HomeMy WebLinkAbout12 - Investment Advisor Contracts111010
CITY OF
NEWPORT BEACH
City Council Staff Report
Agenda Item No. 12
November 22, 2011
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Finance Department
Tracy McCraner, Finance Director /Treasurer
949 - 644 -3123, tmccraner(c)newportbeachca.gov
PREPARED BY: Dan Matusiewicz, Deputy Finance Director
APPROVED: Y-A
TITLE: Investment Advisor Contract Approvals
ABSTRACT:
The City previously engaged five separate investment managers to oversee a portion of
the City's investment portfolio totaling approximately $150 million, not including bond
proceeds. The City solicited new proposals from each of its five investment advisory
firms and evaluated the proposals with the specific intent to reduce the number of
investment managers while obtaining more advantageous pricing in the process. Based
on the proposal responses, the City has severed its working relationship with two of the
five investment advisors and has negotiated uniform contracts and pricing with the
remaining three.
RECOMMENDATION:
Approve three, five -year professional service contracts for investment advisory services
with Chandler Asset Management, Cutwater Investor Services Corporation and PFM
Asset Management.
FUNDING REQUIREMENTS:
Based on the fee schedule associated with a five -year contract, the total annual cost for
three investment advisors total between $135,000 and $166,500 per year depending on
total assets managed per year. A portfolio balance of $150 million per year would
generate approximately $135,000 in investment advisor fees while a portfolio balance of
$195 million would generate fees of approximately $166,500. The new contracts result
in a savings to the City of approximately $70,000 per year.
Investment Advisor Contract Approvals
November 22, 2011
Page 2
DISCUSSION:
Since 1993, the City has essentially outsourced the bulk of its fixed income investment
function through the use of professional investment advisors. We believe this strategy is
extremely prudent and efficient since the City is able to make use of dedicated industry
experts, whom through greater economies of scale, have access to sophisticated
means of monitoring markets, performing credit analysis and executing relevant
investment strategies on a timely basis.
To safeguard against the possibility of investment fraud, the investment advisors do not
have physical access to the portfolio managed. All investments are held in the City's
name by a third party custodian bank, The Bank of New York, the largest custodian
bank in the world. All trade activity is independently monitored and reconciled on a daily
basis.
Prior to 2011, the City had utilized five separate investment managers and five separate
custodian banks. Working with ten different entities for day -to -day cash management
and monthly accounting was fairly complicated and cumbersome. Through a
competitive request for proposal (RFP) process, the City consolidated its custody
banking relationship down to one bank which resulted in lower fees, improved reporting
and greater efficiencies. And although the City was pleased with the previous past
performance of all five investment advisors, staff also embarked on a similar RFP
process to refine and consolidate its relationships with professional investment advisors.
The proposals were evaluated on a quality based selection process by the Deputy
Finance Director and two independent financial advisors based on the following
weighted criteria:
Based on the above criteria and past performance, the top three investment advisors
selected were Chandler Asset Management, Cutwater Investor Services Corporation
and PFM Asset Management. Staff reviewed the recommendations with the Finance
Committee at its January 10, 2011, meeting. With the concurrence of the Finance
Committee, the City began to phase -out its investment advisory relationship with City
National Investments and Wells Capital Management and began negotiating a standard
contract and fee schedule between all three remaining investment advisors.
Criteria Description
Qualifications and Experience
Weight
15%
Management Approach & Discipline
30%
Value Added Services
30%
Fees
25%
Total
00'
Based on the above criteria and past performance, the top three investment advisors
selected were Chandler Asset Management, Cutwater Investor Services Corporation
and PFM Asset Management. Staff reviewed the recommendations with the Finance
Committee at its January 10, 2011, meeting. With the concurrence of the Finance
Committee, the City began to phase -out its investment advisory relationship with City
National Investments and Wells Capital Management and began negotiating a standard
contract and fee schedule between all three remaining investment advisors.
Investment Advisor Contract Approvals
November 22, 2011
Page 3
Investment advisor compensation is based on the actual average monthly balance of
assets managed. At the current average balance of $50 million per investment advisor,
the annual fee for each investment manager would equate to approximately $45,000
per year or $225,000 during the five year term ($45,000 x 5 Years) in accordance with
the following fee schedule:
Since it is unknown what the specific portfolio balance will be for all future years during
the contract, a "High" and a "Low" portfolio balance estimate was determined and a
maximum not -to- exceed management fee for the five -year contract term was estimated
at $275,000. This conservative estimate would accommodate an average portfolio
balance between $50 and $65 million under management, per investment advisor as
follows:
* Approximated
ENVIRONMENTAL REVIEW:
This action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant
to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable
indirect physical change in the environment) and 15060(c)(3) (the activity is not a
project as defined in Section 15378) of the CEQA Guidelines, California Code of
Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical
change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
Investment Advisor Contract Approvals
November 22, 2011
Page 4
Submitted by:
Tracy MCC n r
Finance Di r /Treasurer
Attachments: PFM Professional Services Agreement
Chandler Asset Management Professional Services Agreement
Cutwater Investor Services Corporation Professional Services Agreement
Attachment A
PROFESSIONAL SERVICES AGREEMENT WITH
PFM ASSET MANAGEMENT
FOR INVESTMENT MANAGER
THIS AGREEMENT FOR PROFESSIONAL SERVICES ( "Agreement ") is made and
entered into as of this day of 2011, by and between the City of
Newport Beach, a California municipal corporation ( "City'), and PFM Asset
Management, a Delaware limited liability Company ( "Consultant "), whose address is 50
California Street, Suite 2300, San Francisco, California 94111 and is made with
reference to the following:
RECITALS
A. City is a municipal corporation duly organized and validly existing under the laws
of the State of California with the power to carry on its business as it is now being
conducted under the statutes of the State of California and the Charter of City.
B. City is required to manage its operating portfolio of cash and marketable
securities in accordance with the City's current adopted investment policy
( "Council Policy F -1 "). Council Policy F -1 is attached to this Agreement as
Exhibit "A" and incorporated herein by reference.
C. City has a current Investment Advisory Agreement- Discretionary (Institutional
Client, Non - ERISA) with Consultant dated September 1, 1993. Upon the
effective date of this Agreement the September 1, 1993 Investment Advisory
Agreement- Discretionary (Institutional Client, Non - ERISA) shall terminate and be
of no further effect.
D. City desires to engage Consultant to provide investment advisory services for
certain cash and marketable securities as designated by the City ( "Project ").
E. Consultant represents it is a registered investment advisor under the Investment
Advisers Act of 1940 and possesses the skill, experience, ability, background,
certification and knowledge to provide the services described in this Agreement.
F. The principal members of Consultant for purposes of this Project shall be
portfolio manager Robert Cheddar and backup portfolio manager Joseph
Creason..
G. City has solicited and received a proposal from Consultant, has reviewed the
previous experience and evaluated the expertise of Consultant, and desires to
retain Consultant to render professional services under the terms and conditions
set forth in this Agreement.
H. The Consultant warrants that it has delivered to the City, at least forty -eight (48)
hours prior to the execution of this Agreement, the Consultant's current Securities
and Exchange Commission Form ADV, Part 11 (disclosure statement). The City
acknowledges receipt of such disclosure statement at least forty -eight (48) hours
prior to the execution of this Agreement.
NOW, THEREFORE, it is mutually agreed by and between the undersigned parties as
follows:
1. TERM
The term of this Agreement shall commence on the above written date, and shall
terminate on June 30, 2016 unless terminated earlier as set forth herein.
2. SERVICES TO BE PERFORMED
Consultant shall diligently perform all the services described in the Scope of Services
attached hereto as Exhibit "B" and incorporated herein by reference ( "Work" or
"Services "). The City may elect to delete certain tasks from the Scope of Services at its
sole discretion.
3. TIME OF PERFORMANCE
Time is of the essence in the performance of Services under this Agreement and the
Services shall be performed to completion in a diligent and timely manner. The failure
by Consultant to perform the Services in a diligent and timely manner may result in
termination of this Agreement by City.
Notwithstanding the foregoing, Consultant shall not be responsible for delays due to
causes beyond Consultant's reasonable control. However, in the case of any such
delay in the Services to be provided for the Project, each party hereby agrees to provide
notice to the other party so that all delays can be addressed.
3.1 Consultant shall submit all requests for extensions of time for performance
in writing to the City's Project Administrator (as defined in Section 6 of this
Agreement) not later than five (5) calendar days after the start of the
condition that purportedly causes a delay. The Project Administrator shall
review all such requests and may grant reasonable time extensions for
unforeseeable delays that are beyond Consultant's control.
3.2 For all time periods not specifically set forth herein, Consultant shall
respond in the most expedient and appropriate manner under the
circumstances, by telephone, fax, hand - delivery, mail or electronic mail.
4. COMPENSATION TO CONSULTANT
City shall compensate Consultant on a monthly basis an amount calculated on the
average monthly market value of the portion of the City's investment portfolio under
management, including accrued interest, in accordance with the following schedule:
PFM Asset Management Page 2
Average Monthly Market Value Tiered Annual Investment
of Assets Under Management Management Fee
$0 -$25 million 0.10 of 1 % (10 basis points)
Next $25 -$50 million 0.08 of 1% (8 basis points)
Next $50 -$100 million 0.07 of 1% (7 basis points)
Assets in excess of $100 million 0.06 of 1% (6 basis points)
Monthly fees are based on the schedule outlined above, but at no time shall the monthly
fee be less than $1,250. (This minimum monthly fee will not apply to accounts that are
entirely comprised of proceeds from the sale of bonds.)
The average monthly market value of assets under management are subject to the fees
described in this section but shall exclude any funds invested in a local government
investment pool or registered mutual fund managed by the Consultant ( "Pool ").
Custody fees that may be charged by City's bank or other third party custodian are not
included in the above fee schedule.
Fees shall be prorated to the effective date of termination on the basis of actual days
elapsed, and any unearned portion of prepaid fees shall be refunded. City is not
required to pay any start -up or closing fees or penalty fees.
Consultant's compensation for all Work performed in accordance with this Agreement,
including all reimbursable items and subconsultant fees, shall not exceed Two Hundred
and Seventy -five Thousand Dollars and no /100 ($275,000) without prior written
authorization from City. No billing rate changes shall be made during the term of this
Agreement without the prior written approval of City.
4.1 Consultant shall submit monthly invoices to City which include the average
monthly market value of assets under management for the time period for
which the fee is assessed and the total fee charged in accordance with the
schedule and exclusions stated above.
4.2 City shall reimburse Consultant only for those costs or expenses
specifically approved in this Agreement, or specifically approved in writing
in advance by City. Unless otherwise approved, such costs shall be
limited and include nothing more than the following costs incurred by
Consultant:
A. The actual costs of subconsultants for performance of any of the
Services that Consultant agrees to render pursuant to this
Agreement, which have been approved in advance by City and
awarded in accordance with this Agreement.
B. Approved reproduction charges.
PFM Asset Management Page 3
C. Actual costs and /or other costs and /or payments specifically
authorized in advance in writing and incurred by Consultant in the
performance of this Agreement.
4.3 Consultant shall not receive any compensation for Extra Work performed
without the prior written authorization of City. As used herein, "Extra
Work" means any Work that is determined by City to be necessary for the
proper completion of the Project, but which is not included within the
Scope of Services and which the parties did not reasonably anticipate
would be necessary at the execution of this Agreement. Compensation
for any authorized Extra Work shall be paid in accordance with a written
amendment entered into between the parties.
5. PROJECT MANAGER
Consultant shall designate a Project Manager, who shall coordinate all phases of the
Project. This Project Manager shall be available to City at all reasonable times during
the Agreement term. Consultant has designated Portfolio Manager Robert Cheddar to
be its Project Manager. The City will be informed of all personnel assigned to the City
under the Agreement and any changes made to such personnel. The City will have the
opportunity to express opinions about the performance of any person assigned to the
account.
Consultant, at the sole discretion of City, shall remove from the Project any of its
personnel assigned to the performance of Services upon written request of City.
Consultant warrants that it will continuously furnish the necessary personnel to
complete the Project on a timely basis as contemplated by this Agreement.
6. ADMINISTRATION
This Agreement will be administered by the Finance Department. Deputy Director Dan
Matusiewicz or his designee shall be the Project Administrator and shall have the
authority to act for City under this Agreement. The Project Administrator or his /her
authorized representative shall represent City in all matters pertaining to the Services to
be rendered pursuant to this Agreement.
7. CITY'S RESPONSIBILITIES
In order to assist Consultant in the execution of its responsibilities under this
Agreement, City agrees to provide Consultant access to its current investment policy
upon the request of Consultant or at any time the policy is modified. City will provide all
such materials in a timely manner so as not to cause delays in Consultant's work
schedule.
PFM Asset Management Page 4
7.1 The City shall inform the Consultant in writing of the funding and
disbursement instructions applicable to the City. The Consultant shall
make its investment decisions for the assets under management in
accordance with such funding and disbursement instructions. The City
understands that it bears the market risk associated with changes to such
funding and disbursement instructions.
7.2 The City will provide the consultant with no less than five (5) business days
notice of a substantial contribution or withdrawal (i.e. an amount equal to or
greater than 10% of the portfolio assets) to or from the assets under
management to permit the Consultant to affect an orderly execution of the
Advisory Account's holdings. The Consultant will use its best efforts to
minimize adverse effects of such contributions or withdrawals on the
Advisory Account.
8.1 All of the Services shall be performed by Consultant or under Consultant's
supervision. Consultant represents it is a registered investment advisor
under the Investment Advisers Act of 1940 (15 U.S.C. 80b -1, et seq.).
Consultant shall immediately notify the City if at any time during the term
of this Agreement it is not so registered or if its registration is suspended.
Consultant agrees to perform its duties and responsibilities under this
Agreement with reasonable care. The federal securities laws impose
penalties under certain circumstances on persons who are required to act
in good faith. Consultant represents that it possesses the professional
and technical personnel required to perform the Services required by this
Agreement, and that it will perform all Services in a manner
commensurate with the Prudent Investor Standard required by California
Government Code Section 53600.3 ( "Prudent Investor Standard "). All
Services shall be performed by qualified and experienced personnel who
are not employed by City, nor have any contractual relationship with City.
By delivery of completed Work, Consultant certifies that the Work
conforms to the requirements of this Agreement and all applicable federal,
state and local laws and the Prudent Investor Standard of care. Nothing
herein shall in any way constitute a waiver or limitation of any rights which
the City or the Consultant may have under any federal securities laws.
8.2 Consultant represents and warrants to City that it has, shall obtain and
shall keep in full force in effect during the term hereof, at its sole cost and
expense, all licenses, permits, qualifications, insurance and approvals of
whatsoever nature that is legally required of Consultant to practice its
profession. Consultant shall maintain a City business license during the
term of this Agreement.
8.3 Consultant shall promptly give notice to the City if the Consultant has been
found to have violated any state or federal securities law or regulation in
any criminal action or civil suit in any state or federal court or in any
disciplinary proceeding before the Securities and Exchange Commission
PFM Asset Management Page 5
or any other agency or department of the United States, any registered
securities exchange, Financial Industry Regulatory Authority (FINRA), or
any regulatory authority of any State based upon the performance of
services as an investment advisor.
8.4 Consultant shall not be responsible for losses arising out of delays in
performing or inability to perform the Services as described in this
Agreement which result from events beyond its control, including
interruption of the business activities of the Consultant or other financial
institutions due to strikes, lockouts, accidents, or acts of God, or the failure
of City to furnish timely information or to approve or disapprove
Consultant's Work promptly, or delay or faulty performance by City, or
governmental agencies. Nothing herein shall in any way constitute a
waiver or limitation of any right of any person under federal and state
securities laws.
8.5 Investment Policy. Consultant shall comply with City's Council Policy F -1,
as amended from time to time, which current adopted version is attached
hereto as Exhibit "A." The most current adopted Investment Policy is
available at www. newportbeachca .gov /investmentpolicy. The City agrees
to notify the Consultant promptly in writing of any modifications to the
Investment Policy.
8.6 Authority of Consultant. Consultant is granted full discretion to invest and
reinvest all assets under its management in any type of security
authorized by the City's Investment Policy, Council Policy F -1, guidelines
set by the City, and /or State law, and /or federal securities laws.
9. HOLD HARMLESS
To the fullest extent permitted by law, Consultant shall indemnify, defend and hold
harmless City, its City Council, boards and commissions, officers, agents, volunteers,
and employees (collectively, the "Indemnified Parties ") from and against any and all
claims (including, without limitation, claims for bodily injury, death or damage to
property), demands, obligations, damages, actions, causes of action, suits, losses,
judgments, fines, penalties, liabilities, costs and expenses (including, without limitation,
attorney's fees, disbursements and court costs) of every kind and nature whatsoever
(individually, a Claim; collectively, "Claims "), which may arise from or in any manner
relate (directly or indirectly) to any breach of the terms and conditions of this
Agreement, any Work performed or Services provided under this Agreement including,
without limitation, defects in workmanship or materials or Consultant's presence or
activities conducted on the Project (including the negligent and /or willful acts, errors
and /or omissions of Consultant, its principals, officers, agents, employees, vendors,
suppliers, sub - consultants, sub - contractors, anyone employed directly or indirectly by
any of them or for whose acts they may be liable or any or all of them).
Notwithstanding the foregoing, nothing herein shall be construed to require Consultant
to indemnify the Indemnified Parties from any Claim arising from the sole negligence or
willful misconduct of the Indemnified Parties. Nothing in this indemnity shall be
PFM Asset Management Page 6
construed as authorizing any award of attorney's fees in any action on or to enforce the
terms of this Agreement. This indemnity shall apply to all claims and liability regardless
of whether any insurance policies are applicable. The policy limits do not act as a
limitation upon the amount of indemnification to be provided by the Consultant.
10. INDEPENDENT CONTRACTOR
It is understood that City retains Consultant on an independent contractor basis and
Consultant is not an agent or employee of City. The manner and means of conducting
the Work are under the control of Consultant, except to the extent they are limited by
statute, rule or regulation and the expressed terms of this Agreement. Nothing in this
Agreement shall be deemed to constitute approval for Consultant or any of Consultant's
employees or agents, to be the employees of City. Consultant shall have the
responsibility for and control over the means of performing the Work, provided that
Consultant is in compliance with the terms of this Agreement. Anything in this
Agreement that may appear to give City the right to direct Consultant as to the details of
the performance or to exercise a measure of control over Consultant shall mean only
that Consultant shall follow the desires of City with respect to the results of the Services.
11. COOPERATION
Consultant agrees to work closely and cooperate fully with City's Project Administrator
and any other agencies that may have jurisdiction or interest in the Work to be
performed. City agrees to cooperate with the Consultant on the Project.
12. CITY POLICY
Consultant shall discuss and review all matters relating to policy and Project direction with
City's Project Administrator in advance of all critical decision points in order to ensure the
Project proceeds in a manner consistent with City goals and policies.
13. PROGRESS
Consultant is responsible for keeping the Project Administrator and /or his /her duly
authorized designee informed on a regular basis regarding the status and progress of the
Project, activities performed and planned, and any meetings that have been scheduled or
are desired.
14. INSURANCE
Without limiting Consultant's indemnification of City, and prior to commencement of
Work, Consultant shall obtain, provide and maintain at its own expense during the term
of this Agreement, policies of insurance of the type and amounts described below and in
a form satisfactory to City.
A. Proof of Insurance. Consultant shall provide certificates of insurance to
City as evidence of the insurance coverage required herein, along with a
Waiver of Subrogation endorsement for workers' compensation.
Insurance certificates and endorsement must be approved by City's Risk
PFM Asset Management Page 7
Manager prior to commencement of performance. Current certification of
insurance shall be kept on file with City at all times during the term of this
contract. The Consultant shall provide City access to its insurance
brokers to confirm the terms of insurance coverage.
Consultant shall procure and maintain for the duration of the contract
insurance against claims for injuries to persons or damages to property,
which may arise from or in connection with the performance of the Work
hereunder by Consultant, his agents, representatives, employees or
subconsultants. The cost of such insurance shall be included in
Consultant's bid.
B. Acceptable Insurers. All insurance policies shall be issued by an
insurance company currently authorized by the Insurance Commissioner
to transact business of insurance in the State of California, with an
assigned policyholders' Rating of A- (or higher) and Financial Size
Category Class VII (or larger) in accordance with the latest edition of
Best's Key Rating Guide, unless otherwise approved by the City's Risk
Manager.
C. Coverage Requirements.
i. Workers' Compensation Coverage. Consultant shall maintain
Workers' Compensation Insurance (Statutory Limits) and
Employer's Liability Insurance (with limits of at least one million
dollars ($1,000,000)) for Consultant's employees in accordance
with the laws of the State of California, Section 3700 of the Labor
Code In addition, Consultant shall require each subconsultant to
similarly maintain Workers' Compensation Insurance and
Employer's Liability Insurance in accordance with the laws of the
State of California, Section 3700 for all of the subconsultant's
employees.
The Consultant shall endeavor to provide to the City notice of
cancellation or non - renewal of all Workers' Compensation policies
thirty (30) calendar days (ten (10) calendar days written notice of
non - payment of premium) prior to such change.
Consultant shall submit to City, along with the certificate of
insurance, a Waiver of Subrogation endorsement in favor of City, its
officers, agents, employees and volunteers.
ii. General Liability Coverage. Consultant shall maintain commercial
general liability insurance in an amount not less than one million
dollars ($1,000,000) per occurrence for bodily injury, personal
injury, and property damage, including without limitation, blanket
contractual liability.
iii. Automobile Liability Coverage. Consultant shall maintain
automobile insurance covering bodily injury and property damage
PFM Asset Management Page 8
for all activities of the Consultant arising out of or in connection with
Work to be performed under this Agreement, including coverage for
any owned, hired, non -owned or rented vehicles, in an amount not
less than one million dollars ($1,000,000) combined single limit for
each accident.
iv. Professional Liability (Errors & Omissions) Coverage. Consultant
shall maintain professional liability insurance that covers the
Services to be performed in connection with this Agreement, in the
minimum amount of ten million dollars ($10,000,000) limit per claim
and in the aggregate.
