgment may be entered upon the final
decision of the Panel in any court of proper jurisdiction.


 


6.5                                 Each Party shall bear the fees and expenses
of the arbitrator selected by or on its behalf, and the costs of arbitration,
including the fees of the umpire, shall be divided equally between the two
Parties. The Panel shall have the authority to award to the prevailing Party
its costs and attorneys’ fees.


 


6.6                                 Any arbitration proceeding shall take place
in New York.


 


ARTICLE VII

CONFIDENTIALITY


 


7.1                                 ServiceCo agrees that, except with the
consent of the Client, it will not disclose or use for any purpose outside the
scope of this Agreement proprietary or confidential information provided to it
by the Client unless and until such information (i) becomes public knowledge
other than through disclosure by ServiceCo or (ii) is subpoenaed or otherwise
required by an authorized governmental authority. In the event that ServiceCo,
upon the advice of counsel, determines that it is required to provide any such
information, it shall promptly provide notice to the Client.


 


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7.2                                 ServiceCo’s obligations under this Article
shall survive the termination of this Agreement.


 


ARTICLE VIII

NOTICES


 


8.1                                 Any notice required or permitted under this
Agreement shall be in writing and shall be deemed to have been given (i) when
received if given in person or by courier or a courier service, (ii) on the
date of transmission if sent by telex, facsimile or other wire transmission
(receipt confirmed) or (iii) five (5) business days after being posted by
certified or registered mail, postage prepaid:


 


8.2                                 If to ServiceCo, addressed as follows:


 


	
  ACE Asset Management Inc.

  
	
  Attention: General Counsel

  
	
  1325 Avenue of the
  Americas

  
	
  18th Floor

  
	
  New York, NY 10019

  
	
  Fax:  (212) 581-3268

  



 


8.3                             If to Client, addressed as follows:


 


	
  ACE Guaranty Re Inc.

  
	
  Attention: General Counsel

  
	
  1325 Avenue of the
  Americas

  
	
  New York, New York 10019

  
	
  Fax: (212) 581-3268

  



 


ARTICLE IX

MISCELLANEOUS PROVISIONS


 


9.1                                 The Parties agree that this Agreement
constitutes the entire understanding and agreement among them and supersedes
any prior or contemporaneous written or oral agreements, undertakings,
communications or representations among them concerning the subject matter of
this Agreement.


 


9.2                                 If any separable provision hereof shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof.


 


9.3                                 No terms, conditions, or other provisions of
this Agreement may be waived, modified, amended, or otherwise changed except in
a writing signed by the Parties which expressly states that it is an amendment
or waiver of terms of this Agreement. Any such writing


 


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must also specify with
particularity which term or terms of this Agreement are so amended or waived.
Any such writing shall not be construed as a general waiver, abandonment,
modification or amendment of any terms, conditions or provisions of this
Agreement, but rather strictly construed as an amendment or waiver of only
those terms or conditions stated therein. Any such writing shall be subject to
the prior approval or non-disapproval of the Commissioner.


 


9.4                                 No Party may assign its rights or obligations
under this Agreement without the prior written consent of the other Party.


 


9.5                                 The rights, duties and obligations under this
Agreement shall be binding upon inure to the benefit of the Parties’ respective
successors and assigns.


 


9.6                                 This Agreement shall be governed and
construed in accordance with the laws of Maryland without giving effect to the
principles of conflicts of laws thereof.


 


9.7                                 This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


 


9.8                                 The headings in this Agreement are for
reference purposes only, and shall not affect in any way the meaning or
interpretation of this Agreement.


 


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IN
WITNESS WHEREOF, the Parties have caused this Agreement to he executed and
delivered as of the date first above written.


 


 


	
   

  	
  ACE GUARANTY RE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ G A Egler

  	
   

  
	
   

  	
  Name: 

  	
  G A Egler

  	
   

  
	
   

  	
  Title: 

  	
  SVPE, Genl Counsel

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ACE ASSET MANAGEMENT INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Richard
  Bradley

  	
   

  
	
   

  	
  Name: 

  	
  Richard Bradley

  	
   

  
	
   

  	
  Title: 

  	
  COO

  	
   

  
						



 


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ACE GUARANTY RE INC.


 


Investment Guidelines


 


Objective:


 


The principal objectives in managing the investment portfolio are: a)
to preserve the company’s AAA rating, b) to maximize total after tax return in
a risk controlled investment approach, c) to maintain sufficient liquidity to
cover unexpected stress in the insurance portfolio and d) to manage investment
risk within the context of the underlying portfolio of insurance risk.


 


Unless otherwise stated, the percentage constraints listed below are
based upon the total aggregate market value of ACE Guaranty Re Inc.’s (“ACE
Guaranty”, “the Company”) consolidated investment portfolio (“Aggregate
Portfolio”).  In the event that any of
the constraints are violated due to market fluctuations, the Chief Financial
Officer (“CFO”) will instruct the portfolio managers’ to rebalance the
portfolio within a three to six month period. In addition to the guidelines
below, all investments will need to comply with the investment limitations
imposed on the company by all applicable law.


