Loading...
HomeMy WebLinkAboutC-5007 - PSA for Investment ManagerAMENDMENT NO. ONE TO PROFESSIONAL SERVICES AGREEMENT WITH PFM ASSET MANAGEMENT, LLC FOR INVESTMENT MANAGEMENT SERVICES THIS AMENDMENT NO. ONE TO PROFESSIONAL SERVICES AGREEMENT ("Amendment No. One") is made and entered into as of this 14th day of June, 2016 ("Effective Date"), by and between the CITY OF NEWPORT BEACH, a California municipal corporation and charter city ("City'), and PFM ASSET MANAGEMENT, LLC, a Delaware limited liability company ("Consultant'), whose address is 601 South Figueroa Street, Suite 4500, Los Angeles, CA 90017, and is made with reference to the following: RECITALS A. On November 22, 2011, City and Consultant entered into a Professional Services Agreement ("Agreement') to provide investment advisory services for certain cash and marketable securities as designated by the City ('Project'). B. The parties desire to enter into this Amendment No. One to extend the term of the Agreement to December 30, 2016, update notice provisions, and update Exhibit A (Council Policy F-1). NOW, THEREFORE, it is mutually agreed by and between the undersigned parties as follows: 1. TERM Section 1 of the Agreement is amended in its entirety and replaced with the following: "The term of this Agreement shall commence on the Effective Date, and shall terminate on December 30, 2016, unless terminated earlier as set forth herein." 2. NOTICES Section 26 of the Agreement is amended in its entirety and replaced with the following: "26.1 All notices, demands, requests or approvals, including any change in mailing address, 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. 26.2 All notices, demands, requests or approvals from Consultant to City shall be addressed to City at: Attn: Dan Matusiewicz 100 Civic Center Drive PO Box 1768 Newport Beach, CA 92658 fto 26.3 All notices, demands, requests or approvals from City to Consultant shall be addressed to Consultant at: Attn: Sarah Meacham, Director PFM ASSET MANAGEMENT, LLC 601 South Figueroa Street, Suite 4500 Los Angeles, CA 90017 Email: meachams@pfm.com P: 213-415-1631 M: 213-999-7203" 3. EXHIBIT A Exhibit A of the Agreement is amended in its entirety and replaced with Exhibit A- 1, attached hereto and incorporated herein by reference. 4. INTEGRATED CONTRACT Except as expressly modified herein, all other provisions, terms, and covenants set forth in the Agreement shall remain unchanged and shall be in full force and effect. [SIGNATURES ON NEXT PAGE] PFM Asset Management Page 2 IN WITNESS WHEREOF, the parties have caused this Amendment No. One to be executed on the dates written below. APPROVED AS TO FORM: CITY ATTOE OFFICE Date: By: z. Aaron C. Harp r c6�uuw City Attorney ATTEST: Date: By: 0 Leilani I. Brown City Clerk CITY OF NEWPORT BEACH, a California municipal corporation Date: G, I A I I to By: ",I\By:, j -.) fes _ Dave iff City Manager CONSULTANT: PFM Asset Management, LLC, Date: Delaware limited liability company Signed in Counterpart Bv: Nancy Jones Managing Director Date: By: Signed in Counterpart Lauren Brant Managing Director [END OF SIGNATURES] Attachments: Exhibit A-1 — Council Policy F-1: Statement of Investment Policy PFM Asset Management Page 3 IN WITNESS WHEREOF, the parties have caused this Amendment No. One to be executed on the dates written below. APPROVED AS TO FORM: CITY ATTORf�EY'S OFFICE Date: 6 I /A M Aaron C. Harp cMna.iwlw City Attorney ATTEST: CITY OF NEWPORT BEACH, a California municipal corporation Date: By: Dave Kiff City Manager CONSULTANT: PFM Asset Management, LLC, a Delaware limited liability company By: U Leilani I. Brown Nancy Jones City Clerk Managing Directo Date: 1 By: Lauren ra Managing Director [END OF SIGNATURES] Attachments: Exhibit A-1 —Council Policy F-1: Statement of Investment Policy PFM Asset Management Page 3 EXHIBIT A-1 COUNCIL POLICY F-1: STATEMENT OF INVESTMENT POLICY PFM Asset Management Page A-1 STATEMENT OF INVESTMENT POLICY PURPOSE: F-1 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, including; 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 2 F-1 among 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 advisors 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 Finance Director 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 Finance Director 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 Finance Director 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 Finance Director 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 registered under the Investment Advisors Act of 1940, 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. Selection and retention of broker/dealers by investment advisors shall be at their sole discretion and dependent upon selection and retention criteria as stated in the Uniform Application for Investment Advisor Registration and related Amendments (SEC Form ADV 2A). 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. 5 F-1 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 of FDIC insurance coverage in accordance with California Government Code Section 53652. E. BROKER/DEALERS In the event that an investment advisor is not used to purchase securities, the City will select broker/dealers 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 Califdrnia 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 Finance Director 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 book entry and will be held in third -party safekeeping by a 51 F-1 City approved custodian bank, its correspondent bank or its Depository Trust Company (DTC) participant account. 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. In the event an apparent discrepancy is found between this Policy and the Government Code, the more restrictive parameter(s) will take precedence. Where this section specifies a percentage limitation for a particular security type, that percentage is applicable only at the date of purchase. 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. There is no limitation as to the percentage of the City's portfolio that may be invested in this category. 