V. Fidelity Insurance. Consultant shall maintain fidelity insurance that
covers the Services to be performed in connection with this
Agreement, in the minimum amount of five million dollars
($5,000,000) limit per claim.
D. Other Insurance Provisions or Requirements.
The policies are to contain, or be endorsed to contain, the following
provisions:
i. Waiver of Subrogation. All insurance coverage maintained or
procured pursuant to this Agreement, with the exception of
professional liability and fidelity insurance, shall be endorsed to
waive subrogation against City, its elected or appointed officers,
agents, officials, employees and volunteers or shall specifically
allow Consultant or others providing insurance evidence in
compliance with these requirements to waive their right of recovery
prior to a loss. Consultant hereby waives its own right of recovery
against City, and shall require similar written express waivers and
insurance clauses from each of its subconsultants.
ii. Enforcement of Contract Provisions. Consultant acknowledges and
agrees that any actual or alleged failure on the part of the City to
inform Consultant of non - compliance with any requirement imposes
no additional obligations on the City nor does it waive any rights
hereunder.
iii. Requirements not Limiting. Requirements of specific coverage
features or limits contained in this Section are not intended as a
limitation on coverage, limits or other requirements, or a waiver of
any coverage normally provided by any insurance. Specific
reference to a given coverage feature is for purposes of clarification
only as it pertains to a given issue and is not intended by any party
or insured to be all inclusive, or to the exclusion of other coverage,
or a waiver of any type.
Management PFM Asset ..-
iv. Notice of Cancellation. Consultant agrees to provide City with thirty
(30) days notice of cancellation (except for nonpayment for which
ten (10) days notice is required) or nonrenewal of coverage for
each required coverage to the extent notification has been received
from the insurance carrier."
E. Timely Notice of Claims. Consultant shall give City prompt and timely
notice of claims made or suits instituted that arise out of or result from
Consultant's performance under this Agreement.
F. Additional Insurance. Consultant shall also procure and maintain, at its
own cost and expense, any additional kinds of insurance, which in its own
judgment may be necessary for its proper protection and prosecution of
the Work.
15. PROHIBITION AGAINST ASSIGNMENTS AND TRANSFERS
Except as specifically authorized under this Agreement, the Services to be provided
under this Agreement shall not be assigned, transferred contracted or subcontracted out
without the prior written approval of City. Any of the following shall be construed as an
assignment: The sale, assignment, transfer or other disposition of any of the issued
and outstanding capital stock of Consultant, or of the interest of any general partner or
joint venturer or syndicate member or cotenant if Consultant is a partnership or joint -
venture or syndicate or cotenancy, which shall result in changing the control of
Consultant. Control means fifty percent (50 %) or more of the voting power or twenty -
five percent (25 %) or more of the assets of the corporation, partnership or joint- venture.
16. SUBCONTRACTING
The parties recognize that a substantial inducement to City for entering into this
Agreement is the professional reputation, experience and competence of Consultant.
Assignments of any or all rights, duties or obligations of the Consultant under this
Agreement will be permitted only with the express written consent of City. Consultant shall
not subcontract any portion of the Work to be performed under this Agreement without the
prior written authorization of City.
17. OWNERSHIP OF DOCUMENTS
Each and every report, draft, record, plan, document and other writing produced
(hereinafter "Documents "), prepared or caused to be prepared by Consultant, its
officers, employees, agents and subcontractors, in the course of implementing this
Agreement, shall become the exclusive property of City, and City shall have the sole
right to use such materials in its discretion without further compensation to Consultant
or any other party. Consultant shall, at Consultant's expense, provide such Documents
to City upon prior written request.
Documents prepared by Consultant pursuant to this Agreement are not intended or
represented to be suitable for reuse by City or others on any other project. Any use of
completed Documents for other projects and any use of incomplete Documents without
PFM Asset Management Page 10
specific written authorization from Consultant will be at City's sole risk and without
liability to Consultant. Further, any and all liability arising out of changes made to
Consultant's deliverables under this Agreement by City or persons other than
Consultant is waived against Consultant and City assumes full responsibility for such
changes unless City has given Consultant prior notice and has received from
Consultant written consent for such changes.
18. ELECTRONIC DELIVERY
Consultant shall make best efforts to electronically deliver certain documents to City
such as invoices, statements, monthly reports, newsletters, account information, notices
and required disclosures. City hereby consents to Consultant's use of electronic
means, such as email or secure electronic portal, to make such delivery. This delivery
may include. notification of the availability of such document(s) on a website or secure
electronic portal, and City agrees that such notification will constitute "delivery." City
further agrees to provide Consultant with City's email address(s) and to keep this
information current at all times by promptly notifying Consultant of any change in email
address(s). The email address that should be used for electronic delivery shall be
treasuryaccountin_g a@ ewportbeachca ;gav until otherwise notified.
19. CONFIDENTIALITY
All Documents, including drafts, notes and communications that result from the Services in
this Agreement, shall be kept confidential unless City authorizes in writing the release of
information, or unless disclosure is required by law or by regulatory or judicial process.
20. INTELLECTUAL PROPERTY INDEMNITY
The Consultant shall defend and indemnify City, its agents, officers, representatives and
employees against any and all liability, including costs, for infringement of any United
States' letters patent, trademark, or copyright infringement, including costs, contained in
Consultant's drawings and specifications provided under this Agreement.
21. RECORDS
Consultant shall keep monthly records of all investing activities including all bid, offer
and trade tickets, monthly reports and invoices in connection with the Work to be
performed under this Agreement. Consultant shall maintain complete and accurate
records with respect to the costs incurred under this Agreement and any Services,
expenditures and disbursements charged to City, for a minimum period of three (3)
years, or for any longer period required by law, from the date of most recent monthly
payment to Consultant under this Agreement. All such records and invoices shall be
clearly identifiable. Consultant shall allow a representative of City to examine, audit and
make transcripts or copies of such records and invoices during regular business hours.
Consultant shall allow inspection of all Work, data, Documents, proceedings and
activities related to the Agreement for a period of three (3) years from the date of final
payment to Consultant under this Agreement.
PFM Asset Management Page 11
22. WITHHOLDINGS
City may withhold payment to Consultant of any disputed sums until satisfaction of the
dispute with respect to such payment. Such withholding shall not be deemed to
constitute a failure to pay according to the terms of this Agreement. Consultant shall
not discontinue Work as a result of such withholding. Consultant shall have an
immediate right to appeal to the City's City Manager or his /her designee with respect to
such disputed sums. Consultant shall be entitled to receive interest on any withheld
sums at the rate of return that City earned on its investments during the time period,
from the date of withholding of any amounts found to have been improperly withheld.
23. ERRORS AND OMISSIONS
In the event of errors or omissions that are due to the negligence or professional
inexperience of Consultant which result in expense to City greater than what would
have resulted if there were not errors or omissions in the Work accomplished by
Consultant, the additional expense shall be borne by Consultant. Nothing in this
paragraph is intended to limit City's rights under the law or any other sections of this
Agreement.
24. CITY'S RIGHT TO EMPLOY OTHER CONSULTANTS
City reserves the right to employ other Consultants in connection with the Project.
25. CONFLICTS OF INTEREST
The Consultant or its employees may be subject to the provisions of the California
Political Reform Act of 1974 (the "Act "), which (1) requires such persons to disclose any
financial interest that may foreseeably be materially affected by the Work performed
under this Agreement, and (2) prohibits such persons from making, or participating in
making, decisions that will foreseeably financially affect such interest.
If subject to the Act, Consultant shall conform to all requirements of the Act. Failure to
do so constitutes a material breach and is grounds for immediate termination of this
Agreement by City. Consultant shall indemnify and hold harmless City for any and all
claims for damages resulting from Consultant's violation of this section.
26. NOTICES
All notices, demands, requests or approvals to be given under the terms of this Agreement
shall be given in writing, and conclusively shall be deemed served when delivered
personally, or on the third business day after the deposit thereof in the United States mail,
postage prepaid, first -class mail, addressed as hereinafter provided. All notices, demands,
requests or approvals from Consultant to City shall be addressed to City at:
Attention: Dan Matusiewicz,
Deputy Director
Finance Department
PFM Asset Management Page 12
City of Newport Beach
3300 Newport Boulevard
PO Box 1768
Newport Beach, CA 92658 -8915
Phone: 949 - 644 -3126
Fax: 949 - 644 -3339
E -mail: Treasuryaccounting @newportbeachca.gov
All notices, demands, requests or approvals from City to Consultant shall be addressed
to Consultant at:
Attention: Robert Cheddar, Portfolio Manager
PFM Asset Management LLC
One Keystone Plaza, Suite 300
Harrisburg, PA 17101 -2044
Phone: 717- 232 -2723
Fax: 717- 233 -6073
E -mail: cheddarr @pfm.com
27. CLAIMS
The Consultant and the City expressly agree that in addition to any claims filing
requirements set forth in the Agreement, the Consultant shall be required to file any
claim the Consultant may have against the City in strict conformance with the Tort
Claims Act (California Government Code sections 900 et seq.).
28. TERMINATION
In the event that either party fails or refuses to perform any of the provisions of this
Agreement at the time and in the manner required, that party shall be deemed in default
in the performance of this Agreement. If such default is not cured within a period of five
(5) calendar days, or if more than five (5) calendar days are reasonably required to cure
the default and the defaulting party fails to give adequate assurance of due performance
within five (5) calendar days after receipt of written notice of default, specifying the
nature of such default and the steps necessary to cure such default, and thereafter
diligently take steps to cure the default, the non - defaulting party may terminate the
Agreement forthwith by giving to the defaulting party written notice thereof.
Notwithstanding the above provisions, City shall have the right, at its sole discretion and
without cause, of terminating this Agreement at any time by giving seven (7) calendar
days prior written notice to Consultant. In the event of termination under this Section,
City shall pay Consultant for Services satisfactorily performed and costs incurred up to
the effective date of termination for which Consultant has not been previously paid. On
the effective date of termination, Consultant shall deliver to City all reports, Documents
and other information developed or accumulated in the performance of this Agreement,
whether in draft or final form.
PFM Asset Management Page 13
The Consultant shall have the right, at its sole discretion and without cause, of
terminating this Agreement at any time by giving thirty (30) calendar days prior written
notice to the City
29. COMPLIANCE WITH ALL LAWS
Consultant shall at its own cost and expense comply with all statutes, ordinances,
regulations and requirements of all governmental entities, including federal, state, county
or municipal, whether now in force or hereinafter enacted. In addition, all Work prepared
by Consultant shall conform to applicable City, county, state and federal laws, rules,
regulations and permit requirements and be subject to approval of the Project
Administrator and City.
30. WAIVER
A waiver by either party of any breach, of any term, covenant or condition contained
herein shall not be deemed to be a waiver of any subsequent breach of the same or any
other term, covenant or condition contained herein, whether of the same or a different
character.
31. INTEGRATED CONTRACT
This Agreement represents the full and complete understanding of every kind or nature
whatsoever between the parties hereto, and all preliminary negotiations and agreements
of whatsoever kind or nature are merged herein. No verbal agreement or implied
covenant shall be held to vary the provisions herein.
32. CONFLICTS OR INCONSISTENCIES
In the event there are any conflicts or inconsistencies between this Agreement and the
Scope of Services or any other attachments attached hereto, the terms of this
Agreement shall govern.
33. INTERPRETATION
The terms of this Agreement shall be construed in accordance with the meaning of the
language used and shall not be construed for or against either party by reason of the
authorship of the Agreement or any other rule of construction which might otherwise
apply.
34. AMENDMENTS
This Agreement may be modified or amended only by a written document executed by
both Consultant and City and approved as to form by the City Attorney.
35. SEVERABILITY
PFM Asset Management Page 14
If any term or portion of this Agreement is held to be invalid, illegal, or otherwise
unenforceable by a court of competent jurisdiction, the remaining provisions of this
Agreement shall continue in full force and effect.
36. CONTROLLING LAW AND VENUE
The laws of the State of California shall govern this Agreement and all matters relating
to it and any action brought relating to this Agreement shall be adjudicated in a court of
competent jurisdiction in the County of Orange.
37. EQUAL OPPORTUNITY EMPLOYMENT
Consultant represents that it is an equal opportunity employer and it shall not
discriminate against any subcontractor, employee or applicant for employment because
of race, religion, color, national origin, handicap, ancestry, sex or age.
38. INCORPORATION OF RECITALS
The recitals within this Agreement are true and correct and are incorporated into the
operative part of this Agreement.
39. NO ATTORNEY'S FEES
In the event of any dispute or action arising under the Agreement, the prevailing party
shall not be entitled to attorney's fees.
40. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.
[SIGNATURES ON NEXT PAGE]
PFM Asset Management Page 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on
the dates written below.
APPROVED AS TO FORM:
OFFICE OF THE CITY ATTORNEY
Date: 11/10/11
By. `
Aaron Harp
City Attorney
ATTEST:
Date:
CITY OF NEWPORT BEACH,
A California municipal corporation
Date:
By:
Michael F
Mayor
Henn
CONSULTANT: PFM ASSET
MANAGEMENT
a Delaware limited liability Company
Date:
By: By:
Leilani I. Brown Marty Margolis, Managing Director and
City Clerk Chief Investment Officer
Date:
By:
Nancy Jones , Managing Director
Attachments: Exhibit "A" — Council Policy F -1: Statement of Investment Policy
Exhibit "B" — Scope of Services
[END OF SIGNATURES]
PFM Asset Management Page 16
EXHIBIT "A"
PFM Asset Management Page 17
F -1
STATEMENT OF INVESTMENT POLICY
PURPOSE:
The City Council has adopted this Investment Policy (the Policy) in order to establish
the scope of the investment policy, investment objectives, standards of care, authorized
investments, investment parameters, reporting, investment policy compliance and
adoption, and the safekeeping and custody of assets.
This Policy is organized in the following sections:
A. Scope of Investment Policy
1. Pooling of Funds
2. Funds Included in the Policy
3. Funds Excluded from the Policy
B. Investment Objectives
1. Safety
2. Liquidity
3. Yield
C. Standards of Care
1. Prudence
2. Ethics and Conflicts of Interest
3. Delegation of Authority
4. Internal Controls
D. Banking Services
E. Broker /Dealers
F. Safekeeping and Custody of Assets
G. Authorized Investments
1. Investments Specifically Permitted
2. Investments Specifically Not Permitted
3. Exceptions to Prohibited and Restricted Investments
H. Investment Parameters
1. Diversification
2. Maximum Maturities
3. Credit Quality
4. Competitive Transactions
I. Portfolio Performance
J. Reporting
K. Investment Policy Compliance and Adoption
1. Compliance
2. Adoption
1
F -1
A. SCOPE OF INVESTMENT POLICY
1. Pooling of Funds
All cash shall be pooled for investment purposes. The investment income
derived from the pooled investment shall be allocated to the contributing
funds, net of all banking and investing expenses, based upon the proportion
of the respective average balances relative to the total pooled balance.
Investment income shall be distributed to the individual funds not less than
annually.
2. Funds Included in the Policy
The provisions of this Policy shall apply to all financial assets of the City as
accounted for in the City's Comprehensive Annual Financial Report fisted
below.
a) General Fund
b) Special Revenue Funds
c) Capital Project Funds
d) Enterprise Funds
e) Internal Service Funds
f) Trust and Agency Funds
g) Permanent Endowment Funds
h) Any new fund created unless specifically exempted
If the City invests funds on behalf of another agency and, if that agency does not
have its own investment policy, this Policy shall govern the agency's
investments.
3. Funds Excluded from this Policy
Bond Proceeds - Investment of bond proceeds will be made in accordance
with applicable bond indentures.
B. INVESTMENT OBJECTIVES
The City's funds shall be invested in accordance with all applicable City policies
and codes, State statutes, and Federal regulations, and in a manner designed to
accomplish the following objectives, which are listed in priority order:
1. Safety
Preservation of principal is the foremost objective of the investment
program. Investments of the City shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio. The
objective shall be to mitigate credit risk and interest rate risk. To attain this
objective, the City shall diversify its investments by investing funds among
2
F -1
several financial institutions and a variety of securities offering independent
returns.
a) Credit Risk
The City shall minimize credit risk, the risk of loss due to the
failure of the security issuer or backer, by:
• Limiting investments in securities that have higher credit
risks, pre - qualifying the financial institutions,
broker/ dealers, intermediaries, and advisers with which the
City will do business
• Diversifying the investment portfolio so as to minimize the
impact any one industry/ investment class can have on the
portfolio
b) Interest Rate Risk
To minimize the negative impact of material changes in the market
value of securities in the portfolio, the City shall:
• Structure the investment portfolio so that securities mature
concurrent with cash needs to meet anticipated demands,
thereby avoiding the need to sell securities on the open
market prior to maturity
• Invest in securities of varying maturities
2. Liquidity
The City's investment portfolio shall remain sufficiently liquid to enable the
City to meet all operating requirements which might be reasonably
anticipated without requiring a sale of securities. Since all possible cash
demands cannot be anticipated, the portfolio should consist largely of
securities with active secondary or resale markets. A portion of the portfolio
also may be placed in money market mutual funds or LAIF which offer
same -day liquidity for short -term funds.
3. Yield
The City's investment portfolio shall be designed with the objective of
attaining a benchmark rate of return throughout budgetary and economic
cycles, commensurate with the City's investment risk constraints and the
liquidity characteristics of the portfolio. Return on investment is of
secondary importance compared to the safety and liquidity objectives
described above. The core of investments is limited to relatively low risk
securities in anticipation of earning a fair return relative to the risk being
assumed.
3
F -1
C. STANDARDS OF CARE
1. Prudence
The standard of prudence to be used for managing the City's investment
program is California Government Code Section 53600.3, the prudent
investor standard, which states that "when investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general
economic conditions and the anticipated needs of the agency, that a prudent
person acting in a like capacity and familiarity with those matters would use
in the conduct of funds of a like character and with like aims, to safeguard the
principal and maintain the liquidity needs of the agency."
The City's overall investment program shall be designed and managed with a
degree of professionalism that is worthy of the public trust. The City
recognizes that no investment is totally without risk and that the investment
activities of the City are a matter of public record. Accordingly, the City
recognizes that occasional measured losses may occur in a diversified
portfolio and shall be considered within the context of the overall portfolio's
return, provided that adequate diversification has been implemented and that
the sale of a security is in the best long -term interest of the City.
The Director of Finance and authorized investment personnel acting in
accordance with established procedures and exercising due diligence shall be
relieved of personal responsibility for an individual security's credit risk or
market price changes, provided that deviations from expectations are
reported in a timely fashion to the City Council and appropriate action is
taken to control adverse developments.
2. Ethics and Conflicts of Interest
Elected officials and employees involved in the investment process shall
refrain from personal business activity that could conflict with proper
execution of the City's investment program or could impair or create the
appearance of an impairment of their ability to make impartial investment
decisions. Employees and investment officials shall subordinate their
personal investment transactions to those of the City. In addition, City
Council members, the City Manager, and the Director of Finance shall file a
Statement of Economic Interests each year as required by California
Government Code Section 87203 and regulations of the Fair Political Practices
Commission.
0
F -1
3. Delegation of Authority
Authority to manage the City's investment program is derived from the
Charter of the City of Newport Beach section 605 (j). The Director of Finance
shall assume the title of and act as City Treasurer and with the approval of
the City Manager appoint deputies annually as necessary to act under the
provisions of any law requiring or permitting action by the City Treasurer.
The Director of Finance may then delegate the authority to conduct
investment transactions and to manage the operation of the investment
portfolio to other specifically authorized staff members. No person may
engage in an investment transaction except as expressly provided under the
terms of this Policy.
The City may engage the support services of outside investment advisors
with respect to its investment program, so long as it can be demonstrated that
these services produce a net financial advantage or necessary financial
protection of the City's financial resources. Such companies must be well
established and exceptionally reputable. Members of the staff of such
companies who will have primary responsibility for managing the City's
investments must have a working familiarity with the special requirements
and constraints of investing municipal funds in general and this City's funds
in particular. These firms must insure that the portion of the portfolio under
their management complies with various concentration and other constraints
specified herein, and contractually agree to conform to all provisions of
governing law and the collateralization and other requirements of this Policy.
4. Internal Controls
The Finance Director is responsible for establishing and maintaining a system
of internal controls. The internal controls shall be designed to prevent losses
of public funds arising from fraud, employee error, and misrepresentation by
third parties, unanticipated changes in financial markets, or imprudent action
by City employees and officers. The internal structure shall be designed to
provide reasonable assurance that these objectives are met. The concept of
reasonable assurance recognizes that (1) the cost of a control should not
exceed the benefits likely to be derived, and (2) the valuation of costs and
benefits requires estimates and judgments by management.
D. BANKING SERVICES
Banking services for the City shall be provided by FDIC insured banks approved
to provide depository and other banking services. To be eligible, a bank shall
qualify as a depository of public funds in the State of California as defined in
California Government Code Section 53630.5 and shall secure deposits in excess
5
F -1
of FDIC insurance coverage in accordance with California Government Code
Section 53652.
E. BROKER /DEALERS
Broker /Dealers will be selected on the basis of their expertise in public cash
management and their ability to provide service to the City's account.
Each approved broker /dealer must possess an authorizing certificate from the
California Commissioner of Corporations as required by Section 25210 of the
California Corporations Code.
To be eligible, a firm must meet at least one of the following criteria:
1. be recognized as Primary Dealers by the Federal Reserve Bank of New York
or have a primary dealer within their holding company structure, or
2. report voluntarily to the Federal Reserve Bank of New York, or
3. qualify under Securities and Exchange Commission (SEC) Rule 15c3 -1
(Uniform Net Capital Rule),
F. SAFEKEEPING AND CUSTODY OF ASSETS
The Director of Finance shall select one or more banks to provide safekeeping
and custodial services for the City. A Safekeeping Agreement approved by the
City shall be executed with each custodian bank prior to utilizing that bank's
safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services
for the City's account and the competitive pricing of their safekeeping related
services.