 


Target Portfolio Composition:


 


	
  Cash and Short Term

  	
  3% - 15% of Aggregate
  Portfolio

  
	
  Fixed Income Securities

  	
  85% - 97% of Aggregate
  Portfolio

  



 


Cash and Short Term:


 


Benchmark: Donahue Institutional Prime Money Market Benchmark.


 


Portfolio Objective: The portfolio objective is to outperform the benchmark while adhering
to high fiduciary standards. Securities and funds with high liquidity qualities
are to be purchased.


 


Overview: ACE Guaranty will determine the appropriate levels of cash and
short-term investments to be maintained. The Company will maintain and manage
designated short-term assets. Lazard Freres Asset Management (“Lazard”), the
investment portfolio manager for ACE Guaranty, will manage the portion of the
cash and short-term position of the company that arises from the net investment
activity of the managed portfolio, not to be confused with the short-term
portfolio managed by the Company.  Subject
to portfolio and sector constraints listed below, the portfolio managers will
have the discretion to deviate away from the benchmark portfolio.


 


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Constraints: Securities (Commercial Paper, Banker’s Acceptances and Time Deposits)
must be rated at a minimum of A-1+ by Standard & Poor’s Corporation
(“S&P”) or P-1 by Moody’s Investors Service (“Moody’s”) and not have a
maturity greater than two years. Single issuers may not comprise more than 1%
of the Aggregate Portfolio (other than direct obligations of the US
Government).


 


Money market funds are permitted but allowable funds must seek to
maintain a stable net asset value and may only purchase “First Tier”
securities. First Tier securities are
securities which are rated (or that have been issued by an issuer that is rated
with respect to a class of short-term debt obligations, or any security within
that class, comparable in priority and quality with such securities) in the
highest short-term rating category by Standard &  Poor’s and Moody’s, if only one has assigned a
rating, by that rating agency. A single fund may not comprise more
than 10% of the Aggregate Portfolio.


 


Repurchase agreements are allowed but must be a) marked to market
daily, b) collateralized at 102% by government or agency securities, c) have a
maturity of 30 days or less and d) have counterparties that must be rated A-1+
by S&P or P-l by Moody’s. Furthermore, only Primary Dealers with the
Federal Reserve Bank of New York and top-tier broker-dealers will be acceptable
counter-parties. In addition, counter-parties and their aggregate exposure
limits must have prior approval by the CFO. The aggregate level of repurchase
agreements cannot exceed 5% of the portfolio unless prior approval is established
with the CFO.


 


Reverse repurchase agreements are allowed but can only be entered into
with prior approval from the CFO. The reverse repurchase agreement must only be
used to provide liquidity to the company and cannot be used to leverage the portfolio.


 


In order to properly hedge short-term foreign currency exposure,
primarily from the credit reinsurance line, time deposits denominated in
foreign currency will be permitted. The asset will be excluded from the
performance measures to the extent that they do not exceed 5% of the portfolio.


 


Fixed Income Portfolio:


 


Benchmark: Lehman Municipal Insured Bond Index and Custom Taxable Index (see
Appendix I)


 


Portfolio Objective: The portfolio managers’ objective will be to outperform the benchmark
while adhering to high fiduciary standards and benchmark level risk.


 


Overview: The taxable and non-taxable portion of the portfolio is awarded to
Lazard Freres Asset Management (LFAM). ACE Guaranty’s CFO will determine the
appropriate level of taxable/tax-exempt mix for the portfolio. The portfolio
managers will have the flexibility to deviate away from their benchmark
portfolios subject to the portfolio and


 


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sector constraints listed below. The portfolio managers will have the
discretion to purchase securities of any maturity as long as the overall
duration of the portfolio is within the targeted range.


 


Aggregate Portfolio Constraints:


 


Duration: The
duration of the portfolio should not exceed the duration of the relevant
benchmark by more than one year nor lag the benchmark by more than one year.


 


Portfolio Credit Quality: Overall portfolio credit quality must be rated at a minimum of AA/Aa2
as measured by Standard & Poor’s and Moody’s. A minimum of 70% must be
invested in securities rated at a minimum in the “AA” category by two NRSRO’s.


 


Security Credit Quality: Investment in securities lower than the “A” category by Standard and
Poor’s and Moody’s are not permitted. 
In the event of any downgrade below the “A” category, the portfolio
manager must contact the CFO to discuss the course of action and may hold the
position if approved by the CFO. No investment is permitted in an issuer that
is rated in the “A” category that is on “Credit Watch- Negative” or “Developing”
by Standard and Poor’s or Moody’s. All securities purchased must be rated by
Standard and Poor’s and at least 98% of the Aggregate Portfolio must be rated
by Moody’s.


 


Portfolio Sector Constraints: The sum of all investments in US Treasuries and Government Agency
Securities, Corporate Bonds (Non Private Placement and 144As), Mortgage Backed
Securities, Municipal Bonds, and Money Market Funds/Securities, must be, at a
minimum, no less than 65% of the Aggregate Portfolio.