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. There is no limitation as to the percentage of the portfolio that can be invested in this category. c) Federal Agency Obliag tions for which the full faith and credit of the United States are pledged for the payment of principal and interest and which have a final maturity not exceeding five years from the date of trade settlement. There is no limitation as to the percentage of the portfolio that can be invested in this category. 7 F-1 d) Mortgage-backed Securities, Collateralized Mortgage Obligation (CMO) 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 an 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. 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 five years from the date of trade settlement, and rated at least "A" or the equivalent by an 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. f) Municipal Bonds: including bonds issued by the City of Newport Beach, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the City or by a department, board, agency, or authority of the City. State of California registered warrants or treasury notes or bonds, including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. H F-1 Bonds, notes, warrants, or other evidences of indebtedness of a local agency within California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. In addition, these securities must be rated at least "A" or the equivalent by a NRSRO with maturities not exceeding five years from the date of trade settlement. No more than five percent (5%) of the City's total portfolio shall be invested in any one municipal issuer. In addition, the aggregate investment in municipal bonds may not exceed thirty percent (30%) of the 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 a nationally or state - chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally licensed or state -licensed branch of a foreign bank whose senior long-term debt is rated at least "A", or the equivalent, or short-term debt is rated at least "A-1" or the equivalent by an NRSRO and having assets in excess of $10 billion, so as to ensure security and a large, well-established secondary market. Ease of subsequent marketability should be 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. E F-1 i) Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade settlement that is rated "A-1", or the equivalent, by an 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: L 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 an 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 an 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 an NRSRO at the time of purchase. Banker's Acceptances shall be rated at least "A-1", or the equivalent at the time of purchase by an NRSRO. If the bank has senior debt outstanding, it must be rated at least "A" or the equivalent by an NRSRO. The aggregate investment in banker's acceptances shall not exceed forty percent (40%) 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. The purchased 10 F-1 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 repurchase agreements. 1) State of California's Local Agency Investment Fund (LAIR 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 11 F-1 securities and obligations authorized in the applicable California statutes and (4) have a rating of at 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 and no more than ten percent (10%) of the City's total portfolio shall be invested in any one fund. o) Suyranationals which are United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), or Inter -American Development Bank (IADB), with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Investments under this paragraph shall be rated "AA", its equivalent, or better by at least one NRSRO. No more than ten percent (10%) of the City's total portfolio shall be invested in any one issuer of supranational obligations. Purchases of supranational obligations shall not exceed twenty percent (20%) of the investment portfolio of the City. 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 as provided by this policy. 12 F-1 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 issuer, except governmental issuers, investment pools and Money Market Funds. This restriction does not apply to any type of Federal Instrumentality or Federal Agency Security listed in Sections Gl b and Gl 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 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 an NRSRO. Each investment manager will monitor the credit quality of the securities in their respective portfolio. 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 Finance Director. 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 Investment advisors shall make best effort to price investment transactions on a competitive basis with broker/dealers selected consistent with their practices disclosed in form ADV 2A filed with the 13 F-1 SEC. Where possible, 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, the investment advisor shall make their best efforts to document quotations for comparable or alternative securities. If qualitative characteristics of a transaction, including, but not limited to, complexity of the transaction, or sector expertise of the broker, prevent a competitive selection process, investment advisors shall use brokerage selection practices as described above. 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 total return of a benchmark that most closely corresponds to the portfolio's duration, universe of allowable securities, risk profile, and other relevant characteristics. When comparing the performance of the City's portfolio, its rate of return will be computed consistent with Global Investment Performance Standards (GIPS). J. REPORTING Monthly, the Finance Director shall produce a treasury report of the investment portfolio balances, transactions, risk characteristics, earnings, and performance results of the City's investment portfolio available to City Council and the public on the City's Website. The report shall include the following information: 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 as soon as practical, but no later than the next scheduled Finance Committee meeting. Upon recommendation of the Finance Committee, the Finance Director shall review deviations from policy with the City Council. 