The purchase and sale of securities and repurchase agreement transactions shall
be settled on a delivery versus payment basis. All securities shall be perfected in
the name of the City. Sufficient evidence to title shall be consistent with modern
investment, banking and commercial practices.
All investment securities, except non - negotiable Certificates of Deposit, Money
Market Funds and local government investment pools, purchased by the City
will be delivered by either book entry or physical delivery and will be held in
third -party safekeeping by a City approved custodian bank, its correspondent
bank or its Depository Trust Company (DTC) participant account.
0
F -1
All Fed wireable book entry securities owned by the City shall be held in the
Federal Reserve system in a customer account for the custodian bank which will
name the City as "customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant
account and the custodian bank shall provide evidence that the securities are
held for the City as "customer."
G. AUTHORIZED INVESTMENTS
All investments and deposits of the City shall be made in accordance with
California Government Code Sections 16429.1, 53600 -53609 and 53630- 53686.
Any revisions or extensions of these code sections will be assumed to be part of
this Policy immediately upon being enacted. The City has further restricted the
eligible types of securities and transactions. The foregoing list of authorized
securities and transactions shall be strictly interpreted. Any deviation from this
Est must be pre approved by resolution of the City Council.
1. Investments Specifically Permitted
a) United States Treasury bills, notes, or bonds with a final maturity not
exceeding five years from the date of trade settlement.
b) Federal Instrumentality (government sponsored enterprise) debentures,
discount notes, callable and step -up securities, with a final maturity not
exceeding five years from the date of trade settlement.
c) Federal Agency - mortgage- backed securities and debentures with a final
maturity not exceeding five years from the date of trade settlement.
d) Mortgage- backed Securities and Asset - backed Securities limited to
mortgage- backed pass - through securities issued by a US government
agency, or consumer receivable pass- through certificates or bonds with a
final maturity not exceeding five years from the date of trade settlement.
Securities eligible for investment under this subdivision shall be issued by
an issuer whose debt is rated at least A or the equivalent by a Nationally
Recognized Statistical Rating Organization (NRSRO). The security itself
shall be rated at least AAA or the equivalent by a NRSRO. No more than
five percent (5 %) of the City's total portfolio shall be invested in any one
issuer of mortgage- backed and asset - backed securities listed above, and
the aggregate investment in mortgage- backed and asset - backed securities
shall not exceed twenty percent (20 %) of the City's total portfolio.
7
F -1
e) Medium -Term Notes issued by corporations organized and operating
within the United States or by depository institutions licensed by the
United States or any state and operating within the United States, with a
final maturity not exceeding four years from the date of trade settlement,
and rated at least A or the equivalent by a NRSRO. No more than five
percent (5 %) of the City's total portfolio shall be invested in any one issuer
of medium -term notes, and the aggregate investment in medium -term
notes shall not exceed thirty percent (30 %) of the City's total portfolio. In
addition, AAA rated FDIC - guaranteed corporate bonds are herein
authorized, within the aforementioned diversification and maturity
requirements.
f) Municipal Bonds: General and Revenue obligations of the State of
California and local agencies within the State. Municipal bonds must be
rated at least AA by two NRSROs with maturities not exceeding three
years. No more than five percent (5 %) of the City's total portfolio shall be
invested in any one issuer and the aggregate investment in municipal
bonds shall not exceed fifteen percent (15 %) of the City's total portfolio.
g) Non - negotiable Certificates of Deposit and savings deposits with a
maturity not exceeding two years from the date of trade settlement, in
FDIC insured state or nationally chartered banks or savings banks that
qualify as a depository of public funds in the State of California as defined
in California Government Code Section 53630.5. Deposits exceeding the
FDIC insured amount shall be secured pursuant to California Government
Code Section 53652. No one issuer shall exceed more than five percent
(5 %) of the portfolio, and investment in negotiable and nonnegotiable
certificates of deposit shall be limited to thirty percent (30 %) of the
portfolio combined.
h) Negotiable Certificates of Deposit only with U.S. Banks whose underlying
securities are rated A -1 or the equivalent by a NRSRO and having assets
in excess of $10 billion, so as to insure security and a large, well -
established secondary market. Ease of subsequent marketability is further
ascertained prior to initial investment by examining currently quoted bids
by primary dealers and the acceptability of the issuer by these dealers. No
one issuer shall exceed more than five percent (5 %) of the portfolio, and
maturity shall not exceed two years. Investment in negotiable and non-
negotiable certificates of deposit shall be limited to thirty percent (30 %) of
the portfolio combined.
0
F -1
i) Prime Commercial Paper with a maturity not exceeding 270 days from the
date of trade settlement with the highest letter and number rating as
provided for by a NRSRO. The entity that issues the commercial paper
shall meet all of the following conditions in either sub - paragraph i. or sub-
paragraph ii. below:
i. The entity shall (1) be organized and operating in the United States as
a general corporation, (2) have total assets in excess of $500,000,000
and (3) have debt other than commercial paper, if any, that is rated at
least A or the equivalent by a NRSRO.
ii. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have
program wide credit enhancements, including, but not limited to, over
collateralization, letters of credit or surety bond and (3) have
commercial paper that is rated at least A -1 or the equivalent by a
NRSRO.
iii. No more than five percent (5 %) of the City's total portfolio shall be
invested in the commercial paper of any one issuer, and the aggregate
investment in commercial paper shall not exceed twenty five percent
(25 %) of the City's total portfolio.
j) Eligible Banker's Acceptances with a maturity not exceeding 180 days
from the date of trade settlement, drawn on and accepted by a commercial
bank whose senior long -term debt is rated at least A or the equivalent by a
NRSRO at the time of purchase. Banker's Acceptances shall be rated at
least A -1, P -1 or the equivalent at the Lime of purchase by a NRSRO. If the
bank has senior debt outstanding, it must be rated at least A or the
equivalent by a NRSRO. The aggregate investment in banker's
acceptances shall not exceed twenty percent (20 %) of the City's total
portfolio, and no more than five percent (5 %) of the City's total portfolio
shall be invested in banker's acceptances of any one bank.
k) Repurchase Agreements and Reverse Repurchase Agreements with a final
termination date not exceeding 30 days collateralized by U.S. Treasury
obligations or Federal Instrumentality securities listed in items 1 and 2
above with the maturity of the collateral not exceeding ten years. For the
purpose of this section, the term collateral shall mean purchased securities
under the terms of the City's approved Master Repurchase Agreement.
6
F -1
The purchased securities shall have a minimum market value including
accrued interest of one hundred and two percent (102 %) of the dollar
value of the funds borrowed. Collateral shall be held in the City's
custodian bank, as safekeeping agent, and the market value of the
collateral securities shall be marked -to -the- market daily.
Repurchase Agreements and Reverse Repurchase Agreements shall be
entered into only with broker/ dealers and who are recognized as Primary
Dealers with the Federal Reserve Bank of New York, or with firms that
have a Primary Dealer within their holding company structure. Primary
Dealers approved as Repurchase Agreement counterparties shall have a
short -term credit rating of at least A -1 or the equivalent and a long -term
credit rating of at least A or the equivalent. Repurchase agreement
counterparties shall execute a City approved Master Repurchase
Agreement with the City. The Finance Director shall maintain a copy of
the City's approved Master Repurchase Agreement and a list of the
broker/ dealers who have executed same.
In addition, the City must own assets for more than 30 days before they
can be used as collateral for a reverse repurchase agreement. No more
than ten percent (10 %) of the portfolio can be involved in reverse repos.
1) State of California's Local Agency Investment Fund (LAIF), pursuant to
California Government Code Section 16429.1.
m) County Investment Funds: Los Angeles County provides a service similar
to LAIF for municipal and other government entities outside of Los
Angeles County, including the City. Investment in this pool is intended to
be used as a temporary repository for short -term funds used for liquidity
purposes. The Finance Director shall maintain on file appropriate
information concerning the county pool's current investment policies,
practices, and performance, as well as its requirements for participation,
including, but not limited to, limitations on deposits or withdrawals and
the composition of the portfolio. At no time shall more than five percent
(5 %) of the City's total investment portfolio be placed in this pool.
n) Money Market Funds registered under the Investment Company Act of
1940 that (1) are "no- load" (meaning no commission or fee shall be
charged on purchases or sales of shares); (2) have a constant net asset
value per share of $1.00; (3) invest only in the securities and obligations
authorized in the applicable California statutes and (4) have a rating of at
10
F -1
least AAA or the equivalent by at least two NRSROs. The aggregate
investment in money market funds shall not exceed twenty percent (20 %)
of the City's total portfolio.
2. Investments Specifically Not Permitted
Any security type or structure not specifically approved by this policy is
hereby prohibited. Security types, which are thereby prohibited include, but
are not limited to: "exotic' derivative structures such as range notes, dual
index notes, inverse floating rate notes, leveraged or de- leveraged floating
rate notes, interest only strips that are derived from a pool of mortgages and
any security that could result in zero interest accrual if held to maturity, or
any other complex variable or structured note with an unusually high degree
of volatility risk.
The City shall not invest finds with the Orange County Pool.
3. Exceptions to Prohibited and Restricted Investments
The City shall not be required to sell securities prohibited or restricted in this
policy, or any future policies, or prohibited or restricted by new State
regulations, if purchased prior to their prohibition and /or restriction. Insofar
as these securities provided no notable credit risk to the City, holding of these
securities until maturity is approved. At maturity or liquidation, such monies
shall be reinvested on as provided by this policy.
H. INVESTMENT PARAMETERS
1. Diversification
The City shall diversify its investments to avoid incurring unreasonable risks
inherent in over - investing in specific instruments, individual financial
institutions or maturities. As such, no more than five percent (5 %) of the
City's portfolio may be invested in the instruments of any one non-
governmental issuer. This restriction does not apply to any type of Federal
Instrumentality or Federal Agency Security listed in Sections G1 b and G1 c
above. Nevertheless, the asset allocation in the investment portfolio should
be flexible depending upon the outlook for the economy, the securities
markets and the City's anticipated cash flow needs.
2. Maximum Maturities
To the extent possible, investments shall be matched with anticipated cash
flow requirements and known future liabilities. The City will not invest in
11
F -1
securities maturing more than five years from the date of trade settlement, unless
the City Council has by resolution granted authority to make such an investment
at least three months prior to the date of investment.
3. Credit Quality
The City shall not purchase any security rated Al and / or A+ or below if that
security has been placed on "credit watch" for a possible downgrade by a
NRSRO.
In the event a security held by the City is the subject of a rating downgrade
which brings it below accepted minimums specified herein, or the security is
placed on negative credit watch, where downgrade could result in a rate drop
below acceptable levels, the investment advisor who purchased the security
will immediately notify the Director of Finance. The City shall not be required
to immediately sell such securities. The course of action to be followed will
then be decided on a case by case basis, considering such factors as the reason
for the rate drop, prognosis for recovery or further drop, and market price of
the security. The City Council will be advised of the situation and intended
course of action.
4. Competitive Transactions
All investment transactions shall be conducted competitively with authorized
broker /dealers. At least three broker /dealers shall be contacted for each
transaction and their bid or offering prices shall be recorded. If there is no
other readily available competitive offering, quotations for comparable or
alternative securities will be documented.
I. PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return
throughout budgetary and economic cycles, taking into account prevailing
market conditions, risk constraints for eligible securities, and cash flow
requirements. The performance of the City's investments shall be compared to
the average yield on the U.S. Treasury security that most closely corresponds to
the portfolio's weighted average effective maturity. When comparing the
performance of the City's portfolio, its rate of return will be computed net of all
fees and expenses.
J. REPORTING
Monthly, the Director of Finance shall submit to the City Council a report of the
investment earnings and performance results of the City's investment portfolio.
The report shall include the following information:
12
F -1
1. Investment type, issuer, date of maturity, par value and dollar amount
invested in all securities, and investments and monies held by the City;
2. A description of the funds, investments and programs;
3. A market value as of the date of the report (or the most recent valuation as to
assets not valued monthly) and the source of the valuation,
4. A statement of compliance with this Policy or an explanation for non-
compliance
K. INVESTMENT POLICY COMPLIANCE AND ADOPTION
1. Compliance
Any deviation from the policy shall be reported to Finance Committee at the
next scheduled meeting and to City Council as part of the monthly review of
the portfolio. The Director of Finance shall promptly notify Finance
Committee and City Council of any material change in the policy and any
modifications to the policy must be approved by Finance Committee and City
Council.
2. Adoption
The Treasurer shall render a written Statement of Investment Policy that shall
be reviewed at least annually by Finance Committee and City Council to
ensure its consistency with the overall objectives of preservation of principal,
liquidity and return, and its relevance to current law and financial and
economic trends. City Council shall consider the annual Statement of
Investment Policy and any changes therein at a public meeting.
This Policy was endorsed and adopted by the City Council of the City of
Newport Beach on September 28, 2010. It replaces any previous investment
policy or investment procedures of the City.
Adopted - April 6,1959
Amended - November 9,1970
Amended - February 11, 1974
Amended - February 9,1981
Amended - October 27,1986
Rewritten - October 22,1990
Amended - January 28,1991
Amended - January 24,1994
Amended - January 9,1995
13
Amended - April 22,1996
Corrected - January 27,1997
Amended - February 24,1997
Amended - May 26,1998
Reaffirmed - March 22,1999
Reaffirmed - March 14, 2000
Amended & Reaffirmed - May 8, 2001
Amended & Reaffirmed - April 23, 2002
Amended & Reaffirmed - April 8, 2003
Amended & Reaffirmed - April 13, 2004
Amended & Reaffirmed - September 13, 2005
Amended - August 11, 2009
Amended & Reaffirmed August 10, 2010
Amended & Reaffirmed -September 28, 2010
Reaffirmed - June 28, 2011
F -1
14
EXHIBIT "B"
PFM Asset Management Page 18
SCOPE OF SERVICES
The following Services are required:
• Consultant will provide investment research and supervision of the City's assets
under management and conduct a continuous program of investment, evaluation
and, when appropriate, sale and reinvestment of the City's Managed Funds assets.
• The Consultant shall continuously monitor investment opportunities of the City's
Funds.
• All investment advisory services must conform with state law, federal law, the
City's investment policy and the Prudent Expert Standard of care.
• Annually review investment policy and compare to applicable laws. Recommend
appropriate amendments annually to comply with applicable laws or minimize risk
with respect to stated investment objectives.
• Develop and execute an investment strategy consistent with the City's stated
investment policy objectives and parameters, applicable laws and an
understanding of the City's cash flow needs.
• Establish an appropriate performance benchmark and compare historical results to
benchmark.
• Regularly ensure portfolio structure matches the City's stated investment
objectives.
• Provide monthly reporting of each portfolio under management showing deposits,
withdrawals, purchases and sales (or maturities) of investments, earnings
received, and the value of assets held on the last business day of the month. The
statement shall be in the format and manner that is mutually agreed upon in writing
by the Consultant and the City.
• Provide credit analysis of investment instruments in portfolio.
• Provide assurance of portfolio compliance with applicable policies and laws.
• Immediately apprise Project Administrator of all instances of non - compliance with
applicable policies and laws.
• Attend meetings with government officials as needed.
• Discuss cash flow needs and market strategy with Project Administrator quarterly.
• Assist the City with cash flow /maturity analysis as needed.
• The depository designated by the City (the "Custodian ") shall have custody of
cash, assets and securities of the City. The Consultant is not the Custodian of the
PFM Asset Management Page 19
assets and shall not take possession of or act as Custodian for the cash, securities
or other assets in the Managed Funds.
• Consultant will observe the instructions of the City with respect to broker /dealers
who are approved to execute transactions involving the City's Managed Funds and
in the absence of such instructions will engage broker /dealers who are reputable,
qualified and financially sound. In connection with the selection of such brokers
and dealers and the placing of such orders, the Consultant is directed to seek for
the City the most favorable execution and price.
• Regularly evaluate market risk and develop strategies that minimize the impact on
the portfolio.
• Immediately apprise staff of significant market events impacting portfolio security
or performance.
• Interact and communicate effectively with the City's Custodian bank. Consultant
shall provide trade instructions to Custodian Bank at least one business day prior
to settlement.
• Assist in credit monitoring of financial institutions with which the City conducts
business.
Exercise diligence in the selection and use of broker /dealers.
• All investment transactions shall be conducted competitively. Documentation of
recorded bid or offering prices shall be maintained for a period of at least three (3)
years.
• Provide for online access to or electronic delivery of monthly statements.
ADDITIONAL SERVICES/TERMS
• Proxy Voting. Consultant will vote proxies on behalf of City unless otherwise
instructed. Consultant has adopted and implemented written policies and
procedures and will provide City with a copy of the proxy voting procedures upon
request. Consultant will provide information regarding how City's proxies were
voted upon request.
• Valuation. Consultant will value securities held in portfolios managed by
Consultant no less than monthly. Securities or investments in the portfolio will be
valued in a manner determined in good faith by Consultant to reflect fair market
value.
• Investment Advice. City recognizes that the opinions, recommendations and
actions of Consultant will be based on information deemed by it to be reliable, but
not guaranteed to or by it. Provided that Consultant acts in good faith, City
agrees that Consultant will not in any way be liable for any error in judgment or
PFM Asset Management Page 20
for any act or omission, except as may otherwise be provided for under the
Federal Securities laws, state law or other applicable laws.
• Other Clients. It is further understood that Consultant may be acting in a similar
capacity for other institutional and individual clients, and that investments and
reinvestments for City's portfolio may differ from those made or recommended
with respect to other accounts and clients even though the investment objectives
may be the same or similar. Accordingly, it is agreed that Consultant will have no
obligation to purchase or sell for City's account any securities which it may
purchase or sell for other clients.
• Additional Services. If and to the extent that the City requests the Consultant to
render services other than those to be rendered by the Consultant according to
this agreement, such additional services shall be compensated separately on
terms to be agreed upon between the City and the Consultant.
PFM Asset Management Page 21
Attachment B
PROFESSIONAL SERVICES AGREEMENT WITH
CHANDLER ASSET MANAGEMENT, INC.
FOR INVESTMENT MANAGER
THIS AGREEMENT FOR PROFESSIONAL SERVICES ( "Agreement ") is made and
entered into as of this day of 2011, by and between the City of
Newport Beach, a California municipal corporation ( "City "), and Chandler Asset
Management, Inc., a California corporation ( "Consultant "), whose address is 6225 Lusk
Boulevard, San Diego, CA 92121 and is made with reference to the following:
RECITALS
A. City is a municipal corporation duly organized and validly existing under the laws
of the State of California with the power to carry on its business as it is now being
conducted under the statutes of the State of California and the Charter of City.
B. City is required to manage its operating portfolio of cash and marketable
securities in accordance with the City's current adopted investment policy
( "Council Policy F -1 "). Council Policy F -1 is attached to this Agreement as
Exhibit "A" and incorporated herein by reference.
C. City has a current Investment Advisory Agreement- Discretionary (Institutional
Client, Non - ERISA) with Consultant dated November 13, 2002. Upon the
effective date of this Agreement the November 13, 2002 Investment Advisory
Agreement- Discretionary (Institutional Client, Non - ERISA) shall terminate and be
of no further effect.
D. City desires to engage Consultant to provide investment advisory services for
certain cash and marketable securities as designated by the City ( "Project ").
E. Consultant represents it is a registered investment advisor under the Investment
Advisers Act of 1940 and possesses the skill, experience, ability, background,
certification and knowledge to provide the services described in this Agreement.
F. The principal members of Consultant for purposes of this Project shall be
portfolio manager Jayson Schmitt and backup portfolio manager Ted Piorkowski.
G. City has solicited and received a proposal from Consultant, has reviewed the
previous experience and evaluated the expertise of Consultant, and desires to
retain Consultant to render professional services under the terms and conditions
set forth in this Agreement.
H. The Consultant warrants that it has delivered to the City, at least forty -eight (48)
hours prior to the execution of this Agreement, the Consultant's current Securities
and Exchange Commission Form ADV, Part II (disclosure statement). The City
acknowledges receipt of such disclosure statement at least forty -eight (48) hours
prior to the execution of this Agreement.
NOW, THEREFORE, it is mutually agreed by and between the undersigned parties as
follows:
1. TERM
The term of this Agreement shall commence on the above written date, and shall
terminate on June 30. 2016 unless terminated earlier as set forth herein.
2. SERVICES TO BE PERFORMED
Consultant shall diligently perform all the services described in the Scope of Services
attached hereto as Exhibit "B" and incorporated herein by reference ( "Work" or
"Services "). The City may elect to delete certain tasks from the Scope of Services at its
sole discretion.
3. TIME OF PERFORMANCE
Time is of the essence in the performance of Services under this Agreement and the
Services shall be performed to completion in a diligent and timely manner. The failure
by Consultant to perform the Services in a diligent and timely manner may result in
termination of this Agreement by City.
Notwithstanding the foregoing, Consultant shall not be responsible for delays due to
causes beyond Consultant's reasonable control. However, in the case of any such
delay in the Services to be provided for the Project, each party hereby agrees to provide
notice to the other party so that all delays can be addressed.
3.1 Consultant shall submit all requests for extensions of time for performance
in writing to the City's Project Administrator (as defined in Section 6 of this
Agreement) not later than five (5) calendar days after the start of the
condition that purportedly causes a delay. The Project Administrator shall
review all such requests and may grant reasonable time extensions for
unforeseeable delays that are beyond Consultant's control.
3.2 For all time periods not specifically set forth herein, Consultant shall
respond in the most expedient and appropriate manner under the
circumstances, by telephone, fax, hand - delivery, mail or electronic mail.
4. COMPENSATION TO CONSULTANT
City shall compensate Consultant on a monthly basis an amount calculated on the
average monthly market value of the portion of the City's investment portfolio under
management, including accrued interest, in accordance with the following schedule:
Chandler Asset Management Page 2
Average Monthly Market Value Tiered Annual Investment
of Assets Under Management Management Fee
$0425 million 0.10 of I% (10 basis points)
Next $25 -$50 million 0.08 of 1% (8 basis points)
Next $50 -$100 million 0.07 of 1% (7 basis points)
Assets in excess of $100 million 0.06 of 1% (6 basis points)
Monthly fees are based on the schedule outlined above, but at no time shall the monthly
fee be less than $1,250. (This minimum monthly fee will not apply to accounts that are
entirely comprised of proceeds from the sale of bonds.)