 


Issuer Constraints: Each manager is required to follow prudent standards of
diversification, with the specific provision that no more than 2% of any class
of security of any issuer may be held in a portfolio.


 


Individual Sector Constraints:


 


Notwithstanding the constraints listed below, management will be
responsible that the portfolio will remain diversified among the various
sectors listed below.


 


US Treasury and Government Agency Securities: There are no limitations on the purchase of
US Treasury and Government Agency securities. However,
securities classified as mortgage securities must follow the mortgage
constraints listed below.


 


Corporate Bonds:
The maximum allocation to corporate securities is 15% of the Aggregate
Portfolio. Included in the corporate sector are US corporates, preferred stock
(including, without limitation, trust preferred issues), Eurobonds, Yankees, US
dollar denominated sovereigns, US dollar denominated supranationals, US dollar
denominated securities issued by foreign entities. Exposure to any single issuer
is limited to 1% of the


 


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Aggregate Portfolio.  On a
monthly basis, Lazard will be provided the Company’s outstanding exposure under
its single name credit default swap business. No investment is permitted in an
issuer that the Company has greater than $20 million of exposure. Further,
purchases of corporate securities in the “A” category are subject to
pre-approval.


 


Private Placements and 144As: The maximum allocation to fixed income private placements and 144As is
2.5% of the Aggregate Portfolio. 
Exposures to any single issuers cannot exceed 1% of the Aggregate
Portfolio.


 


Asset Backed:
The maximum allocation to asset backed securities is 20% of the Aggregate
Portfolio with no single issuer, which is defined as a separate pool of
collateral, to exceed 2.5% of the Aggregate Portfolio in the case of triple A
and senior most tranches and 1% in the cash of mezzanine tranches. In addition,
exposure to any single servicer of collateral is limited to 15% of the
Aggregate Portfolio.  Asset backed
securities must be rated by Standard and Poor’s and Moody’s. Purchases of asset
backed securities in the “A” category must be pre-approved.


 


Mortgage Backed:
The maximum allocation to mortgage securities is 30% of the Aggregate
Portfolio. Subject to the aggregate mortgage constraint, non-agency securities
can constitute no more than 10% of the Aggregate Portfolio.  Any non-agency single issuer, which is
defined as a separate pool of collateral, may not exceed 2.5% of the Aggregate
Portfolio.  In addition exposure to any
non-agency single servicer of collateral is limited to 5% of the Aggregate
Portfolio. A minimum rating in the “AA” category by Standard and Poor’s and
Moody’s is required for mortgage securities. More
volatile types of CMO’s (IO’s, PO’s, Inverse floaters, accrual (Z) tranches,
strips, etc.) are not permitted. With regard to commercial mortgage
backed securities, investments in single property CMBS are not permitted. Also,
pre-approval is required for the purchase of CMBS securities.


 


Municipals:
The maximum allocation to municipal bonds is 80% of the Aggregate Portfolio
with no single issuer to exceed 2% of the Aggregate Portfolio. In addition,
single risk concentration to any credit enhancement provider is limited to 30%
of the Aggregate Portfolio. 
Pre-approval is required for insured municipal securities. Pre-approval
is not required for uninsured high quality issues, that is, issues rated in the
“AA” or “AAA” category without the benefit of insurance. Investments in
investor owned utilities and healthcare issues are not permitted unless rated
Aaa or AAA.


 


Money Market Securities/Funds: Securities (Commercial Paper, Banker’s Acceptances and Time Deposits)
must be rated at a minimum of A-1+ or P-l and not have a maturity greater than
one year. Single issuers may not comprise more than 5% of the Aggregate
Portfolio (other than direct obligations of the US Government). Non-mortgage
backed securities with floating coupon rates may total no more than 10% of the individual
portfolio.


 


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Money market funds are permitted but allowable funds must seek to
maintain a stable net asset value and may only purchase “First Tier”
securities. A single fund may not comprise more than 20% of the Aggregate
Portfolio.


 


Repurchase agreements are allowed but must be a) marked to market
daily, b) collateralized at 102% by government or agency securities, c) have a
maturity of 30 days or less and d) have counterparties that must be rated A-1+
or P-l. Furthermore, only Primary Dealers with the Federal Reserve Bank of New
York and top-tier broker-dealers will be acceptable counter-parties. In
addition, counter-parties and their aggregate exposure limits must have prior
approval by the Management Investment Committee.  The aggregate level of repurchase agreements cannot exceed 5% of
the portfolio unless prior approval is established with the CFO.


 


Reverse repurchase agreement are allowed but can only be entered into
with prior approval from the CFO. The reverse repurchase agreement must only be
used to provide liquidity to the company and cannot be used to leverage the
portfolio.


 


Derivatives:
Options, swaps, futures (other than those previously mentioned), currencies
(other than those previously mentioned), and structured notes are not
permitted.


 


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Appendix I


 


The custom index is comprised of:


50% Lehman MBS Fixed Rate Index


30% Lehman U.S. Credit Index


10% Lehman U.S. Agency Index


5%
Lehman ABS Index


5%
Lehman CMBS Index


 


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