14 F-1 2. Adoption The Finance Director shall review the Investment Policy with the Finance Committee at least annually 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. The Finance Director shall review the Investment Policy with City Council at a public meeting if there are changes recommended to the Investment Policy. This Policy was endorsed and adopted by the City Council of the City of Newport Beach on September 8, 2015. 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 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 Amended & Reaffirmed - October 9, 2012 Amended - August 13, 2013 Amended - September 8, 2015 15 CERTIFICATE OF INSURANCE CHECKLIST City of Newport Beach This checklist is comprised of requirements as outlined by the City of Newport Beach.'` Date Received: 6/14/16 Dept./Contact Received From: Marlene Date Completed: 6/17/16 Sent to: Marlene By: Alicia Company/Person required to have certificate: PFM Asset Management, LLC. . Type of contract: All Other I. GENERAL LIABILITY EFFECTIVE/EXPIRATION DATE: 11/30/15-11/30/16 A. INSURANCE COMPANY: Great Northem Insurance Company B. AM BEST RATING (A-: VII or greater): A++: XV C. ADMITTED Company (Must be California Admitted): Is Company admitted in California? ® Yes ❑ No D. LIMITS (Must be $1 M or greater): What is limit provided? 1M/2M E. ADDITIONAL INSURED ENDORSEMENT— please attach ® Yes ❑ No F. PRODUCTS AND COMPLETED OPERATIONS (Must (What is limits provided?) include): Is it included? (completed Operations status does F. PRIMARY & NON-CONTRIBUTORY WORDING (For Waste not apply to Waste Haulers or Recreation) ❑ Yes ❑ No G. ADDITIONAL INSURED FOR PRODUCTS AND G. HIRED AND NON -OWNED AUTO ONLY: COMPLETED OPERATIONS ENDORSEMENT (completed H. NOTICE OF CANCELLATION: Operations status does not apply to Waste Haulers) ❑ Yes ❑ No H. ADDITIONAL INSURED WORDING TO INCLUDE (The City its officers, officials, employees and volunteers): Is it included? ® Yes ❑ No I. PRIMARY & NON-CONTRIBUTORY WORDING (Must be included): Is it included? ® Yes ❑ No J. CAUTION! (Confirm that loss or liability of the named insured is not limited solely by their negligence) Does endorsement include "solely by negligence" wording? ❑ Yes ®No K. ELECTED SCMAF COVERAGE (RECREATION ONLY): ® N/A ❑ Yes ❑ No L. NOTICE OF CANCELLATION: ❑ N/A ® Yes ❑ No II. AUTOMOBILE LIABILITY EFFECTIVE/EXPIRATION DATE: 11/30/15-11/30/16 A. INSURANCE COMPANY: Federal Insurance Company B. AM BEST RATING (A-: VII or greater) A++: XV C. ADMITTED COMPANY (Must be California Admitted): Is Company admitted in California? ® Yes ❑ No D. LIMITS - If Employees (Must be $11M min. BI & PD and $500,000 UM, $2M min for Waste Haulers): What is limits provided? IM E LIMITS Waiver of Auto Insurance / Proof of coverage (if individual) (What is limits provided?) N/A F. PRIMARY & NON-CONTRIBUTORY WORDING (For Waste Haulers only): E N/A ❑ Yes ❑ No G. HIRED AND NON -OWNED AUTO ONLY: ❑ N/A ❑ Yes E No H. NOTICE OF CANCELLATION: ❑ N/A ® Yes ❑ No III. WORKERS' COMPENSATION EFFECTIVE/EXPIRATION DATE: 1/1/16-1/1/17 A. INSURANCE COMPANY: Great Northern Insurance Company B. AM BEST RATING (A-: VII or greater): A++: XV C. ADMITTED Company (Must be California Admitted): ® Yes ❑ No D. WORKERS' COMPENSATION LIMIT: Statutory ® Yes ❑ No E. EMPLOYERS' LIABILITY LIMIT (Must be $1 M or greater) 1 M F. WAIVER OF SUBROGATION (To include): Is it included? ❑ Yes ❑ No G. SIGNED WORKERS' COMPENSATION EXEMPTION FORM: ® N/A ❑ Yes ❑ No H. NOTICE OF CANCELLATION: ❑ N/A ® Yes ❑ No ADDITIONAL COVERAGE'S THAT MAYBE REQUIRED IV. PROFESSIONAL LIABILITY EFF: 11/30/15 CARRIER: ENDURANCE AMERICAN SPECIALTY INS. RATING: A: XV NON -ADMITTED LIMIT: $25M ❑ N/A ® Yes ❑ No V POLLUTION LIABILITY ® N/A ❑ Yes ❑ No V BUILDERS RISK ® N/A ❑ Yes ❑ No HAVE ALL ABOVE REQUIREMENTS BEEN MET? ® Yes ❑ No IF NO, WHICH ITEMS NEED TO BE COMPLETED? Approved: Agent of Alliant Insurance Services Broker of record for the City of Newport Beach 6/17/16 Date RISK MANAGEMENT APPROVAL REQUIRED (Non -admitted carrier rated less than _; Self Insured Retention or Deductible greater than $ ) ❑ NIA ❑ Yes ❑ No Reason for Risk Management approval/exception/waiver: Approved: Risk Management Date * Subject to the terms of the contract. PROFESSIONAL SERVICES AGREEMENT WITH PFM ASSET MANAGEMENT FOR INVESTMENT MANAGER THIS AGREEMENT FO PROFES I , AL TERVICES ( "Agreement ") is made and entered into as of this day of V� ✓ {(M ✓, 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. 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 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, attorneys 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: 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. PFM 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 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 tress uryaccounting 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. 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: rown City Clerk Attachments: 1)/7y ' '! CITY OF NEWPORT BEACH, A California 7unicipal corporation Date: By: Michael F. Henn Mayor CONSULTANT: PFM ASSET MANAGEMENT a Delaware jimiteq liability Company Date:—I'-,? 2 �� Marty Margolis, Managing Director and Chief Investment Officer Date: I �'1 1a 1 �\ By: Nancy Jones , Ma a i Director 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. Tlus 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 maybe placed in money market mutual funds or LAIF wluch 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. hl 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. 