The average monthly market value of assets under management are subject to the fees
described in this section but shall exclude any funds invested in a local government
investment pool or registered mutual fund managed by the Consultant ( "Pool ").
Custody fees that may be charged by City's bank or other third party custodian are not
included in the above fee schedule.
Fees shall be prorated to the effective date of termination on the basis of actual days
elapsed, and any unearned portion of prepaid fees shall be refunded. City is not
required to pay any start -up or closing fees or penalty fees.
Consultant's compensation for all Work performed in accordance with this Agreement,
including all reimbursable items and subconsultant fees, shall not exceed Two Hundred
and Seventy -five Thousand Dollars and no /100 ($275,000) without prior written
authorization from City. No billing rate changes shall be made during the term of this
Agreement without the prior written approval of City.
4.1 Consultant shall submit monthly invoices to City which include the average
monthly market value of assets under management for the time period for
which the fee is assessed and the total fee charged in accordance with the
schedule and exclusions stated above.
4.2 City shall reimburse Consultant only for those costs or expenses
specifically approved in this Agreement, or specifically approved in writing
in advance by City. Unless otherwise approved, such costs shall be
limited and include nothing more than the following costs incurred by
Consultant:
A. The actual costs of subconsultants for performance of any of the
Services that Consultant agrees to render pursuant to this
Agreement, which have been approved in advance by City and
awarded in accordance with this Agreement.
B. Approved reproduction charges.
Chandler Asset Management Page 3
C. Actual costs and /or other costs and /or payments specifically
authorized in advance in writing and incurred by Consultant in the
performance of this Agreement.
4.3 Consultant shall not receive any compensation for Extra Work performed
without the prior written authorization of City. As used herein, "Extra
Work" means any Work that is determined by City to be necessary for the
proper completion of the Project, but which is not included within the
Scope of Services and which the parties did not reasonably anticipate
would be necessary at the execution of this Agreement. Compensation
for any authorized Extra Work shall be paid in accordance with a written
amendment entered into between the parties.
5. PROJECT MANAGER
Consultant shall designate a Project Manager, who shall coordinate all phases of the
Project. This Project Manager shall be available to City at all reasonable times during
the Agreement term. Consultant has designated Portfolio Manager Jayson Schmitt to
be its Project Manager. The City will be informed of all personnel assigned to the City
under the Agreement and any changes made to such personnel. The City will have the
opportunity to express opinions about the performance of any person assigned to the
account.
Consultant, at the sole discretion of City, shall remove from the Project any of its
personnel assigned to the performance of Services upon written request of City.
Consultant warrants that it will continuously furnish the necessary personnel to
complete the Project on a timely basis as contemplated by this Agreement.
6. ADMINISTRATION
This Agreement will be administered by the Finance Department. Deputy Director Dan
Matusiewicz or his designee shall be the Project Administrator and shall have the
authority to act for City under this Agreement. The Project Administrator or his /her
authorized representative shall represent City in all matters pertaining to the Services to
be rendered pursuant to this Agreement.
7. CITY'S RESPONSIBILITIES
In order to assist Consultant in the execution of its responsibilities under this
Agreement, City agrees to provide Consultant access to its current investment policy
upon the request of Consultant or at any time the policy is modified. City will provide all
such materials in a timely manner so as not to cause delays in Consultant's work
schedule.
Chandler Asset Management Page 4
7.1 The City shall inform the Consultant in writing of the funding and
disbursement instructions applicable to the City. The Consultant shall
make its investment decisions for the assets under management in
accordance with such funding and disbursement instructions. The City
understands that it bears the market risk associated with changes to such
funding and disbursement instructions.
7.2 The City will provide the consultant with no less than five (5) business days
notice of a substantial contribution or withdrawal (i.e. an amount equal to or
greater than 10% of the portfolio assets) to or from the assets under
management to permit the Consultant to affect an orderly execution of the
Advisory Account's holdings. The Consultant will use its best efforts to
minimize adverse effects of such contributions or withdrawals on the
Advisory Account.
8. STANDARD OF CARE
8.1 All of the Services shall be performed by Consultant or under Consultant's
supervision. Consultant represents it is a registered investment advisor
under the Investment Advisers Act of 1940 (15 U.S.C. 80b -1, et seq.).
Consultant shall immediately notify the City if at any time during the term
of this Agreement it is not so registered or if its registration is suspended.
Consultant agrees to perform its duties and responsibilities under this
Agreement with reasonable care. The federal securities laws impose
penalties under certain circumstances on persons who are required to act
in good faith. Consultant represents that it possesses the professional
and technical personnel required to perform the Services required by this
Agreement, and that it will perform all Services in a manner
commensurate with the Prudent Investor Standard required by California
Government Code Section 53600.3 ( "Prudent Investor Standard "). All
Services shall be performed by qualified and experienced personnel who
are not employed by City, nor have any contractual relationship with City.
By delivery of completed Work, Consultant certifies that the Work
conforms to the requirements of this Agreement and all applicable federal,
state and local laws and the Prudent Investor Standard of care. Nothing
herein shall in any way constitute a waiver or limitation of any rights which
the City or the Consultant may have under any federal securities laws.
8.2 Consultant represents and warrants to City that it has, shall obtain and
shall keep in full force in effect during the term hereof, at its sole cost and
expense, all licenses, permits, qualifications, insurance and approvals of
whatsoever nature that is legally required of Consultant to practice its
profession. Consultant shall maintain a City business license during the
term of this Agreement.
8.3 Consultant shall promptly give notice to the City if the Consultant has been
found to have violated any state or federal securities law or regulation in
any criminal action or civil suit in any state or federal court or in any
disciplinary proceeding before the Securities and Exchange Commission
Chandler Asset Management Page 5
or any other agency or department of the United States, any registered
securities exchange, Financial Industry Regulatory Authority (FINRA), or
any regulatory authority of any State based upon the performance of
services as an investment advisor.
8.4 Consultant shall not be responsible for losses arising out of delays in
performing or inability to perform the Services as described in this
Agreement which result from events beyond its control, including
interruption of the business activities of the Consultant or other financial
institutions due to strikes, lockouts, accidents, or acts of God, or the failure
of City to furnish timely information or to approve or disapprove
Consultant's Work promptly, or delay or faulty performance by City, or
governmental agencies. Nothing herein shall in any way constitute a
waiver or limitation of any right of any person under federal and state
securities laws.
8.5 Investment Policy. Consultant shall comply with City's Council Policy F -1,
as amended from time to time, which current adopted version is attached
hereto as Exhibit "A." The most current adopted Investment Policy is
available at www. newportbeachca .gov /investmentpolicy. The City agrees
to notify the Consultant promptly in writing of any modifications to the
Investment Policy.
8.6 Authority of Consultant. Consultant is granted full discretion to invest and
reinvest all assets under its management in any type of security
authorized by the City's Investment Policy, Council Policy F -1, guidelines
set by the City, and /or State law, and /or federal securities laws.
9. HOLD HARMLESS
To the fullest extent permitted by law, Consultant shall indemnify, defend and hold
harmless City, its City Council, boards and commissions, officers, agents, volunteers,
and employees (collectively, the "Indemnified Parties ") from and against any and all
claims (including, without limitation, claims for bodily injury, death or damage to
property), demands, obligations, damages, actions, causes of action, suits, losses,
judgments, fines, penalties, liabilities, costs and expenses (including, without limitation,
attorney's fees, disbursements and court costs) of every kind and nature whatsoever
(individually, a Claim; collectively, "Claims "), which may arise from or in any manner
relate (directly or indirectly) to any breach of the terms and conditions of this
Agreement, any Work performed or Services provided under this Agreement including,
without limitation, defects in workmanship or materials or Consultant's presence or
activities conducted on the Project (including the negligent and /or willful acts, errors
and /or omissions of Consultant, its principals, officers, agents, employees, vendors,
suppliers, sub - consultants, sub - contractors, anyone employed directly or indirectly by
any of them or for whose acts they may be liable or any or all of them).
Notwithstanding the foregoing, nothing herein shall be construed to require Consultant
to indemnify the Indemnified Parties from any Claim arising from the sole negligence or
willful misconduct of the Indemnified Parties. Nothing in this indemnity shall be
Chandler Asset Management Page 6
construed as authorizing any award of attorney's fees in any action on or to enforce the
terms of this Agreement. This indemnity shall apply to all claims and liability regardless
of whether any insurance policies are applicable. The policy limits do not act as a
limitation upon the amount of indemnification to be provided by the Consultant.
10. INDEPENDENT CONTRACTOR
It is understood that City retains Consultant on an independent contractor basis and
Consultant is not an agent or employee of City. The manner and means of conducting
the Work are under the control of Consultant, except to the extent they are limited by
statute, rule or regulation and the expressed terms of this Agreement. Nothing in this
Agreement shall be deemed to constitute approval for Consultant or any of Consultant's
employees or agents, to be the employees of City. Consultant shall have the
responsibility for and control over the means of performing the Work, provided that
Consultant is in compliance with the terms of this Agreement. Anything in this
Agreement that may appear to give City the right to direct Consultant as to the details of
the performance or to exercise a measure of control over Consultant shall mean only
that Consultant shall follow the desires of City with respect to the results of the Services.
11. COOPERATION
Consultant agrees to work closely and cooperate fully with City's Project Administrator
and any other agencies that may have jurisdiction or interest in the Work to be
performed. City agrees to cooperate with the Consultant on the Project.
12. CITY POLICY
Consultant shall discuss and review all matters relating to policy and Project direction with
City's Project Administrator in advance of all critical decision points in order to ensure the
Project proceeds in a manner consistent with City goals and policies.
13. PROGRESS
Consultant is responsible for keeping the Project Administrator and /or his /her duly
authorized designee informed on a regular basis regarding the status and progress of the
Project, activities performed and planned, and any meetings that have been scheduled or
are desired.
14. INSURANCE
Without limiting Consultant's indemnification of City, and prior to commencement of
Work, Consultant shall obtain, provide and maintain at its own expense during the term
of this Agreement, policies of insurance of the type and amounts described below and in
a form satisfactory to City.
A. Proof of Insurance. Consultant shall provide certificates of insurance to
City as evidence of the insurance coverage required herein, along with a
Waiver of Subrogation endorsement for workers' compensation.
Insurance certificates and endorsement must be approved by City's Risk
Chandler Asset Management Page 7
Manager prior to commencement of performance. Current certification of
insurance shall be kept on file with City at all times during the term of this
contract. The Consultant shall provide City access to its insurance
brokers to confirm the terms of insurance coverage.
Consultant shall procure and maintain for the duration of the contract
insurance against claims for injuries to persons or damages to property,
which may arise from or in connection with the performance of the Work
hereunder by Consultant, his agents, representatives, employees or
subconsultants. The cost of such insurance shall be included in
Consultant's bid.
B. Acceptable Insurers. All insurance policies shall be issued by an
insurance company currently authorized by the Insurance Commissioner
to transact business of insurance in the State of California, with an
assigned policyholders' Rating of A- (or higher) and Financial Size
Category Class VII (or larger) in accordance with the latest edition of
Best's Key Rating Guide, unless otherwise approved by the City's Risk
Manager.
C. Coverage Requirements.
i. Workers' Compensation Coverage. Consultant shall maintain
Workers' Compensation Insurance (Statutory Limits) and
Employer's Liability Insurance (with limits of at least one million
dollars ($1,000,000)) for Consultant's employees in accordance
with the laws of the State of California, Section 3700 of the Labor
Code In addition, Consultant shall require each subconsultant to
similarly maintain Workers' Compensation Insurance and
Employer's Liability Insurance in accordance with the laws of the
State of California, Section 3700 for all of the subconsultant's
employees.
The Consultant shall endeavor to provide to the City notice of
cancellation or non - renewal of all Workers' Compensation policies
thirty (30) calendar days (ten (10) calendar days written notice of
non - payment of premium) prior to such change.
Consultant shall submit to City, along with the certificate of
insurance, a Waiver of Subrogation endorsement in favor of City, its
officers, agents, employees and volunteers.
ii. General Liability Coverage. Consultant shall maintain commercial
general liability insurance in an amount not less than one million
dollars ($1,000,000) per occurrence for bodily injury, personal
injury, and property damage, including without limitation, blanket
contractual liability.
iii. Automobile Liability Coverage. Consultant shall maintain
automobile insurance covering bodily injury and property damage
Chandler Asset Management Page 8
for all activities of the Consultant arising out of or in connection with
Work to be performed under this Agreement, including coverage for
any owned, hired, non -owned or rented vehicles, in an amount not
less than one million dollars ($1,000,000) combined single limit for
each accident.
iv. Professional Liability (Errors & Omissions) Coverage. Consultant
shall maintain professional liability insurance that covers the
Services to be performed in connection with this Agreement, in the
minimum amount of ten million dollars ($10,000,000) limit per claim
and in the aggregate.
V. Fidelity Insurance. Consultant shall maintain fidelity insurance that
covers the Services to be performed in connection with this
Agreement, in the minimum amount of five million dollars
($5,000,000) limit per claim.
D. Other Insurance Provisions or Requirements.
The policies are to contain, or be endorsed to contain, the following
provisions:
Waiver of Subrogation. All insurance coverage maintained or
procured pursuant to this Agreement, with the exception of
professional liability and fidelity insurance, shall be endorsed to
waive subrogation against City, its elected or appointed officers,
agents, officials, employees and volunteers or shall specifically
allow Consultant or others providing insurance evidence in
compliance with these requirements to waive their right of recovery
prior to a loss. Consultant hereby waives its own right of recovery
against City, and shall require similar written express waivers and
insurance clauses from each of its subconsultants.
ii. Enforcement of Contract Provisions. Consultant acknowledges and
agrees that any actual or alleged failure on the part of the City to
inform Consultant of non - compliance with any requirement imposes
no additional obligations on the City nor does it waive any rights
hereunder.
iii. Requirements not Limiting. Requirements of specific coverage
features or limits contained in this Section are not intended as a
limitation on coverage, limits or other requirements, or a waiver of
any coverage normally provided by any insurance. Specific
reference to a given coverage feature is for purposes of clarification
only as it pertains to a given issue and is not intended by any party
or insured to be all inclusive, or to the exclusion of other coverage,
or a waiver of any type.
Chandler Asset Management Page 9
iv. Notice of Cancellation. Consultant agrees to provide City with thirty
(30) days notice of cancellation (except for nonpayment for which
ten (10) days notice is required) or nonrenewal of coverage for
each required coverage to the extent notification has been received
from the insurance carrier.
E. Timely Notice of Claims. Consultant shall give City prompt and timely
notice of claims made or suits instituted that arise out of or result from
Consultant's performance under this Agreement.
F. Additional Insurance. Consultant shall also procure and maintain, at its
own cost and expense, any additional kinds of insurance, which in its own
judgment may be necessary for its proper protection and prosecution of
the Work.
15. PROHIBITION AGAINST ASSIGNMENTS AND TRANSFERS
Except as specifically authorized under this Agreement, the Services to be provided
under this Agreement shall not be assigned, transferred contracted or subcontracted out
without the prior written approval of City. Any of the following shall be construed as an
assignment: The sale, assignment, transfer or other disposition of any of the issued
and outstanding capital stock of Consultant, or of the interest of any general partner or
joint venturer or syndicate member or cotenant if Consultant is a partnership or joint -
venture or syndicate or cotenancy, which shall result in changing the control of
Consultant. Control means fifty percent (50 %) or more of the voting power or twenty -
five percent (25 %) or more of the assets of the corporation, partnership or joint-venture.
16. SUBCONTRACTING
The parties recognize that a substantial inducement to City for entering into this
Agreement is the professional reputation, experience and competence of Consultant.
Assignments of any or all rights, duties or obligations of the Consultant under this
Agreement will be permitted only with the express written consent of City. Consultant shall
not subcontract any portion of the Work to be performed under this Agreement without the
prior written authorization of City.
17. OWNERSHIP OF DOCUMENTS
Each and every report, draft, record, plan, document and other writing produced
(hereinafter "Documents "), prepared or caused to be prepared by Consultant, its
officers, employees, agents and subcontractors, in the course of implementing this
Agreement, shall become the exclusive property of City, and City shall have the sole
right to use such materials in its discretion without further compensation to Consultant
or any other party. Consultant shall, at Consultant's expense, provide such Documents
to City upon prior written request.
Documents prepared by Consultant pursuant to this Agreement are not intended or
represented to be suitable for reuse by City or others on any other project. Any use of
completed Documents for other projects and any use of incomplete Documents without
Chandler Asset Management Page 10
specific written authorization from Consultant will be at City's sole risk and without
liability to Consultant. Further, any and all liability arising out of changes made to
Consultant's deliverables under this Agreement by City or persons other than
Consultant is waived against Consultant and City assumes full responsibility for such
changes unless City has given Consultant prior notice and has received from
Consultant written consent for such changes.
18. ELECTRONIC DELIVERY
Consultant shall make best efforts to electronically deliver certain documents to City
such as invoices, statements, monthly reports, newsletters, account information, notices
and required disclosures. City hereby consents to Consultant's use of electronic
means, such as email or secure electronic portal, to make such delivery. This delivery
may include notification of the availability of such document(s) on a website or secure
electronic portal, and City agrees that such notification will constitute "delivery." City
further agrees to provide Consultant with City's email address(s) and to keep this
information current at all times by promptly notifying Consultant of any change in email
address(s). The email address that should be used for electronic delivery shall be
treasuryaccounti __Mt?n,newportbeachca.gov until otherwise notified.
19. CONFIDENTIALITY
All Documents, including drafts, notes and communications that result from the Services in
this Agreement, shall be kept confidential unless City authorizes in writing the release of
information, or unless disclosure is required by law or by regulatory or judicial process.
20. INTELLECTUAL PROPERTY INDEMNITY
The Consultant shall defend and indemnify City, its agents, officers, representatives and
employees against any and all liability, including costs, for infringement of any United
States' letters patent, trademark, or copyright infringement, including costs, contained in
Consultant's drawings and specifications provided under this Agreement.
21. RECORDS
Consultant shall keep monthly records of all investing activities including all bid, offer
and trade tickets, monthly reports and invoices in connection with the Work to be
performed under this Agreement. Consultant shall maintain complete and accurate
records with respect to the costs incurred under this Agreement and any Services,
expenditures and disbursements charged to City, for a minimum period of three (3)
years, or for any longer period required by law, from the date of most recent monthly
payment to Consultant under this Agreement. All such records and invoices shall be
clearly identifiable. Consultant shall allow a representative of City to examine, audit and
make transcripts or copies of such records and invoices during regular business hours.
Consultant shall allow inspection of all Work, data, Documents, proceedings and
activities related to the Agreement for a period of three (3) years from the date of final
payment to Consultant under this Agreement.
Chandler Asset Management Page 11
22. WITHHOLDINGS
City may withhold payment to Consultant of any disputed sums until satisfaction of the
dispute with respect to such payment. Such withholding shall not be deemed to
constitute a failure to pay according to the terms of this Agreement. Consultant shall
not discontinue Work as a result of such withholding. Consultant shall have an
immediate right to appeal to the City's City Manager or his /her designee with respect to
such disputed sums. Consultant shall be entitled to receive interest on any withheld
sums at the rate of return that City earned on its investments during the time period,
from the date of withholding of any amounts found to have been improperly withheld.
23. ERRORS AND OMISSIONS
In the event of errors or omissions that are due to the negligence or professional
inexperience of Consultant which result in expense to City greater than what would
have resulted if there were not errors or omissions in the Work accomplished by
Consultant, the additional expense shall be borne by Consultant. Nothing in this
paragraph is intended to limit City's rights under the law or any other sections of this
Agreement.
24. CITY'S RIGHT TO EMPLOY OTHER CONSULTANTS
City reserves the right to employ other Consultants in connection with the Project.
25. CONFLICTS OF INTEREST
The Consultant or its employees may be subject to the provisions of the California
Political Reform Act of 1974 (the "Act "), which (1) requires such persons to disclose any
financial interest that may foreseeably be materially affected by the Work performed
under this Agreement, and (2) prohibits such persons from making, or participating in
making, decisions that will foreseeably financially affect such interest.
If subject to the Act, Consultant shall conform to all requirements of the Act. Failure to
do so constitutes a material breach and is grounds for immediate termination of this
Agreement by City. Consultant shall indemnify and hold harmless City for any and all
claims for damages resulting from Consultant's violation of this section.
26. NOTICES
All notices, demands, requests or approvals to be given under the terms of this Agreement
shall be given in writing, and conclusively shall be deemed served when delivered
personally, or on the third business day after the deposit thereof in the United States mail,
postage prepaid, first -class mail, addressed as hereinafter provided. All notices, demands,
requests or approvals from Consultant to City shall be addressed to City at:
Attention: Dan Matusiewicz,
Deputy Director
Finance Department
Chandler Asset Management Page 12
City of Newport Beach
3300 Newport Boulevard
PO Box 1768
Newport Beach, CA 92658 -8915
Phone: 949 - 644 -3126
Fax: 949 - 644 -3339
E -mail: Treasuryaccounting @newportbeachca.gov
All notices, demands, requests or approvals from City to Consultant shall be addressed
to Consultant at:
Attention: Jayson Schmitt, Portfolio Manager
Chandler Asset Management
6225 Lusk Boulevard
San Diego, CA 92121
Phone: 858 - 546 -3737
Fax: 858 - 546 -3741
E -mail: Jayson .Schmitt @chandlerasset.com
27. CLAIMS
The Consultant and the City expressly agree that in addition to any claims filing
requirements set forth in the Agreement, the Consultant shall be required to file any
claim the Consultant may have against the City in strict conformance with the Tort
Claims Act (California Government Code sections 900 et seq.).
28. TERMINATION
In the event that either party fails or refuses to perform any of the provisions of this
Agreement at the time and in the manner required, that party shall be deemed in default
in the performance of this Agreement. If such default is not cured within a period of five
(5) calendar days, or if more than five (5) calendar days are reasonably required to cure
the default and the defaulting party fails to give adequate assurance of due performance
within five (5) calendar days after receipt of written notice of default, specifying the
nature of such default and the steps necessary to cure such default, and thereafter
diligently take steps to cure the default, the non - defaulting party may terminate the
Agreement forthwith by giving to the defaulting party written notice thereof.
Notwithstanding the above provisions, City shall have the right, at its sole discretion and
without cause, of terminating this Agreement at any time by giving seven (7) calendar
days prior written notice to Consultant. In the event of termination under this Section,
City shall pay Consultant for Services satisfactorily performed and costs incurred up to
the effective date of termination for which Consultant has not been previously paid. On
the effective date of termination, Consultant shall deliver to City all reports, Documents
and other information developed or accumulated in the performance of this Agreement,
whether in draft or final form.
Chandler Asset Management Page 13
The Consultant shall have the right, at its sole discretion and without cause, of
terminating this Agreement at any time by giving thirty (30) calendar days prior written
notice to the City
29. COMPLIANCE WITH ALL LAWS
Consultant shall at its own cost and expense comply with all statutes, ordinances,
regulations and requirements of all governmental entities, including federal, state, county
or municipal, whether now in force or hereinafter enacted. In addition, all Work prepared
by Consultant shall conform to applicable City, county, state and federal laws, rules,
regulations and permit requirements and be subject to approval of the Project
Administrator and City.
30. WAIVER
A waiver by either party of any breach, of any term, covenant or condition contained
herein shall not be deemed to be a waiver of any subsequent breach of the same or any
other term, covenant or condition contained herein, whether of the same or a different
character.
31. INTEGRATED CONTRACT
This Agreement represents the full and complete understanding of every kind or nature
whatsoever between the parties hereto, and all preliminary negotiations and agreements
of whatsoever kind or nature are merged herein. No verbal agreement or implied
covenant shall be held to vary the provisions herein.
32. CONFLICTS OR INCONSISTENCIES
In the event there are any conflicts or inconsistencies between this Agreement and the
Scope of Services or any other attachments attached hereto, the terms of this
Agreement shall govern.
33. INTERPRETATION
The terms of this Agreement shall be construed in accordance with the meaning of the
language used and shall not be construed for or against either party by reason of the
authorship of the Agreement or any other rule of construction which might otherwise
apply.
34. AMENDMENTS
This Agreement may be modified or amended only by a written document executed by
both Consultant and City and approved as to form by the City Attorney.
35. SEVERABILITY
Chandler Asset Management Page 14
If any term or portion of this Agreement is held to be invalid, illegal, or otherwise
unenforceable by a court of competent jurisdiction, the remaining provisions of this
Agreement shall continue in full force and effect.
36. CONTROLLING LAW AND VENUE
The laws of the State of California shall govern this Agreement and all matters relating
to it and any action brought relating to this Agreement shall be adjudicated in a court of
competent jurisdiction in the County of Orange.
37. EQUAL OPPORTUNITY EMPLOYMENT
Consultant represents that it is an equal opportunity employer and it shall not
discriminate against any subcontractor, employee or applicant for employment because
of race, religion, color, national origin, handicap, ancestry, sex or age.
38. INCORPORATION OF RECITALS
The recitals within this Agreement are true and correct and are incorporated into the
operative part of this Agreement.
39. NO ATTORNEY'S FEES
In the event of any dispute or action arising under the Agreement, the prevailing party
shall not be entitled to attorney's fees.
40. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.
[SIGNATURES ON NEXT PAGE]
Chandler Asset Management Page 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on
the dates written below.
APPROVED AS TO FORM:
OFFICE OF THE PITY ATTORNEY
nnte- 11/10/1(
By:
Aaron Harp
City Attorney
ATTEST:
Date:
CITY OF NEWPORT BEACH,
A California municipal corporation
By:
Michael F. Henn
Mayor
CONSULTANT: CHANDLER ASSET
MANAGEMENT, INC.
A California corporation
Bv:
Leilani I. Brown Kay Chandler, CFA
City Clerk President
Date:
By:
Nicole Dragoo, IACCP
COO /Chief Compliance Officer
Attachments: Exhibit "A" — Council Policy F -1: Statement of Investment Policy
Exhibit "B" — Scope of Services
[END OF SIGNATURES]
Chandler Asset Management Page 16
EXHIBIT "A"
Chandler Asset Management Page 17
F -1
STATEMENT OF INVESTMENT POLICY
PURPOSE:
The City Council has adopted this Investment Policy (the Policy) in order to establish
the scope of the investment policy, investment objectives, standards of care, authorized
investments, investment parameters, reporting, investment policy compliance and
adoption, and the safekeeping and custody of assets.
This Policy is organized in the following sections:
A. Scope of Investment Policy
1. Pooling of Funds
2. Funds Included in the Policy
3. Funds Excluded from the Policy
B. Investment Objectives
1. Safety
2. Liquidity
3. Yield
C. Standards of Care
1. Prudence
2. Ethics and Conflicts of Interest
3. Delegation of Authority
4. Internal Controls
D. Banking Services
E. Broker/ Dealers
F. Safekeeping and Custody of Assets
G. Authorized Investments
1. Investments Specifically Permitted
2. Investments Specifically Not Permitted
3. Exceptions to Prohibited and Restricted Investments
H. Investment Parameters
1. Diversification
2. Maximum Maturities
3. Credit Quality
4. Competitive Transactions
I. Portfolio Performance
J. Reporting
K. Investment Policy Compliance and Adoption
1. Compliance
2. Adoption
1
F -1
A. SCOPE OF INVESTMENT POLICY
1. Pooling of Funds
All cash shall be pooled for investment purposes. The investment income
derived from the pooled investment shall be allocated to the contributing
funds, net of all banking and investing expenses, based upon the proportion
of the respective average balances relative to the total pooled balance.
Investment income shall be distributed to the individual funds not less than
annually.
2. Funds Included in the Policy
The provisions of this Policy shall apply to all financial assets of the City as
accounted for in the City's Comprehensive Annual Financial Report listed
below.
a) General Fund
b) Special Revenue Funds
c) Capital Project Funds
d) Enterprise Funds
e) Internal Service Funds
f) Trust and Agency Funds
g) Permanent Endowment Funds
h) Any new fund created unless specifically exempted
If the City invests funds on behalf of another agency and, if that agency does not
have its own investment policy, this Policy shall govern the agency's
investments.
3. Funds Excluded from this Policy
Bond Proceeds - Investment of bond proceeds will be made in accordance
with applicable bond indentures.
B. INVESTMENT OBJECTIVES
The City's funds shall be invested in accordance with all applicable City policies
and codes, State statutes, and Federal regulations, and in a manner designed to
accomplish the following objectives, which are listed in priority order:
1. Safety
Preservation of principal is the foremost objective of the investment
program. Investments of the City shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio. The
objective shall be to mitigate credit risk and interest rate risk. To attain this
objective, the City shall diversify its investments by investing funds among
2
F -1
several financial institutions and a variety of securities offering independent
returns.
a) Credit Risk
The City shall minimize credit risk, the risk of loss due to the
failure of the security issuer or backer, by:
• Limiting investments in securities that have higher credit
risks, pre - qualifying the financial institutions,
broker/ dealers, intermediaries, and advisers with which the
City will do business
• Diversifying the investment portfolio so as to minimize the
impact any one industry/ investment class can have on the
portfolio
b) Interest Rate Risk
To minimize the negative impact of material changes in the market
value of securities in the portfolio, the City shall:
• Structure the investment portfolio so that securities mature
concurrent with cash needs to meet anticipated demands,
thereby avoiding the need to sell securities on the open
market prior to maturity
• Invest in securities of varying maturities
2. Liquidity
The City's investment portfolio shall remain sufficiently liquid to enable the
City to meet all operating requirements which might be reasonably
anticipated without requiring a sale of securities. Since all possible cash
demands cannot be anticipated, the portfolio should consist largely of
securities with active secondary or resale markets. A portion of the portfolio
also may be placed in money market mutual funds or LAIF which offer
same -day liquidity for short -term funds.
3. Yield
The City's investment portfolio shall be designed with the objective of
attaining a benchmark rate of return throughout budgetary and economic
cycles, commensurate with the City's investment risk constraints and the
liquidity characteristics of the portfolio. Return on investment is of
secondary importance compared to the safety and liquidity objectives
described above. The core of investments is limited to relatively low risk
securities in anticipation of earning a fair return relative to the risk being
assumed.
3
F -1
C. STANDARDS OF CARE
1. Prudence
The standard of prudence to be used for managing the City's investment
program is California Government Code Section 53600.3, the prudent
investor standard, which states that "when investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general
economic conditions and the anticipated needs of the agency, that a prudent
person acting in a like capacity and familiarity with those matters would use
in the conduct of funds of a like character and with like aims, to safeguard the
principal and maintain the liquidity needs of the agency."
The City's overall investment program shall be designed and managed with a
degree of professionalism that is worthy of the public trust. The City
recognizes that no investment is totally without risk and that the investment
activities of the City are a matter of public record. Accordingly, the City
recognizes that occasional measured losses may occur in a diversified
portfolio and shall be considered within the context of the overall portfolio's
return, provided that adequate diversification has been implemented and that
the sale of a security is in the best long -term interest of the City.
The Director of Finance and authorized investment personnel acting in
accordance with established procedures and exercising due diligence shall be
relieved of personal responsibility for an individual security's credit risk or
market price changes, provided that deviations from expectations are
reported in a timely fashion to the City Council and appropriate action is
taken to control adverse developments.
2. Ethics and Conflicts of Interest
Elected officials and employees involved in the investment process shall
refrain from personal business activity that could conflict with proper
execution of the City's investment program or could impair or create the
appearance of an impairment of their ability to make impartial investment
decisions. Employees and investment officials shall subordinate their
personal investment transactions to those of the City. In addition, City
Council members, the City Manager, and the Director of Finance shall file a
Statement of Economic Interests each year as required by California
Government Code Section 87203 and regulations of the Fair Political Practices
Commission.
4
F -1
3. Delegation of Authority
Authority to manage the City's investment program is derived from the
Charter of the City of Newport Beach section 605 (j). The Director of Finance
shall assume the title of and act as City Treasurer and with the approval of
the City Manager appoint deputies annually as necessary to act under the
provisions of any law requiring or permitting action by the City Treasurer.
The Director of Finance may then delegate the authority to conduct
investment transactions and to manage the operation of the investment
portfolio to other specifically authorized staff members. No person may
engage in an investment transaction except as expressly provided under the
terms of this Policy.
The City may engage the support services of outside investment advisors
with respect to its investment program, so long as it can be demonstrated that
these services produce a net financial advantage or necessary financial
protection of the City's financial resources. Such companies must be well
established and exceptionally reputable. Members of the staff of such
companies who will have primary responsibility for managing the City's
investments must have a working familiarity with the special requirements
and constraints of investing municipal funds in general and this City's funds
in particular. These firms must insure that the portion of the portfolio under
their management complies with various concentration and other constraints
specified herein, and contractually agree to conform to all provisions of
governing law and the collateralization and other requirements of this Policy.
4. Internal Controls
The Finance Director is responsible for establishing and maintaining a system
of internal controls. The internal controls shall be designed to prevent losses
of public funds arising from fraud, employee error, and misrepresentation by
third parties, unanticipated changes in financial markets, or imprudent action
by City employees and officers. The internal structure shall be designed to
provide reasonable assurance that these objectives are met. The concept of
reasonable assurance recognizes that (1) the cost of a control should not
exceed the benefits likely to be derived, and (2) the valuation of costs and
benefits requires estimates and judgments by management.
D. BANKING SERVICES
Banking services for the City shall be provided by FDIC insured banks approved
to provide depository and other banking services. To be eligible, a bank shall
qualify as a depository of public funds in the State of California as defined in
California Government Code Section 53630.5 and shall secure deposits in excess
5
F -1
of FDIC insurance coverage in accordance with California Government Code
Section 53652.
E. BROKER /DEALERS
Broker /Dealers will be selected on the basis of their expertise in public cash
management and their ability to provide service to the City's account.
Each approved broker/ dealer must possess an authorizing certificate from the
California Commissioner of Corporations as required by Section 25210 of the
California Corporations Code.
To be eligible, a firm must meet at least one of the following criteria:
1. be recognized as Primary Dealers by the Federal Reserve Bank of New York
or have a primary dealer within their holding company structure, or
2. report voluntarily to the Federal Reserve Bank of New York, or
3. qualify under Securities and Exchange Commission (SEC) Rule 15c3 -1
(Uniform Net Capital Rule).
F. SAFEKEEPING AND CUSTODY OF ASSETS
The Director of Finance shall select one or more banks to provide safekeeping
and custodial services for the City. A Safekeeping Agreement approved by the
City shall be executed with each custodian bank prior to utilizing that bank's
safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services
for the City's account and the competitive pricing of their safekeeping related
services.
The purchase and sale of securities and repurchase agreement transactions shall
be settled on a delivery versus payment basis. All securities shall be perfected in
the name of the City. Sufficient evidence to title shall be consistent with modern
investment, banking and commercial practices.
All investment securities, except non - negotiable Certificates of Deposit, Money
Market Funds and local government investment pools, purchased by the City
will be delivered by either book entry or physical delivery and will be held in
third -party safekeeping by a City approved custodian bank, its correspondent
bank or its Depository Trust Company (DTC) participant account.
6
F -1
All Fed wireable book entry securities owned by the City shall be held in the
Federal Reserve system in a customer account for the custodian bank which will
name the City as "customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant
account and the custodian bank shall provide evidence that the securities are
held for the City as "customer."
G. AUTHORIZED INVESTMENTS
All investments and deposits of the City shall be made in accordance with
California Government Code Sections 16429.1, 53600 -53609 and 53630- 53686.
Any revisions or extensions of these code sections will be assumed to be part of
this Policy immediately upon being enacted. The City has further restricted the
eligible types of securities and transactions. The foregoing list of authorized
securities and transactions shall be strictly interpreted. Any deviation from this
list must be pre approved by resolution of the City Council.
1. Investments Specifically Permitted
a) United States Treasury bills, notes, or bonds with a final maturity not
exceeding five years from the date of trade settlement.
b) Federal Instrumentality (government sponsored enterprise) debentures,
discount notes, callable and step -up securities, with a final maturity not
exceeding five years from the date of trade settlement.
c) Federal Agency - mortgage - backed securities and debentures with a final
maturity not exceeding five years from the date of trade settlement.
d) Mortgage- backed Securities and Asset - backed Securities limited to
mortgage- backed pass- through securities issued by a US government
agency, or consumer receivable pass- through certificates or bonds with a
final maturity not exceeding five years from the date of trade settlement.
Securities eligible for investment under this subdivision shall be issued by
an issuer whose debt is rated at least A or the equivalent by a Nationally
Recognized Statistical Rating Organization (NRSRO). The security itself
shall be rated at least AAA or the equivalent by a NRSRO. No more than
five percent (5 %) of the City's total portfolio shall be invested in any one
issuer of mortgage- backed and asset - backed securities listed above, and
the aggregate investment in mortgage- backed and asset - backed securities
shall not exceed twenty percent (20 %) of the City's total portfolio.
7
F -1
e) Medium -Term Notes issued by corporations organized and operating
within the United States or by depository institutions licensed by the
United States or any state and operating within the United States, with a
final maturity not exceeding four years from the date of trade settlement,
and rated at least A or the equivalent by a NRSRO. No more than five
percent (5 %) of the City's total portfolio shall be invested in any one issuer
of medium -term notes, and the aggregate investment in medium -term
notes shall not exceed thirty percent (30 %) of the City's total portfolio. In
addition, AAA rated FDIC - guaranteed corporate bonds are herein
authorized, within the aforementioned diversification and maturity
requirements.
f) Municipal Bonds: General and Revenue obligations of the State of
California and local agencies within the State. Municipal bonds must be
rated at least AA by two NRSROs with maturities not exceeding three
years. No more than five percent (5 %) of the City's total portfolio shall be
invested in any one issuer and the aggregate investment in municipal
bonds shall not exceed fifteen percent (15 %) of the City's total portfolio.
g) Non - negotiable Certificates of Deposit and savings deposits with a
maturity not exceeding two years from the date of trade settlement, in
FDIC insured state or nationally chartered banks or savings banks that
qualify as a depository of public funds in the State of California as defined
in California Government Code Section 53630.5. Deposits exceeding the
FDIC insured amount shall be secured pursuant to California Government
Code Section 53652. No one issuer shall exceed more than five percent
(5 %) of the portfolio, and investment in negotiable and nonnegotiable
certificates of deposit shall be limited to thirty percent (30 %) of the
portfolio combined.
h) Negotiable Certificates of Deposit only with U.S. Banks whose underlying
securities are rated A -1 or the equivalent by a NRSRO and having assets
in excess of $10 billion, so as to insure security and a large, well -
established secondary market. Ease of subsequent marketability is further
ascertained prior to initial investment by examining currently quoted bids
by primary dealers and the acceptability of the issuer by these dealers. No
one issuer shall exceed more than five percent (5 %) of the portfolio, and
maturity shall not exceed two years. Investment in negotiable and non-
negotiable certificates of deposit shall be limited to thirty percent (30 %) of
the portfolio combined.
9
F -1
i) Prime Commercial Paver with a maturity not exceeding 270 days from the
date of trade settlement with the highest letter and number rating as
provided for by a NRSRO. The entity that issues the commercial paper
shall meet all of the following conditions in either sub - paragraph i. or sub-
paragraph ii. below:
i. The entity shall (1) be organized and operating in the United States as
a general corporation, (2) have total assets in excess of $500,000,000
and (3) have debt other than commercial paper, if any, that is rated at
least A or the equivalent by a NRSRO.
ii. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have
program wide credit enhancements, including, but not limited to, over
collateralization, letters of credit or surety bond and (3) have
commercial paper that is rated at least A -1 or the equivalent by a
NRSRO.
iii. No more than five percent (5 %) of the City's total portfolio shall be
invested in the commercial paper of any one issuer, and the aggregate
investment in commercial paper shall not exceed twenty five percent
(25 %) of the City's total portfolio.
j) Eligible Banker's Acceptances with a maturity not exceeding 180 days
from the date of trade settlement, drawn on and accepted by a commercial
bank whose senior long -term debt is rated at least A or the equivalent by a
NRSRO at the time of purchase. Banker's Acceptances shall be rated at
least A -1, P -1 or the equivalent at the time of purchase by a NRSRO. If the
bank has senior debt outstanding, it must be rated at least A or the
equivalent by a NRSRO. The aggregate investment in banker's
acceptances shall not exceed twenty percent (20 %) of the City's total
portfolio, and no more than five percent (5 %) of the City's total portfolio
shall be invested in banker's acceptances of any one bank.
k) Repurchase Agreements and Reverse Repurchase Agreements with a final
termination date not exceeding 30 days collateralized by U.S. Treasury
obligations or Federal Instrumentality securities listed in items 1 and 2
above with the maturity of the collateral not exceeding ten years. For the
purpose of this section, the term collateral shall mean purchased securities
under the terms of the City's approved Master Repurchase Agreement.
9
F -1
The purchased securities shall have a minimum market value including
accrued interest of one hundred and two percent (102 %) of the dollar
value of the funds borrowed. Collateral shall be held in the City's
custodian bank, as safekeeping agent, and the market value of the
collateral securities shall be marked -to- the - market daily.
Repurchase Agreements and Reverse Repurchase Agreements shall be
entered into only with broker/ dealers and who are recognized as Primary
Dealers with the Federal Reserve Bank of New York, or with firms that
have a Primary Dealer within their holding company structure. Primary
Dealers approved as Repurchase Agreement counterparties shall have a
short -term credit rating of at least A -1 or the equivalent and a long -term
credit rating of at least A or the equivalent. Repurchase agreement
counterparties shall execute a City approved Master Repurchase
Agreement with the City. The Finance Director shall maintain a copy of
the City's approved Master Repurchase Agreement and a list of the
broker/ dealers who have executed same.
In addition, the City must own assets for more than 30 days before they
can be used as collateral for a reverse repurchase agreement. No more
than ten percent (10 %) of the portfolio can be involved in reverse repos.
1) State of California's Local Agency Investment Fund (LAIF), pursuant to
California Government Code Section 16429.1.
m) County Investment Funds: Los Angeles County provides a service similar
to LAIF for municipal and other government entities outside of Los
Angeles County, including the City. Investment in this pool is intended to
be used as a temporary repository for short -term funds used for liquidity
purposes. The Finance Director shall maintain on file appropriate
information concerning the county pool's current investment policies,
practices, and performance, as well as its requirements for participation,
including, but not limited to, limitations on deposits or withdrawals and
the composition of the portfolio. At no time shall more than five percent
(5 %) of the City's total investment portfolio be placed in this pool.
n) Money Market Funds registered under the Investment Company Act of
1940 that (1) are "no -load" (meaning no commission or fee shall be
charged on purchases or sales of shares); (2) have a constant net asset
value per share of $1.00; (3) invest only in the securities and obligations
authorized in the applicable California statutes and (4) have a rating of at
10
F -1
least AAA or the equivalent by at least two NRSROs. The aggregate
investment in money market funds shall not exceed twenty percent (20 %)
of the City's total portfolio.
2. Investments Specifically Not Permitted
Any security type or structure not specifically approved by this policy is
hereby prohibited. Security types, which are thereby prohibited include, but
are not limited to: "exotic" derivative structures such as range notes, dual
index notes, inverse floating rate notes, leveraged or de- leveraged floating
rate notes, interest only strips that are derived from a pool of mortgages and
any security that could result in zero interest accrual if held to maturity, or
any other complex variable or structured note with an unusually high degree
of volatility risk.
The City shall not invest funds with the Orange County Pool.