2 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 mulucipal 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 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 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. FA 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 conunercial 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) Ehgible 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 histrumentality 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. W 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. hrvestment 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 fonds, 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 o 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. e 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 C-500 EWPO CITY OF BYTHEWVOOUNC� Rr CRY OF NEWPORT BEA NEWPORT BEACH City Council Staff Report Agenda Item No. 12 November 22. 2011 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Finance Department Tracy McCraner, Finance Director/Treasurer 949 - 644 -3123, tmccraner(cDnewportbeachca.gov PREPARED BY: Dan Matusiewicz, Deputy Finance Director APPROVED: G 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. DISCUSSION: Investment Advisor Contract Approvals November 22, 2011 Page 2 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. Qualifications and Ex edence 15% Management Approach & Discipline 30% Value Added Services 30% Fees 25% Tomil i� 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: Appmximated 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 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-11"). 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 n 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 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 PFM Asset Management Page 5 S 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 /investmentpoIicy. 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 C_ 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. 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 O 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 - aired 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. PFM Asset Management Page 9 0 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 a 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 treasu_ ryaccounting @newoartoeachca.g,ov_ 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. [oil I Eel *? 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 la 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 I% 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. (< yAT /= I:7t1- 31111V7 PFM Asset Management Page 14 t4 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 LAUD 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 i5 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: 1111,10/11 Aaron HaFo City Attorney ATTEST: Date: By: Leilani I. Brown City Clerk Attachments: CITY OF NEWPORT BEACH, A California municipal corporation Date: By: Michael F. Henn Mayor CONSULTANT: PFM ASSET MANAGEMENT a Delaware limited liability Company Date: Bv: Marty Margolis, Managing. Director and Chief Investment Officer Date: By: Nancy Jones , Managing Director Exhibit "A" — Council Policy F -1: Statement of Investment Policy Exhibit "B" - Scope of Services [END OF SIGNATURES] PFM Asset Management Page 16 IG EXHIBIT "A" PFM Asset Management Page 17 i-1 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. Ftmds 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 IR 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 0 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 7 iF 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 wluch 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 .1 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 W 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 156-1 (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. ­Tlie 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. G FEW F -i 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 au 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. N -1S 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) Efig�ble 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. E 5r 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 slioit -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 Cify 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 GI 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 19 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 u e 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. T. 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 portfolios 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 .a9 F -1 1. Investment type, issuer, date of maturity, par value and dollar amount invested in all securities, and investments and mordes 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 _.Ariieirided - 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 31 E'er i8DIT "B99 PFM Asset Management Page 18 a-% 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. A 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. a 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 -85 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 2091, 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. `� 6 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 3'I 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. Chandler Asset Management Page 3 an 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 Lt'a 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 11 J 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. iC!lf►6'ill1Ne1►` Q4 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 LL1 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 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 M 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.gov until otherwise notified. 13. 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. 