3. Exceptions to Prohibited and Restricted Investments
The City shall not be required to sell securities prohibited or restricted in this
policy, or any future policies, or prohibited or restricted by new State
regulations, if purchased prior to their prohibition and /or restriction. Insofar
as these securities provided no notable credit risk to the City, holding of these
securities until maturity is approved. At maturity or liquidation, such monies
shall be reinvested on as provided by this policy.
H. INVESTMENT PARAMETERS
1. Diversification
The City shall diversify its investments to avoid incurring unreasonable risks
inherent in over - investing in specific instruments, individual financial
institutions or maturities. As such, no more than five percent (5 %) of the
City's portfolio may be invested in the instruments of any one non-
governmental issuer. This restriction does not apply to any type of Federal
Instrumentality or Federal Agency Security listed in Sections G1 b and G1 c
above. Nevertheless, the asset allocation in the investment portfolio should
be flexible depending upon the outlook for the economy, the securities
markets and the City's anticipated cash flow needs.
2. Maximum Maturities
To the extent possible, investments shall be matched with anticipated cash
flow requirements and known future liabilities. The City will not invest in
11
F -1
securities maturing more than five years from the date of trade settlement, unless
the City Council has by resolution granted authority to make such an investment
at least three months prior to the date of investment.
3. Credit Quality
The City shall not purchase any security rated Al and / or A+ or below if that
security has been placed on "credit watch' for a possible downgrade by a
NRSRO.
In the event a security held by the City is the subject of a rating downgrade
which brings it below accepted minimums specified herein, or the security is
placed on negative credit watch, where downgrade could result in a rate drop
below acceptable levels, the investment advisor who purchased the security
will immediately notify the Director of Finance. The City shall not be required
to immediately sell such securities. The course of action to be followed will
then be decided on a case by case basis, considering such factors as the reason
for the rate drop, prognosis for recovery or further drop, and market price of
the security. The City Council will be advised of the situation and intended
course of action.
4. Competitive Transactions
All investment transactions shall be conducted competitively with authorized
broker/ dealers. At least three broker /dealers shall be contacted for each
transaction and their bid or offering prices shall be recorded. If there is no
other readily available competitive offering, quotations for comparable or
alternative securities will be documented.
I. PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return
throughout budgetary and economic cycles, taking into account prevailing
market conditions, risk constraints for eligible securities, and cash flow
requirements. The performance of the City's investments shall be compared to
the average yield on the U.S. Treasury security that most closely corresponds to
the portfolio's weighted average effective maturity. When comparing the
performance of the City's portfolio, its rate of return will be computed net of all
fees and expenses.
J. REPORTING
Monthly, the Director of Finance shall submit to the City Council a report of the
investment earnings and performance results of the City's investment portfolio.
The report shall include the following information:
12
F -1
1. Investment type, issuer, date of maturity, par value and dollar amount
invested in all securities, and investments and monies held by the City;
2. A description of the funds, investments and programs;
3. A market value as of the date of the report (or the most recent valuation as to
assets not valued monthly) and the source of the valuation;
4. A statement of compliance with this Policy or an explanation for non-
compliance
K. INVESTMENT POLICY COMPLIANCE AND ADOPTION
1. Compliance
Any deviation from the policy shall be reported to Finance Committee at the
next scheduled meeting and to City Council as part of the monthly review of
the portfolio. The Director of Finance shall promptly notify Finance
Committee and City Council of any material change in the policy and any
modifications to the policy must be approved by Finance Committee and City
Council.
2. Adoption
The Treasurer shall render a written Statement of Investment Policy that shall
be reviewed at least annually by Finance Committee and City Council to
ensure its consistency with the overall objectives of preservation of principal,
liquidity and return, and its relevance to current law and financial and
economic trends. City Council shall consider the annual Statement of
Investment Policy and any changes therein at a public meeting.
This Policy was endorsed and adopted by the City Council of the City of
Newport Beach on September 28, 2010. It replaces any previous investment
policy or investment procedures of the City.
Adopted - April 6,1959
Amended - November 9,1970
Amended - February 11, 1974
Amended - February 9,1981
Amended - October 27,1986
Rewritten - October 22, 1990
Amended - January 28,1991
Amended - January 24,1994
Amended - January 9,1995
13
Amended - April 22,1996
Corrected - January 27,1997
Amended - February 24,1997
Amended - May 26,1998
Reaffirmed - March 22,1999
Reaffirmed - March 14, 2000
Amended & Reaffirmed - May 8, 2001
Amended & Reaffirmed - April 23, 2002
Amended & Reaffirmed - April 8, 2003
Amended & Reaffirmed - April 13, 2004
Amended & Reaffirmed - September 13, 2005
Amended - August 11, 2009
Amended & Reaffirmed August 10, 2010
Amended & Reaffirmed -September 28, 2010
Reaffirmed - June 28, 2011
F -1
14
EXHIBIT "B"
Chandler Asset Management Page 18
SCOPE OF SERVICES
The following Services are required:
• Consultant will provide investment research and supervision of the City's assets
under management and conduct a continuous program of investment, evaluation
and, when appropriate, sale and reinvestment of the City's Managed Funds assets.
• The Consultant shall continuously monitor investment opportunities of the City's
Funds.
All investment advisory services must conform with state law, federal law, the
City's investment policy and the Prudent Expert Standard of care.
• Annually review investment policy and compare to applicable laws. Recommend
appropriate amendments annually to comply with applicable laws or minimize risk
with respect to stated investment objectives.
Develop and execute an investment strategy consistent with the City's stated
investment policy objectives and parameters, applicable laws and an
understanding of the City's cash flow needs.
• Establish an appropriate performance benchmark and compare historical results to
benchmark.
• Regularly ensure portfolio structure matches the City's stated investment
objectives.
• Provide monthly reporting of each portfolio under management showing deposits,
withdrawals, purchases and sales (or maturities) of investments, earnings
received, and the value of assets held on the last business day of the month. The
statement shall be in the format and manner that is mutually agreed upon in writing
by the Consultant and the City.
• Provide credit analysis of investment instruments in portfolio.
• Provide assurance of portfolio compliance with applicable policies and laws.
• Immediately apprise Project Administrator of all instances of non - compliance with
applicable policies and laws.
• Attend meetings with government officials as needed.
• Discuss cash flow needs and market strategy with Project Administrator quarterly.
• Assist the City with cash flow /maturity analysis as needed.
• The depository designated by the City (the "Custodian ") shall have custody of
cash, assets and securities of the City. The Consultant is not the Custodian of the
Chandler Asset Management Page 19
assets and shall not take possession of or act as Custodian for the cash, securities
or other assets in the Managed Funds.
• Consultant will observe the instructions of the City with respect to broker /dealers
who are approved to execute transactions involving the City's Managed Funds and
in the absence of such instructions will engage broker /dealers who are reputable,
qualified and financially sound. In connection with the selection of such brokers
and dealers and the placing of such orders, the Consultant is directed to seek for
the City the most favorable execution and price.
• Regularly evaluate market risk and develop strategies that minimize the impact on
the portfolio.
• Immediately apprise staff of significant market events impacting portfolio security
or performance.
• Interact and communicate effectively with the City's Custodian bank. Consultant
shall provide trade instructions to Custodian Bank at least one business day prior
to settlement.
• Assist in credit monitoring of financial institutions with which the City conducts
business.
• Exercise diligence in the selection and use of broker /dealers.
• All investment transactions shall be conducted competitively. Documentation of
recorded bid or offering prices shall be maintained for a period of at least three (3)
years.
• Provide for online access to or electronic delivery of monthly statements.
ADDITIONAL SERVICES/TERMS
• Proxy Voting. Consultant will vote proxies on behalf of City unless otherwise
instructed. Consultant has adopted and implemented written policies and
procedures and will provide City with a copy of the proxy voting procedures upon
request. Consultant will provide information regarding how City's proxies were
voted upon request.
• Valuation. Consultant will value securities held in portfolios managed by
Consultant no less than monthly. Securities or investments in the portfolio will be
valued in a manner determined in good faith by Consultant to reflect fair market
value.
• Investment Advice. City recognizes that the opinions, recommendations and
actions of Consultant will be based on information deemed by it to be reliable, but
not guaranteed to or by it. Provided that Consultant acts in good faith, City
agrees that Consultant will not in any way be liable for any error in judgment or
Chandler Asset Management Page 20
for any act or omission, except as may otherwise be provided for under the
Federal Securities laws, state law or other applicable laws.
• Other Clients. It is further understood that Consultant may be acting in a similar
capacity for other institutional and individual clients, and that investments and
reinvestments for City's portfolio may differ from those made or recommended
with respect to other accounts and clients even though the investment objectives
may be the same or similar. Accordingly, it is agreed that Consultant will have no
obligation to purchase or sell for City's account any securities which it may
purchase or sell for other clients.
• Additional Services. If and to the extent that the City requests the Consultant to
render services other than those to be rendered by the Consultant according to
this agreement, such additional services shall be compensated separately on
terms to be agreed upon between the City and the Consultant.
Chandler Asset Management Page 21
Attachment C
PROFESSIONAL SERVICES AGREEMENT WITH
CUTWATER INVESTOR SERVICES CORP.
FOR INVESTMENT MANAGER
THIS AGREEMENT FOR PROFESSIONAL SERVICES ( "Agreement ") is made and
entered into as of this day of 2011, by and between the City of
Newport Beach, a California municipal corporation ( "City "), and Cutwater Investor
Services Corp., a Delaware corporation ( "Consultant "), whose address is 1900
Sixteenth Street, Suite 200, Denver, Colorado 80202 and is made with reference to the
following:
RECITALS
A. City is a municipal corporation duly organized and validly existing under the laws
of the State of California with the power to carry on its business as it is now being
conducted under the statutes of the State of California and the Charter of City.
B. City is required to manage its operating portfolio of cash and marketable
securities in accordance with the City's current adopted investment policy
( "Council Policy F -1"). Council Policy F -1 is attached to this Agreement as
Exhibit "A" and incorporated herein by reference.
C. City has a current Investment Advisory Agreement- Discretionary (Institutional
Client, Non - ERISA) with Consultant dated November 13, 2002. Upon the
effective date of this Agreement the November 13, 2002 Investment Advisory
Agreement- Discretionary (Institutional Client, Non - ERISA) shall terminate and be
of no further effect.
D. City desires to engage Consultant to provide investment advisory services for
certain cash and marketable securities as designated by the City ( "Project ").
E. Consultant represents it is a registered investment advisor under the Investment
Advisers Act of 1940 and possesses the skill, experience, ability, background,
certification and knowledge to provide the services described in this Agreement.
F. The principal members of Consultant for purposes of this Project shall be
portfolio manager Neil Waud and backup portfolio manager Mary Donovan.
G. City has solicited and received a proposal from Consultant, has reviewed the
previous experience and evaluated the expertise of Consultant, and desires to
retain Consultant to render professional services under the terms and conditions
set forth in this Agreement.
H. The Consultant warrants that it has delivered to the City, at least forty -eight (48)
hours prior to the execution of this Agreement, the Consultant's current Securities
and Exchange Commission Form ADV, Part II (disclosure statement). The City
acknowledges receipt of such disclosure statement at least forty -eight (48) hours
prior to the execution of this Agreement.
NOW, THEREFORE, it is mutually agreed by and between the undersigned parties as
follows:
1. TERM
The term of this Agreement shall commence on the above written date, and shall
terminate on June 30, 2016 unless terminated earlier as set forth herein.
2. SERVICES TO BE PERFORMED
Consultant shall diligently perform all the services described in the Scope of Services
attached hereto as Exhibit "B" and incorporated herein by reference ( "Work" or
"Services "). The City may elect to delete certain tasks from the Scope of Services at its
sole discretion.
3. TIME OF PERFORMANCE
Time is of the essence in the performance of Services under this Agreement and the
Services shall be performed to completion in a diligent and timely manner. The failure
by Consultant to perform the Services in a diligent and timely manner may result in
termination of this Agreement by City.
Notwithstanding the foregoing, Consultant shall not be responsible for delays due to
causes beyond Consultant's reasonable control. However, in the case of any such
delay in the Services to be provided for the Project, each party hereby agrees to provide
notice to the other party so that all delays can be addressed.
3.1 Consultant shall submit all requests for extensions of time for performance
in writing to the City's Project Administrator (as defined in Section 6 of this
Agreement) not later than five (5) calendar days after the start of the
condition that purportedly causes a delay. The Project Administrator shall
review all such requests and may grant reasonable time extensions for
unforeseeable delays that are beyond Consultant's control.
3.2 For all time periods not specifically set forth herein, Consultant shall
respond in the most expedient and appropriate manner under the
circumstances, by telephone, fax, hand - delivery, mail or electronic mail.
4. COMPENSATION TO CONSULTANT
City shall compensate Consultant on a monthly basis an amount calculated on the
average monthly market value of the portion of the City's investment portfolio under
management, including accrued interest, in accordance with the following schedule:
Cutwater Investor Services Corp. Page 2
Average Monthly Market Value Tiered Annual Investment
of Assets Under Management Management Fee
$0425 million 0.10 of 1 % (10 basis points)
Next $25 -$50 million 0.08 of 1% (8 basis points)
Next $50 -$100 million 0.07 of 1% (7 basis points)
Assets in excess of $100 million 0.06 of 1% (6 basis points)
Monthly fees are based on the schedule outlined above, but at no time shall the monthly
fee be less than $1,250. (This minimum monthly fee will not apply to accounts that are
entirely comprised of proceeds from the sale of bonds.)
The average monthly market value of assets under management are subject to the fees
described in this section but shall exclude any funds invested in a local government
investment pool or registered mutual fund managed by the Consultant ( "Pool ").
Custody fees that may be charged by City's bank or other third party custodian are not
included in the above fee schedule.
Fees shall be prorated to the effective date of termination on the basis of actual days
elapsed, and any unearned portion of prepaid fees shall be refunded. City is not
required to pay any start -up or closing fees or penalty fees.
Consultant's compensation for all Work performed in accordance with this Agreement,
including all reimbursable items and subconsultant fees, shall not exceed Two Hundred
and Seventy -five Thousand Dollars and no /100 ($275,000) without prior written
authorization from City. No billing rate changes shall be made during the term of this
Agreement without the prior written approval of City.
4.1 Consultant shall submit monthly invoices to City which include the average
monthly market value of assets under management for the time period for
which the fee is assessed and the total fee charged in accordance with the
schedule and exclusions stated above.
4.2 City shall reimburse Consultant only for those costs or expenses
specifically approved in this Agreement, or specifically approved in writing
in advance by City. Unless otherwise approved, such costs shall be
limited and include nothing more than the following costs incurred by
Consultant:
A. The actual costs of subconsultants for performance of any of the
Services that Consultant agrees to render pursuant to this
Agreement, which have been approved in advance by City and
awarded in accordance with this Agreement.
B. Approved reproduction charges.
Cutwater Investor Services Corp. Page 3
C. Actual costs and /or other costs and /or payments specifically
authorized in advance in writing and incurred by Consultant in the
performance of this Agreement.
4.3 Consultant shall not receive any compensation for Extra Work performed
without the prior written authorization of City. As used herein, "Extra
Work" means any Work that is determined by City to be necessary for the
proper completion of the Project, but which is not included within the
Scope of Services and which the parties did not reasonably anticipate
would be necessary at the execution of this Agreement. Compensation
for any authorized Extra Work shall be paid in accordance with a written
amendment entered into between the parties.
5. PROJECT MANAGER
Consultant shall designate a Project Manager, who shall coordinate all phases of the
Project. This Project Manager shall be available to City at all reasonable times during
the Agreement term. Consultant has designated Portfolio Manager Neil Waud to be its
Project Manager. The City will be informed of all personnel assigned to the City under
the Agreement and any changes made to such personnel. The City will have the
opportunity to express opinions about the performance of any person assigned to the
account.
Consultant, at the sole discretion of City, shall remove from the Project any of its
personnel assigned to the performance of Services upon written request of City.
Consultant warrants that it will continuously furnish the necessary personnel to
complete the Project on a timely basis as contemplated by this Agreement.
6. ADMINISTRATION
This Agreement will be administered by the Finance Department. Deputy Director Dan
Matusiewicz or his designee shall be the Project Administrator and shall have the
authority to act for City under this Agreement. The Project Administrator or his /her
authorized representative shall represent City in all matters pertaining to the Services to
be rendered pursuant to this Agreement.
7. CITY'S RESPONSIBILITIES
In order to assist Consultant in the execution of its responsibilities under this
Agreement, City agrees to provide Consultant access to its current investment policy
upon the request of Consultant or at any time the policy is modified. City will provide all
such materials in a timely manner so as not to cause delays in Consultant's work
schedule.
Cutwater Investor Services Corp. Page 4
7.1 The City shall inform the Consultant in writing of the funding and
disbursement instructions applicable to the City. The Consultant shall
make its investment decisions for the assets under management in
accordance with such funding and disbursement instructions. The City
understands that it bears the market risk associated with changes to such
funding and disbursement instructions.
7.2 The City will provide the consultant with no less than five (5) business days
notice of a substantial contribution or withdrawal (i.e. an amount equal to or
greater than 10% of the portfolio assets) to or from the assets under
management to permit the Consultant to affect an orderly execution of the
Advisory Account's holdings. The Consultant will use its best efforts to
minimize adverse effects of such contributions or withdrawals on the
Advisory Account.
8. STANDARD OF CARE
8.1 All of the Services shall be performed by Consultant or under Consultant's
supervision. Consultant represents it is a registered investment advisor
under the Investment Advisers Act of 1940 (15 U.S.C. 80b -1, et seq.).
Consultant shall immediately notify the City if at any time during the term
of this Agreement it is not so registered or if its registration is suspended.
Consultant agrees to perform its duties and responsibilities under this
Agreement with reasonable care. The federal securities laws impose
penalties under certain circumstances on persons who are required to act
in good faith. Consultant represents that it possesses the professional
and technical personnel required to perform the Services required by this
Agreement, and that it will perform all Services in a manner
commensurate with the Prudent Investor Standard required by California
Government Code Section 53600.3 ( "Prudent Investor Standard "). All
Services shall be performed by qualified and experienced personnel who
are not employed by City, nor have any contractual relationship with City.
By delivery of completed Work, Consultant certifies that the Work
conforms to the requirements of this Agreement and all applicable federal,
state and local laws and the Prudent Investor Standard of care. Nothing
herein shall in any way constitute a waiver or limitation of any rights which
the City or the Consultant may have under any federal securities laws.
8.2 Consultant represents and warrants to City that it has, shall obtain and
shall keep in full force in effect during the term hereof, at its sole cost and
expense, all licenses, permits, qualifications, insurance and approvals of
whatsoever nature that is legally required of Consultant to practice its
profession. Consultant shall maintain a City business license during the
term of this Agreement.
8.3 Consultant shall promptly give notice to the City if the Consultant has been
found to have violated any state or federal securities law or regulation in
any criminal action or civil suit in any state or federal court or in any
disciplinary proceeding before the Securities and Exchange Commission
Cutwater Investor Services Corp. Page 5
or any other agency or department of the United States, any registered
securities exchange, Financial Industry Regulatory Authority (FINRA), or
any regulatory authority of any State based upon the performance of
services as an investment advisor.
8.4 Consultant shall not be responsible for losses arising out of delays in
performing or inability to perform the Services as described in this
Agreement which result from events beyond its control, including
interruption of the business activities of the Consultant or other financial
institutions due to strikes, lockouts, accidents, or acts of God, or the failure
of City to furnish timely information or to approve or disapprove
Consultant's Work promptly, or delay or faulty performance by City, or
governmental agencies. Nothing herein shall in any way constitute a
waiver or limitation of any right of any person under federal and state
securities laws.
8.5 Investment Policy. Consultant shall comply with City's Council Policy F -1,
as amended from time to time, which current adopted version is attached
hereto as Exhibit "A." The most current adopted Investment Policy is
available at www. newportbeachca .gov /investmentpolicy. The City agrees
to notify the Consultant promptly in writing of any modifications to the
Investment Policy.
8.6 Authority of Consultant. Consultant is granted full discretion to invest and
reinvest all assets under its management in any type of security
authorized by the City's Investment Policy, Council Policy F -1, guidelines
set by the City, and /or State law, and /or federal securities laws.
9. HOLD HARMLESS
To the fullest extent permitted by law, Consultant shall indemnify, defend and hold
harmless City, its City Council, boards and commissions, officers, agents, volunteers,
and employees (collectively, the "Indemnified Parties ") from and against any and all
claims (including, without limitation, claims for bodily injury, death or damage to
property), demands, obligations, damages, actions, causes of action, suits, losses,
judgments, fines, penalties, liabilities, costs and expenses (including, without limitation,
attorney's fees, disbursements and court costs) of every kind and nature whatsoever
(individually, a Claim; collectively, "Claims "), which may arise from or in any manner
relate (directly or indirectly) to any breach of the terms and conditions of this
Agreement, any Work performed or Services provided under this Agreement including,
without limitation, defects in workmanship or materials or Consultant's presence or
activities conducted on the Project (including the negligent and /or willful acts, errors
and /or omissions of Consultant, its principals, officers, agents, employees, vendors,
suppliers, sub - consultants, sub - contractors, anyone employed directly or indirectly by
any of them or for whose acts they may be liable or any or all of them).
Notwithstanding the foregoing, nothing herein shall be construed to require Consultant
to indemnify the Indemnified Parties from any Claim arising from the sole negligence or
willful misconduct of the Indemnified Parties. Nothing in this indemnity shall be
Cutwater Investor Services Corp. Page 6
construed as authorizing any award of attorney's fees in any action on or to enforce the
terms of this Agreement. This indemnity shall apply to all claims and liability regardless
of whether any insurance policies are applicable. The policy limits do not act as a
limitation upon the amount of indemnification to be provided by the Consultant.
10. INDEPENDENT CONTRACTOR
It is understood that City retains Consultant on an independent contractor basis and
Consultant is not an agent or employee of City. The manner and means of conducting
the Work are under the control of Consultant, except to the extent they are limited by
statute, rule or regulation and the expressed terms of this Agreement. Nothing in this
Agreement shall be deemed to constitute approval for Consultant or any of Consultant's
employees or agents, to be the employees of City. Consultant shall have the
responsibility for and control over the means of performing the Work, provided that
Consultant is in compliance with the terms of this Agreement. Anything in this
Agreement that may appear to give City the right to direct Consultant as to the details of
the performance or to exercise a measure of control over Consultant shall mean only
that Consultant shall follow the desires of City with respect to the results of the Services.
11. COOPERATION
Consultant agrees to work closely and cooperate fully with City's Project Administrator
and any other agencies that may have jurisdiction or interest in the Work to be
performed. City agrees to cooperate with the Consultant on the Project.
12. CITY POLICY
Consultant shall discuss and review all matters relating to policy and Project direction with
City's Project Administrator in advance of all critical decision points in order to ensure the
Project proceeds in a manner consistent with City goals and policies.
13. PROGRESS
Consultant is responsible for keeping the Project Administrator and /or his /her duly
authorized designee informed on a regular basis regarding the status and progress of the
Project, activities performed and planned, and any meetings that have been scheduled or
are desired.
14. INSURANCE
Without limiting Consultant's indemnification of City, and prior to commencement of
Work, Consultant shall obtain, provide and maintain at its own expense during the term
of this Agreement, policies of insurance of the type and amounts described below and in
a form satisfactory to City.
A. Proof of Insurance. Consultant shall provide certificates of insurance to
City as evidence of the insurance coverage required herein, along with a
Waiver of Subrogation endorsement for workers' compensation.
Insurance certificates and endorsement must be approved by City's Risk
Cutwater Investor Services Corp. Page 7
Manager prior to commencement of performance. Current certification of
insurance shall be kept on file with City at all times during the term of this
contract. The Consultant shall provide City access to its insurance
brokers to confirm the terms of insurance coverage.
Consultant shall procure and maintain for the duration of the contract
insurance against claims for injuries to persons or damages to property,
which may arise from or in connection with the performance of the Work
hereunder by Consultant, his agents, representatives, employees or
subconsultants. The cost of such insurance shall be included in
Consultant's bid.
B. Acceptable Insurers. All insurance policies shall be issued by an
insurance company currently authorized by the Insurance Commissioner
to transact business of insurance in the State of California, with an
assigned policyholders' Rating of A- (or higher) and Financial Size
Category Class VII (or larger) in accordance with the latest edition of
Best's Key Rating Guide, unless otherwise approved by the City's Risk
Manager.
C. Coverage Requirements.
i. Workers' Compensation Coverage. Consultant shall maintain
Workers' Compensation Insurance (Statutory Limits) and
Employer's Liability Insurance (with limits of at least one million
dollars ($1,000,000)) for Consultant's employees in accordance
with the laws of the State of California, Section 3700 of the Labor
Code In addition, Consultant shall require each subconsultant to
similarly maintain Workers' Compensation Insurance and
Employer's Liability Insurance in accordance with the laws of the
State of California, Section 3700 for all of the subconsultant's
employees.
The Consultant shall endeavor to provide to the City notice of
cancellation or non - renewal of all Workers' Compensation policies
thirty (30) calendar days (ten (10) calendar days written notice of
non - payment of premium) prior to such change.
Consultant shall submit to City, along with the certificate of
insurance, a Waiver of Subrogation endorsement in favor of City, its
officers, agents, employees and volunteers.
ii. General Liability Coverage. Consultant shall maintain commercial
general liability insurance in an amount not less than one million
dollars ($1,000,000) per occurrence for bodily injury, personal
injury, and property damage, including without limitation, blanket
contractual liability.
iii. Automobile Liability Coverage. Consultant shall maintain
automobile insurance covering bodily injury and property damage
Cutwater Investor Services Corp. Page 8
for all activities of the Consultant arising out of or in connection with
Work to be performed under this Agreement, including coverage for
any owned, hired, non -owned or rented vehicles, in an amount not
less than one million dollars ($1,000,000) combined single limit for
each accident.
iv. Professional Liability (Errors & Omissions) Coverage. Consultant
shall maintain professional liability insurance that covers the
Services to be performed in connection with this Agreement, in the
minimum amount of ten million dollars ($10,000,000) limit per claim
and in the aggregate.
V. Fidelity Insurance. Consultant shall maintain fidelity insurance that
covers the Services to be performed in connection with this
Agreement, in the minimum amount of five million dollars
($5,000,000) limit per claim.
D. Other Insurance Provisions or Requirements.
The policies are to contain, or be endorsed to contain, the following
provisions:
i. Waiver of Subrogation. All insurance coverage maintained or
procured pursuant to this Agreement, with the exception of
professional liability and fidelity insurance, shall be endorsed to
waive subrogation against City, its elected or appointed officers,
agents, officials, employees and volunteers or shall specifically
allow Consultant or others providing insurance evidence in
compliance with these requirements to waive their right of recovery
prior to a loss. Consultant hereby waives its own right of recovery
against City, and shall require similar written express waivers and
insurance clauses from each of its subconsultants.
ii. Enforcement of Contract Provisions. Consultant acknowledges and
agrees that any actual or alleged failure on the part of the City to
inform Consultant of non - compliance with any requirement imposes
no additional obligations on the City nor does it waive any rights
hereunder.
iii. Requirements not Limiting. Requirements of specific coverage
features or limits contained in this Section are not intended as a
limitation on coverage, limits or other requirements, or a waiver of
any coverage normally provided by any insurance. Specific
reference to a given coverage feature is for purposes of clarification
only as it pertains to a given issue and is not intended by any party
or insured to be all inclusive, or to the exclusion of other coverage,
or a waiver of any type.
Cutwater Investor Services Corp. Page 9
iv. Notice of Cancellation. Consultant agrees to provide City with thirty
(30) days notice of cancellation (except for nonpayment for which
ten (10) days notice is required) or nonrenewal of coverage for
each required coverage to the extent notification has been received
from the insurance carrier."
E. Timely Notice of Claims. Consultant shall give City prompt and timely
notice of claims made or suits instituted that arise out of or result from
Consultant's performance under this Agreement.
F. Additional Insurance. Consultant shall also procure and maintain, at its
own cost and expense, any additional kinds of insurance, which in its own
judgment may be necessary for its proper protection and prosecution of
the Work.
15. PROHIBITION AGAINST ASSIGNMENTS AND TRANSFERS
Except as specifically authorized under this Agreement, the Services to be provided
under this Agreement shall not be assigned, transferred contracted or subcontracted out
without the prior written approval of City. Any of the following shall be construed as an
assignment: The sale, assignment, transfer or other disposition of any of the issued
and outstanding capital stock of Consultant, or of the interest of any general partner or
joint venturer or syndicate member or cotenant if Consultant is a partnership or joint -
venture or syndicate or cotenancy, which shall result in changing the control of
Consultant. Control means fifty percent (50 %) or more of the voting power or twenty -
five percent (25 %) or more of the assets of the corporation, partnership or joint- venture.
16. SUBCONTRACTING
The parties recognize that a substantial inducement to City for entering into this
Agreement is the professional reputation, experience and competence of Consultant.
Assignments of any or all rights, duties or obligations of the Consultant under this
Agreement will be permitted only with the express written consent of City. Consultant shall
not subcontract any portion of the Work to be performed under this Agreement without the
prior written authorization of City.
17. OWNERSHIP OF DOCUMENTS
Each and every report, draft, record, plan, document and other writing produced
(hereinafter "Documents "), prepared or caused to be prepared by Consultant, its
officers, employees, agents and subcontractors, in the course of implementing this
Agreement, shall become the exclusive property of City, and City shall have the sole
right to use such materials in its discretion without further compensation to Consultant
or any other party. Consultant shall, at Consultant's expense, provide such Documents
to City upon prior written request.
Documents prepared by Consultant pursuant to this Agreement are not intended or
represented to be suitable for reuse by City or others on any other project. Any use of
completed Documents for other projects and any use of incomplete Documents without
Cutwater Investor Services Corp. Page 10
specific written authorization from Consultant will be at City's sole risk and without
liability to Consultant. Further, any and all liability arising out of changes made to
Consultant's deliverables under this Agreement by City or persons other than
Consultant is waived against Consultant and City assumes full responsibility for such
changes unless City has given Consultant prior notice and has received from
Consultant written consent for such changes.
18. ELECTRONIC DELIVERY
Consultant shall make best efforts to electronically deliver certain documents to City
such as invoices, statements, monthly reports, newsletters, account information, notices
and required disclosures. City hereby consents to Consultant's use of electronic
means, such as email or secure electronic portal, to make such delivery. This delivery
may include notification of the availability of such document(s) on a website or secure
electronic portal, and City agrees that such notification will constitute "delivery." City
further agrees to provide Consultant with City's email address(s) and to keep this
information current at all times by promptly notifying Consultant of any change in email
address(s). The email address that should be used for electronic delivery shall be
treasuryaccounting @newportbeachca aov until otherwise notified.
19. CONFIDENTIALITY
All Documents, including drafts, notes and communications that result from the Services in
this Agreement, shall be kept confidential unless City authorizes in writing the release of
information, or unless disclosure is required by law or by regulatory or judicial process.
20. INTELLECTUAL PROPERTY INDEMNITY
The Consultant shall defend and indemnify City, its agents, officers, representatives and
employees against any and all liability, including costs, for infringement of any United
States' letters patent, trademark, or copyright infringement, including costs, contained in
Consultant's drawings and specifications provided under this Agreement.
21. RECORDS
Consultant shall keep monthly records of all investing activities including all bid, offer
and trade tickets, monthly reports and invoices in connection with the Work to be
performed under this Agreement. Consultant shall maintain complete and accurate
records with respect to the costs incurred under this Agreement and any Services,
expenditures and disbursements charged to City, for a minimum period of three (3)
years, or for any longer period required by law, from the date of most recent monthly
payment to Consultant under this Agreement. All such records and invoices shall be
clearly identifiable. Consultant shall allow a representative of City to examine, audit and
make transcripts or copies of such records and invoices during regular business hours.
Consultant shall allow inspection of all Work, data, Documents, proceedings and
activities related to the Agreement for a period of three (3) years from the date of final
payment to Consultant under this Agreement.
Cutwater Investor Services Corp. Page 11
22. WITHHOLDINGS
City may withhold payment to Consultant of any disputed sums until satisfaction of the
dispute with respect to such payment. Such withholding shall not be deemed to
constitute a failure to pay according to the terms of this Agreement. Consultant shall
not discontinue Work as a result of such withholding. Consultant shall have an
immediate right to appeal to the City's City Manager or his /her designee with respect to
such disputed sums. Consultant shall be entitled to receive interest on any withheld
sums at the rate of return that City earned on its investments during the time period,
from the date of withholding of any amounts found to have been improperly withheld.
23. ERRORS AND OMISSIONS
In the event of errors or omissions that are due to the negligence or professional
inexperience of Consultant which result in expense to City greater than what would
have resulted if there were not errors or omissions in the Work accomplished by
Consultant, the additional expense shall be borne by Consultant. Nothing in this
paragraph is intended to limit City's rights under the law or any other sections of this
Agreement.
24. CITY'S RIGHT TO EMPLOY OTHER CONSULTANTS
City reserves the right to employ other Consultants in connection with the Project.
25. CONFLICTS OF INTEREST
The Consultant or its employees may be subject to the provisions of the California
Political Reform Act of 1974 (the "Act "), which (1) requires such persons to disclose any
financial interest that may foreseeably be materially affected by the Work performed
under this Agreement, and (2) prohibits such persons from making, or participating in
making, decisions that will foreseeably financially affect such interest.
If subject to the Act, Consultant shall conform to all requirements of the Act. Failure to
do so constitutes a material breach and is grounds for immediate termination of this
Agreement by City. Consultant shall indemnify and hold harmless City for any and all
claims for damages resulting from Consultant's violation of this section.
26. NOTICES
All notices, demands, requests or approvals to be given under the terms of this Agreement
shall be given in writing, and conclusively shall be deemed served when delivered
personally, or on the third business day after the deposit thereof in the United States mail,
postage prepaid, first -class mail, addressed as hereinafter provided. All notices, demands,
requests or approvals from Consultant to City shall be addressed to City at:
Attention: Dan Matusiewicz,
Deputy Director
Finance Department
Cutwater Investor Services Corp. Page 12
City of Newport Beach
3300 Newport Boulevard
PO Box 1768
Newport Beach, CA 92658 -8915
Phone: 949 - 644 -3126
Fax: 949 - 644 -3339
E -mail: Treasuryaccounting @newportbeachca.gov
All notices, demands, requests or approvals from City to Consultant shall be addressed
to Consultant at:
Attention: Neil Waud, Portfolio Manager
Cutwater Investor Services Corp.
1900 Sixteenth Street, Suite 200
Denver, CO 80202
Phone: 303 - 864 -7457
Fax: 303 - 860 -0016
E -mail: Neil.Waud @cutwater.com
27. CLAIMS
The Consultant and the City expressly agree that in addition to any claims filing
requirements set forth in the Agreement, the Consultant shall be required to file any
claim the Consultant may have against the City in strict conformance with the Tort
Claims Act (California Government Code sections 900 et seq.).
28. TERMINATION
In the event that either party fails or refuses to perform any of the provisions of this
Agreement at the time and in the manner required, that party shall be deemed in default
in the performance of this Agreement. If such default is not cured within a period of five
(5) calendar days, or if more than five (5) calendar days are reasonably required to cure
the default and the defaulting party fails to give adequate assurance of due performance
within five (5) calendar days after receipt of written notice of default, specifying the
nature of such default and the steps necessary to cure such default, and thereafter
diligently take steps to cure the default, the non - defaulting party may terminate the
Agreement forthwith by giving to the defaulting party written notice thereof.
Notwithstanding the above provisions, City shall have the right, at its sole discretion and
without cause, of terminating this Agreement at any time by giving seven (7) calendar
days prior written notice to Consultant. In the event of termination under this Section,
City shall pay Consultant for Services satisfactorily performed and costs incurred up to
the effective date of termination for which Consultant has not been previously paid. On
the effective date of termination, Consultant shall deliver to City all reports, Documents
and other information developed or accumulated in the performance of this Agreement,
whether in draft or final form.
Cutwater Investor Services Corp. Page 13
The Consultant shall have the right, at its sole discretion and without cause, of
terminating this Agreement at any time by giving thirty (30) calendar days prior written
notice to the City
29. COMPLIANCE WITH ALL LAWS
Consultant shall at its own cost and expense comply with all statutes, ordinances,
regulations and requirements of all governmental entities, including federal, state, county
or municipal, whether now in force or hereinafter enacted. In addition, all Work prepared
by Consultant shall conform to applicable City, county, state and federal laws, rules,
regulations and permit requirements and be subject to approval of the Project
Administrator and City.
30. WAIVER
A waiver by either party of any breach, of any term, covenant or condition contained
herein shall not be deemed to be a waiver of any subsequent breach of the same or any
other term, covenant or condition contained herein, whether of the same or a different
character.
31. INTEGRATED CONTRACT
This Agreement represents the full and complete understanding of every kind or nature
whatsoever between the parties hereto, and all preliminary negotiations and agreements
of whatsoever kind or nature are merged herein. No verbal agreement or implied
covenant shall be held to vary the provisions herein.
32. CONFLICTS OR INCONSISTENCIES
In the event there are any conflicts or inconsistencies between this Agreement and the
Scope of Services or any other attachments attached hereto, the terms of this
Agreement shall govern.
33. INTERPRETATION
The terms of this Agreement shall be construed in accordance with the meaning of the
language used and shall not be construed for or against either party by reason of the
authorship of the Agreement or any other rule of construction which might otherwise
apply.
34. AMENDMENTS
This Agreement may be modified or amended only by a written document executed by
both Consultant and City and approved as to form by the City Attorney.
35. SEVERABILITY
Cutwater Investor Services Corp. Page 14
If any term or portion of this Agreement is held to be invalid, illegal, or otherwise
unenforceable by a court of competent jurisdiction, the remaining provisions of this
Agreement shall continue in full force and effect.
36. CONTROLLING LAW AND VENUE
The laws of the State of California shall govern this Agreement and all matters relating
to it and any action brought relating to this Agreement shall be adjudicated in a court of
competent jurisdiction in the County of Orange.
37. EQUAL OPPORTUNITY EMPLOYMENT
Consultant represents that it is an equal opportunity employer and it shall not
discriminate against any subcontractor, employee or applicant for employment because
of race, religion, color, national origin, handicap, ancestry, sex or age.
38. INCORPORATION OF RECITALS
The recitals within this Agreement are true and correct and are incorporated into the
operative part of this Agreement.
39. NO ATTORNEY'S FEES
In the event of any dispute or action arising under the Agreement, the prevailing party
shall not be entitled to attorney's fees.
40. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.
[SIGNATURES ON NEXT PAGE]
Cutwater Investor Services Corp. Page 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on
the dates written below.
APPROVED AS TO FORM:
OFFICE OF THE CITY ATTORNEY
Date: '1 /10/11
By; AFS, r �a r
Aaron Har
City Attorney
ATTEST:
Date:
CITY OF NEWPORT BEACH,
A California municipal corporation
Date:
By:
Michael F. Henn
Mayor
CONSULTANT: CUTWATER INVESTOR
SERVICES CORP.
a Delaware corporation
By: By:
Leilani I. Brown Chris Moros, CFA, Managing Director
City Clerk Chief Operating Officer
Date:
By:
Joseph Sevely, Managing Director
Chief Financial Officer
Attachments: Exhibit "A" — Council Policy F -1: Statement of Investment Policy
Exhibit "B" — Scope of Services
[END OF SIGNATURES]
Cutwater Investor Services Corp. Page 16
EXHIBIT "A"
Cutwater Investor Services Corp. Page 17
F -1
STATEMENT OF INVESTMENT POLICY
PURPOSE:
The City Council has adopted this Investment Policy (the Policy) in order to establish
the scope of the investment policy, investment objectives, standards of care, authorized
investments, investment parameters, reporting, investment policy compliance and
adoption, and the safekeeping and custody of assets.
This Policy is organized in the following sections:
A. Scope of Investment Policy
1. Pooling of Funds
2. Funds Included in the Policy
3. Funds Excluded from the Policy
B. Investment Objectives
1. Safety
2. Liquidity
3. Yield
C. Standards of Care
1. Prudence
2. Ethics and Conflicts of Interest
3. Delegation of Authority
4. Internal Controls
D. Banking Services
E. Broker /Dealers
F. Safekeeping and Custody of Assets
G. Authorized Investments
1. Investments Specifically Permitted
2. Investments Specifically Not Permitted
3. Exceptions to Prohibited and Restricted Investments
H. Investment Parameters
1. Diversification
2. Maximum Maturities
3. Credit Quality
4. Competitive Transactions
1. Portfolio Performance
J. Reporting
K. Investment Policy Compliance and Adoption
1. Compliance
2. Adoption
1
F -1
A. SCOPE OF INVESTMENT POLICY
1. Pooling of Funds
All cash shall be pooled for investment purposes. The investment income
derived from the pooled investment shall be allocated to the contributing
funds, net of all banking and investing expenses, based upon the proportion
of the respective average balances relative to the total pooled balance.
Investment income shall be distributed to the individual funds not less than
annually.
2. Funds Included in the Policy
The provisions of this Policy shall apply to all financial assets of the City as
accounted for in the City's Comprehensive Annual Financial Report listed
below.
a) General Fund
b) Special Revenue Funds
c) Capital Project Funds
d) Enterprise Funds
e) Internal Service Funds
f) Trust and Agency Funds
g) Permanent Endowment Funds
h) Any new fund created unless specifically exempted
If the City invests funds on behalf of another agency and, if that agency does not
have its own investment policy, this Policy shall govern the agency's
investments.
3. Funds Excluded from this Policy
Bond Proceeds - Investment of bond proceeds will be made in accordance
with applicable bond indentures.
B. INVESTMENT OBJECTIVES
The City's funds shall be invested in accordance with all applicable City policies
and codes, State statutes, and Federal regulations, and in a manner designed to
accomplish the following objectives, which are listed in priority order:
1. Safety
Preservation of principal is the foremost objective of the investment
program. Investments of the City shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio. The
objective shall be to mitigate credit risk and interest rate risk. To attain this
objective, the City shall diversify its investments by investing funds among
2
F -1
several financial institutions and a variety of securities offering independent
returns.
a) Credit Risk
The City shall minimize credit risk, the risk of loss due to the
failure of the security issuer or backer, by:
• Limiting investments in securities that have higher credit
risks, pre - qualifying the financial institutions,
broker /dealers, intermediaries, and advisers with which the
City will do business
• Diversifying the investment portfolio so as to minimize the
impact any one industry /investment class can have on the
portfolio
b) Interest Rate Risk
To minimize the negative impact of material changes in the market
value of securities in the portfolio, the City shall:
• Structure the investment portfolio so that securities mature
concurrent with cash needs to meet anticipated demands,
thereby avoiding the need to sell securities on the open
market prior to maturity
• Invest in securities of varying maturities
2. Liquidity
The City's investment portfolio shall remain sufficiently liquid to enable the
City to meet all operating requirements which might be reasonably
anticipated without requiring a sale of securities. Since all possible cash
demands cannot be anticipated, the portfolio should consist largely of
securities with active secondary or resale markets. A portion of the portfolio
also may be placed in money market mutual funds or LAIF which offer
same -day liquidity for short -term funds.
3. Yield
The City's investment portfolio shall be designed with the objective of
attaining a benchmark rate of return throughout budgetary and economic
cycles, commensurate with the City's investment risk constraints and the
liquidity characteristics of the portfolio. Return on investment is of
secondary importance compared to the safety and liquidity objectives
described above. The core of investments is limited to relatively low risk
securities in anticipation of earning a fair return relative to the risk being
assumed.
IL'
F -1
C. STANDARDS OF CARE
1. Prudence
The standard of prudence to be used for managing the City's investment
program is California Government Code Section 53600.3, the prudent
investor standard, which states that "when investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general
economic conditions and the anticipated needs of the agency, that a prudent
person acting in a like capacity and familiarity with those matters would use
in the conduct of funds of a like character and with like aims, to safeguard the
principal and maintain the liquidity needs of the agency."