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 U.0 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 rrrl 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 C, 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 natP- ': t By. ' Aaron Harp City Attorney ATTEST: Date: CITY OF NEWPORT BEACH, A California municipal corporation Date: By: Michael F. Henn Mayor CONSULTANT: CHANDLER ASSET MANAGEMENT, INC. A California corporation By: By: 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 C�t Y.'R7TUBIT 66 ,A 99 Chandler Asset Management Page 17 CZ -% 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 S3 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 W S4 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 M9 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. 111 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 57 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 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 Instrumen tality (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 Sg 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 meditun -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 M 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. W !a F -I 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 4a 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 fluids 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 (,5 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 G4 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 Fiance 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 Fiance 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 �S 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 z EXHIBIT "B" Chandler Asset Management Page 18 (�-1 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 a assets and shall not take possession of or act as Custodian for the cash, securities or other assets in the Managed Funds. • Consultant will obsenie 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. G Exercise diligence in the selection and use of broker /dealers. e 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. e 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 (.C3 for any act or omission, except as may otherwise be provided for under the Federal Securities laws, state law or other applicable laws. 3 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 to 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. -I i 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 _-) -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. 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 -) Il 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 -ender 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 --) q 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 /investmentpoIicy. 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 `ter_ 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 1-1Q 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 1Iq 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 v� 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 treasurgaccouniing_a ngyy_pgrtbeachca.go_v until otherwise notified. Ii&9> 916111 91BIQkI7_111111kVA 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 a 22. WITHHOLDINGS City may withhold payment to Consultant of any disp_+ted 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. CITYIS 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 ea City of Newport Beach 3300 Newport Boulevard PO Box 1758 Newport Beach, C.A. 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 2 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. r<��- U► i L� i< I �l i r i l�� � �� 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 R4 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. 38. 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 8S 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 i /10 A! By: Aaron Har City Attorney ATTEST: Date: Bv: Leilani I. Brown City Clerk (for CITY OF NEWPORT BEACH, A California municipal corporation Date: By: Michael F. Henn Mayor CONSULTANT: CUTWATER INVESTOR SERVICES CORP. a Delaware corporation Date: By: Chris Moros, CFA, Managing Director Chief Operating Officer 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 EG EXHIBIT "A" Cutwater Investor Services Corp. Page 17 M- 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-11 1-11 L 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 a Fi 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 minim ;ze 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 lonb 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 9t r -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 �l � 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 156-1 (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 a3 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 bark 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 94 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. D qS 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 bi 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. E in 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 p () ' y securities and obligations value per share o 1.00; 3 invest only m the securr authorized in the applicable California statutes and (4) have a rating of at 10 9l 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. Tlus 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 ran. 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 muumums 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 a. 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 ton 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 14 Int EXHIBIT "B" Cutwater Investor Services Corp. Page 18 lob., SCOPE OF SERVICES Tire following Services are required: 9 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. a The Consultant shall continuously monitor investment opportunities of the City's Funds. a All investment advisory services must conform with state law, federal law, the City's investment policy and the Prudent Expert Standard of care. m 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. o 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 19 103 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. e 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. a 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 l,oy 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 (OS