The City's overall investment program shall be designed and managed with a
degree of professionalism that is worthy of the public trust. The City
recognizes that no investment is totally without risk and that the investment
activities of the City are a matter of public record. Accordingly, the City
recognizes that occasional measured losses may occur in a diversified
portfolio and shall be considered within the context of the overall portfolio's
return, provided that adequate diversification has been implemented and that
the sale of a security is in the best long -term interest of the City.
The Director of Finance and authorized investment personnel acting in
accordance with established procedures and exercising due diligence shall be
relieved of personal responsibility for an individual security's credit risk or
market price changes, provided that deviations from expectations are
reported in a timely fashion to the City Council and appropriate action is
taken to control adverse developments.
2. Ethics and Conflicts of Interest
Elected officials and employees involved in the investment process shall
refrain from personal business activity that could conflict with proper
execution of the City's investment program or could impair or create the
appearance of an impairment of their ability to make impartial investment
decisions. Employees and investment officials shall subordinate their
personal investment transactions to those of the City. In addition, City
Council members, the City Manager, and the Director of Finance shall file a
Statement of Economic Interests each year as required by California
Government Code Section 87203 and regulations of the Fair Political Practices
Commission.
11
F -1
3. Delegation of Authority
Authority to manage the City's investment program is derived from the
Charter of the City of Newport Beach section 605 (j). The Director of Finance
shall assume the title of and act as City Treasurer and with the approval of
the City Manager appoint deputies annually as necessary to act under the
provisions of any law requiring or permitting action by the City Treasurer.
The Director of Finance may then delegate the authority to conduct
investment transactions and to manage the operation of the investment
portfolio to other specifically authorized staff members. No person may
engage in an investment transaction except as expressly provided under the
terms of this Policy.
The City may engage the support services of outside investment advisors
with respect to its investment program, so long as it can be demonstrated that
these services produce a net financial advantage or necessary financial
protection of the City's financial resources. Such companies must be well
established and exceptionally reputable. Members of the staff of such
companies who will have primary responsibility for managing the City's
investments must have a working familiarity with the special requirements
and constraints of investing municipal funds in general and this City's funds
in particular. These firms must insure that the portion of the portfolio under
their management complies with various concentration and other constraints
specified herein, and contractually agree to conform to all provisions of
governing law and the collateralization and other requirements of this Policy.
4. Internal Controls
The Finance Director is responsible for establishing and maintaining a system
of internal controls. The internal controls shall be designed to prevent losses
of public funds arising from fraud, employee error, and misrepresentation by
third parties, unanticipated changes in financial markets, or imprudent action
by City employees and officers. The internal structure shall be designed to
provide reasonable assurance that these objectives are met. The concept of
reasonable assurance recognizes that (1) the cost of a control should not
exceed the benefits likely to be derived, and (2) the valuation of costs and
benefits requires estimates and judgments by management.
D. BANKING SERVICES
Banking services for the City shall be provided by FDIC insured banks approved
to provide depository and other banking services. To be eligible, a bank shall
qualify as a depository of public funds in the State of California as defined in
California Government Code Section 53630.5 and shall secure deposits in excess
5
F -1
of FDIC insurance coverage in accordance with California Government Code
Section 53652.
E. BROKER /DEALERS
Broker /Dealers will be selected on the basis of their expertise in public cash
management and their ability to provide service to the City's account.
Each approved broker /dealer must possess an authorizing certificate from the
California Commissioner of Corporations as required by Section 25210 of the
California Corporations Code.
To be eligible, a firm must meet at least one of the following criteria:
1. be recognized as Primary Dealers by the Federal Reserve Bank of New York
or have a primary dealer within their holding company structure, or
2. report voluntarily to the Federal Reserve Bank of New York, or
3. qualify under Securities and Exchange Commission (SEC) Rule 15c3 -1
(Uniform Net Capital Rule).
F. SAFEKEEPING AND CUSTODY OF ASSETS
The Director of Finance shall select one or more banks to provide safekeeping
and custodial services for the City. A Safekeeping Agreement approved by the
City shall be executed with each custodian bank prior to utilizing that bank's
safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services
for the City's account and the competitive pricing of their safekeeping related
services.
The purchase and sale of securities and repurchase agreement transactions shall
be settled on a delivery versus payment basis. All securities shall be perfected in
the name of the City. Sufficient evidence to title shall be consistent with modern
investment, banking and commercial practices.
All investment securities, except non - negotiable Certificates of Deposit, Money
Market Funds and local government investment pools, purchased by the City
will be delivered by either book entry or physical delivery and will be held in
third -party safekeeping by a City approved custodian bank, its correspondent
bank or its Depository Trust Company (DTC) participant account.
6
F -1
All Fed wireable book entry securities owned by the City shall be held in the
Federal Reserve system in a customer account for the custodian bank which will
name the City as "customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant
account and the custodian bank shall provide evidence that the securities are
held for the City as "customer."
G. AUTHORIZED INVESTMENTS
All investments and deposits of the City shall be made in accordance with
California Government Code Sections 16429.1, 53600 -53609 and 53630 - 53686.
Any revisions or extensions of these code sections will be assumed to be part of
this Policy immediately upon being enacted. The City has further restricted the
eligible types of securities and transactions. The foregoing list of authorized
securities and transactions shall be strictly interpreted. Any deviation from this
list must be pre approved by resolution of the City Council.
1. Investments Specifically Permitted
a) United States Treasury bills, notes, or bonds with a final maturity not
exceeding five years from the date of trade settlement.
b) Federal Instrumentaflty (government sponsored enterprise) debentures,
discount notes, callable and step -up securities, with a final maturity not
exceeding five years from the date of trade settlement.
c) Federal Agency - mortgage- backed securities and debentures with a final
maturity not exceeding five years from the date of trade settlement.
d) Mortgage- backed Securities and Asset - backed Securities limited to
mortgage- backed pass- through securities issued by a US government
agency, or consumer receivable pass- through certificates or bonds with a
final maturity not exceeding five years from the date of trade settlement.
Securities eligible for investment under this subdivision shall be issued by
an issuer whose debt is rated at least A or the equivalent by a Nationally
Recognized Statistical Rating Organization (NRSRO). The security itself
shall be rated at least AAA or the equivalent by a NRSRO. No more than
five percent (5 %) of the City's total portfolio shall be invested in any one
issuer of mortgage - backed and asset - backed securities listed above, and
the aggregate investment in mortgage- backed and asset - backed securities
shall not exceed twenty percent (20 %) of the City's total portfolio.
F -1
e) Medium -Term Notes issued by corporations organized and operating
within the United States or by depository institutions licensed by the
United States or any state and operating within the United States, with a
final maturity not exceeding four years from the date of trade settlement,
and rated at least A or the equivalent by a NRSRO. No more than five
percent (5 %) of the City's total portfolio shall be invested in any one issuer
of medium -term notes, and the aggregate investment in medium -term
notes shall not exceed thirty percent (30 %) of the City's total portfolio. In
addition, AAA rated FDIC - guaranteed corporate bonds are herein
authorized, within the aforementioned diversification and maturity
requirements.
f) Municipal Bonds: General and Revenue obligations of the State of
California and local agencies within the State. Municipal bonds must be
rated at least AA by two NRSROs with maturities not exceeding three
years. No more than five percent (5%) of the City's total portfolio shall be
invested in any one issuer and the aggregate investment in municipal
bonds shall not exceed fifteen percent (15 %) of the City's total portfolio.
g) Non - negotiable Certificates of Deposit and savings deposits with a
maturity not exceeding two years from the date of trade settlement, in
FDIC insured state or nationally chartered banks or savings banks that
qualify as a depository of public funds in the State of California as defined
in California Government Code Section 53630.5. Deposits exceeding the
FDIC insured amount shall be secured pursuant to California Government
Code Section 53652. No one issuer shall exceed more than five percent
(5 %) of the portfolio, and investment in negotiable and nonnegotiable
certificates of deposit shall be limited to thirty percent (30 %) of the
portfolio combined.
h) Negotiable Certificates of Deposit only with U.S. Banks whose underlying
securities are rated A -1 or the equivalent by a NRSRO and having assets
in excess of $10 billion, so as to insure security and a large, well -
established secondary market. Ease of subsequent marketability is further
ascertained prior to initial investment by examining currently quoted bids
by primary dealers and the acceptability of the issuer by these dealers. No
one issuer shall exceed more than five percent (5 %) of the portfolio, and
maturity shall not exceed two years. Investment in negotiable and non-
negotiable certificates of deposit shall be limited to thirty percent (30 %) of
the portfolio combined.
0
F -1
i) Prime Commercial Paper with a maturity not exceeding 270 days from the
date of trade settlement with the highest letter and number rating as
provided for by a NRSRO. The entity that issues the commercial paper
shall meet all of the following conditions in either sub - paragraph i. or sub-
paragraph ii. below:
i. The entity shall (1) be organized and operating in the United States as
a general corporation, (2) have total assets in excess of $500,000,000
and (3) have debt other than commercial paper, if any, that is rated at
least A or the equivalent by a NRSRO.
ii. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have
program wide credit enhancements, including, but not limited to, over
collateralization, letters of credit or surety bond and (3) have
commercial paper that is rated at least A -1 or the equivalent by a
NRSRO.
iii. No more than five percent (5 %) of the City's total portfolio shall be
invested in the commercial paper of any one issuer, and the aggregate
investment in commercial paper shall not exceed twenty five percent
(25 %) of the City's total portfolio.
j) Eligible Banker's Acceptances with a maturity not exceeding 180 days
from the date of trade settlement, drawn on and accepted by a commercial
bank whose senior long -term debt is rated at least A or the equivalent by a
NRSRO at the time of purchase. Banker's Acceptances shall be rated at
least A -1, P -1 or the equivalent at the time of purchase by a NRSRO. If the
bank has senior debt outstanding, it must be rated at least A or the
equivalent by a NRSRO. The aggregate investment in banker's
acceptances shall not exceed twenty percent (20 %) of the City's total
portfolio, and no more than five percent (5 %) of the City's total portfolio
shall be invested in banker's acceptances of any one bank.
k) Repurchase Agreements and Reverse Repurchase Agreements with a final
termination date not exceeding 30 days collateralized by U.S. Treasury
obligations or Federal Instrumentality securities listed in items 1 and 2
above with the maturity of the collateral not exceeding ten years. For the
purpose of this section, the term collateral shall mean purchased securities
under the terms of the City's approved Master Repurchase Agreement.
9
F -1
The purchased securities shall have a minimum market value including
accrued interest of one hundred and two percent (102°/x) of the dollar
value of the funds borrowed. Collateral shall be held in the City's
custodian bank, as safekeeping agent, and the market value of the
collateral securities shall be marked -to- the - market daily.
Repurchase Agreements and Reverse Repurchase Agreements shall be
entered into only with broker /dealers and who are recognized as Primary
Dealers with the Federal Reserve Bank of New York, or with firms that
have a Primary Dealer within their holding company structure. Primary
Dealers approved as Repurchase Agreement counterparties shall have a
short -term credit rating of at least A -1 or the equivalent and a long -term
credit rating of at least A or the equivalent. Repurchase agreement
counterparties shall execute a City approved Master Repurchase
Agreement with the City. The Finance Director shall maintain a copy of
the City's approved Master Repurchase Agreement and a list of the
broker /dealers who have executed same.
In addition, the City must own assets for more than 30 days before they
can be used as collateral for a reverse repurchase agreement. No more
than ten percent (10 %) of the portfolio can be involved in reverse repos.
1) State of California's Local Agency Investment Fund (LAIF), pursuant to
California Government Code Section 16429.1.
m) County Investment Funds: Los Angeles County provides a service similar
to LAIF for municipal and other government entities outside of Los
Angeles County, including the City. Investment in this pool is intended to
be used as a temporary repository for short -term funds used for liquidity
purposes. The Finance Director shall maintain on file appropriate
information concerning the county pool's current investment policies,
practices, and performance, as well as its requirements for participation,
including, but not limited to, limitations on deposits or withdrawals and
the composition of the portfolio. At no time shall more than five percent
(5 %) of the City's total irtivestment portfolio be placed in this pool.
n) Money Market Funds registered under the Investment Company Act of
1940 that (1) are "no- load" (meaning no commission or fee shall be
charged on purchases or sales of shares); (2) have a constant net asset
value per share of $1.00; (3) invest only in the securities and obligations
authorized in the applicable California statutes and (4) have a rating of at
10
F -1
least AAA or the equivalent by at least two NRSROs. The aggregate
investment in money market funds shall not exceed twenty percent (20 %)
of the City's total portfolio.
2. Investments Specifically Not Permitted
Any security type or structure not specifically approved by this policy is
hereby prohibited. Security types, which are thereby prohibited include, but
are not limited to: "exotic' derivative structures such as range notes, dual
index notes, inverse floating rate notes, leveraged or de- leveraged floating
rate notes, interest only strips that are derived from a pool of mortgages and
any security that could result in zero interest accrual if held to maturity, or
any other complex variable or structured note with an unusually high degree
of volatility risk.
The City shall not invest funds with the Orange County Pool.
3. Exceptions to Prohibited and Restricted Investments
The City shall not be required to sell securities prohibited or restricted in this
policy, or any future policies, or prohibited or restricted by new State
regulations, if purchased prior to their prohibition and /or restriction. Insofar
as these securities provided no notable credit risk to the City, holding of these
securities until maturity is approved. At maturity or liquidation, such monies
shall be reinvested on as provided by this policy.
H. INVESTMENT PARAMETERS
1. Diversification
The City shall diversify its investments to avoid incurring unreasonable risks
inherent in over - investing in specific instruments, individual financial
institutions or maturities. As such, no more than five percent (5 %) of the
City's portfolio may be invested in the instruments of any one non-
governmental issuer. This restriction does not apply to any type of Federal
Instrumentality or Federal Agency Security listed in Sections G1 b and G1 c
above. Nevertheless, the asset allocation in the investment portfolio should
be flexible depending upon the outlook for the economy, the securities
markets and the City's anticipated cash flow needs.
2. Maximum Maturities
To the extent possible, investments shall be matched with anticipated cash
flow requirements and known future liabilities. The City will not invest in
11
F -1
securities maturing more than five years from the date of trade settlement, unless
the City Council has by resolution granted authority to make such an investment
at least three months prior to the date of investment.
3. Credit Quality .
The City shall not purchase any security rated Al and / or A+ or below if that
security has been placed on "credit watch" for a possible downgrade by a
NRSRO.
In the event a security held by the City is the subject of a rating downgrade
which brings it below accepted minimums specified herein, or the security is
placed on negative credit watch, where downgrade could result in a rate drop
below acceptable levels, the investment advisor who purchased the security
will immediately notify the Director of Finance. The City shall not be required
to immediately sell such securities. The course of action to be followed will
then be decided on a case by case basis, considering such factors as the reason
for the rate drop, prognosis for recovery or further drop, and market price of
the security. The City Council will be advised of the situation and intended
course of action.
4. Competitive Transactions
All investment transactions shall be conducted competitively with authorized
broker /dealers. At least three broker /dealers shall be contacted for each
transaction and their bid or offering prices shall be recorded. If there is no
other readily available competitive offering, quotations for comparable or
alternative securities will be documented.
I. PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return
throughout budgetary and economic cycles, taking into account prevailing
market conditions, risk constraints for eligible securities, and cash flow
requirements. The performance of the City's investments shall be compared to
the average yield on the U.S. Treasury security that most closely corresponds to
the portfolio's weighted average effective maturity. When comparing the
performance of the City's portfolio, its rate of return will be computed net of all
fees and expenses.
J. REPORTING
Monthly, the Director of Finance shall submit to the City Council a report of the
investment earnings and performance results of the City's investment portfolio.
The report shall include the following information:
12
F -1
1. Investment type, issuer, date of maturity, par value and dollar amount
invested in all securities, and investments and monies held by the City;
2. A description of the funds, investments and programs;
3. A market value as of the date of the report (or the most recent valuation as to
assets not valued monthly) and the source of the valuation;
4. A statement of compliance with this Policy or an explanation for non-
compliance
K. INVESTMENT POLICY COMPLIANCE AND ADOPTION
1. Compliance
Any deviation from the policy shall be reported to Finance Committee at the
next scheduled meeting and to City Council as part of the monthly review of
the portfolio. The Director of Finance shall promptly notify Finance
Committee and City Council of any material change in the policy and any
modifications to the policy must be approved by Finance Committee and City
Council.
2. Adoption
The Treasurer shall render a written Statement of Investment Policy that shall
be reviewed at least annually by Finance Committee and City Council to
ensure its consistency with the overall objectives of preservation of principal,
liquidity and return, and its relevance to current law and financial and
economic trends. City Council shall consider the annual Statement of
Investment Policy and any changes therein at a public meeting.
This Policy was endorsed and adopted by the City Council of the City of
Newport Beach on September 28, 2010. It replaces any previous investment
policy or investment procedures of the City.
Adopted - April 6,1959
Amended - November 9,1970
Amended - February 11, 1974
Amended - February 9,1981
Amended - October 27,1986
Rewritten - October 22,1990
Amended - January 28,1991
Amended - January 24,1994
Amended - January 9,1995
13
Amended - April 22,1996
Corrected - January 27,1997
Amended - February 24,1997
Amended - May 26,1998
Reaffirmed - March 22,1999
Reaffirmed - March 14, 2000
Amended & Reaffirmed - May 8, 2001
Amended & Reaffirmed - April 23, 2002
Amended & Reaffirmed - April 8, 2003
Amended & Reaffirmed - April 13, 2004
Amended & Reaffirmed - September 13, 2005
Amended - August 11, 2009
Amended & Reaffirmed August 10, 2010
Amended & Reaffirmed -September 28, 2010
Reaffirmed - June 28, 2011
F -1
14
EXHIBIT "B"
Cutwater Investor Services Corp. Page 18
SCOPE OF SERVICES
The following Services are required:
• Consultant will provide investment research and supervision of the City's assets
under management and conduct a continuous program of investment, evaluation
and, when appropriate, sale and reinvestment of the City's Managed Funds assets.
• The Consultant shall continuously monitor investment opportunities of the City's
Funds.
• All investment advisory services must conform with state law, federal law, the
City's investment policy and the Prudent Expert Standard of care.
• Annually review investment policy and compare to applicable laws. Recommend
appropriate amendments annually to comply with applicable laws or minimize risk
with respect to stated investment objectives.
• Develop and execute an investment strategy consistent with the City's stated
investment policy objectives and parameters, applicable laws and an
understanding of the City's cash flow needs.
• Establish an appropriate performance benchmark and compare historical results to
benchmark.
• Regularly ensure portfolio structure matches the City's stated investment
objectives.
• Provide monthly reporting of each portfolio under management showing deposits,
withdrawals, purchases and sales (or maturities) of investments, earnings
received, and the value of assets held on the last business day of the month. The
statement shall be in the format and manner that is mutually agreed upon in writing
by the Consultant and the City.
• Provide credit analysis of investment instruments in portfolio.
• Provide assurance of portfolio compliance with applicable policies and laws.
• Immediately apprise Project Administrator of all instances of non - compliance with
applicable policies and laws.
Attend meetings with government officials as needed.
• Discuss cash flow needs and market strategy with Project Administrator quarterly.
• Assist the City with cash flow /maturity analysis as needed.
• The depository designated by the City (the "Custodian ") shall have custody of
cash, assets and securities of the City. The Consultant is not the Custodian of the
Cutwater Investor Services Corp. Page 19
assets and shall not take possession of or act as Custodian for the cash, securities
or other assets in the Managed Funds.
• Consultant will observe the instructions of the City with respect to broker /dealers
who are approved to execute transactions involving the City's Managed Funds and
in the absence of such instructions will engage broker /dealers who are reputable,
qualified and financially sound. In connection with the selection of such brokers
and dealers and the placing of such orders, the Consultant is directed to seek for
the City the most favorable execution and price.
• Regularly evaluate market risk and develop strategies that minimize the impact on
the portfolio.
• Immediately apprise staff of significant market events impacting portfolio security
or performance.
• Interact and communicate effectively with the City's Custodian bank. Consultant
shall provide trade instructions to Custodian Bank at least one business day prior
to settlement.
• Assist in credit monitoring of financial institutions with which the City conducts
business.
• Exercise diligence in the selection and use of broker /dealers.
• All investment transactions shall be conducted competitively. Documentation of
recorded bid or offering prices shall be maintained for a period of at least three (3)
years.
• Provide for online access to or electronic delivery of monthly statements.
ADDITIONAL SERVICES /TERMS
• Proxy Voting. Consultant will vote proxies on behalf of City unless otherwise
instructed. Consultant has adopted and implemented written policies and
procedures and will provide City with a copy of the proxy voting procedures upon
request. Consultant will provide information regarding how City's proxies were
voted upon request.
• Valuation. Consultant will value securities held in portfolios managed by
Consultant no less than monthly. Securities or investments in the portfolio will be
valued in a manner determined in good faith by Consultant to reflect fair market
value.
• Investment Advice. City recognizes that the opinions, recommendations and
actions of Consultant will be based on information deemed by it to be reliable, but
not guaranteed to or by it. Provided that Consultant acts in good faith, City
agrees that Consultant will not in any way be liable for any error in judgment or
Cutwater Investor Services Corp. Page 20
for any act or omission, except as may otherwise be provided for under the
Federal Securities laws, state law or other applicable laws.
Other Clients. It is further understood that Consultant may be acting in a similar
capacity for other institutional and individual clients, and that investments and
reinvestments for City's portfolio may differ from those made or recommended
with respect to other accounts and clients even though the investment objectives
may be the same or similar. Accordingly, it is agreed that Consultant will have no
obligation to purchase or sell for City's account any securities which it may
purchase or sell for other clients.
Additional Services. If and to the extent that the City requests the Consultant to
render services other than those to be rendered by the Consultant according to
this agreement, such additional services shall be compensated separately on
terms to be agreed upon between the City and the Consultant.
Cutwater Investor Services Corp. Page 21