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MASTER CUSTODY AGREEMENT CITY OF CLEARWATER EMPLOYEE'S PENSION FUND MASTER CUSTODY AGREEMENT THIS AGREEMENT is made this 1..l4day of ~, 2002, between THE BOARD OF TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES' PENSION FUND (the "Board"), and THE NORTHERN TRUST COMPANY (the "Northern"), an Illinois corporation, of Chicago, Illinois. The Board enters into this agreement pursuant to its powers and duties set forth in Ch. 2 Administration, Article 5 Employee Benefits, Division 3, Employee Pension Plan. The Northern shall establish an account (the "Account") to hold such assets of the City of Clearwater Employees' Pension Fund (the "Fund") as are transferred to it from time to time. The Board shall direct Northern to establish one or more separate accounts ("Separate Account") for cash, securities and other property of the Fund received by Northern from time to time. Each Separate Account shall be managed by either the Board or an investment manager appointed by the Board. By written direction the Board will designate assets of the Account to be allocated to each Separate Account and direct Northern to transfer assets of the Account to or from each Separate Account. With respect to cash deposited in Northern's banking department, the Separate Accounts are maintained as a matter of convenience and, therefore, Northern may aggregate the Separate Accounts for purposes of its depository requirements. Northern shall appoint as its agent a foreign custodian to hold the assets of any Separate Account established by the Board for investment in foreign securities. Until advised to the contrary Northern may assume that the assets of the Fund are exempt from taxation under the Internal Revenue Code and the Board will promptly inform Northern of the loss of the tax exempt status of the Fund. Northern's duties shall be as follows: 1. Northern shall hold and safeguard the cash, securities, and other property in the Account and shall collect the income and principal thereof when due. 2. Northern may hold securities or other property of each Separate Account through an agent or in the name of its nominee or in a corporate depository or federal book entry account system or other form as it deems best. Northern shall: A. For U.S. assets and assets denominated in currencies of any foreign countries from which Northern is able to forward proxies on a timely basis, forward any proxies relating to such securities or property, to the Board; B. For assets denominated in currencies of any foreign countries from which Northern is unable to forward proxies on a timely basis, vote any proxies relating to such securities or property, for management, unless otherwise directed by the investment manager, the Board, or the Board's designee. City-of-Clearwater-cus5.doc/1 1-15-02 3. With respect to a Separate Account managed by the Board, all security transactions shall be placed through brokers of its choice. Each investment manager appointed by the Board is authorized to execute security trades directly with respect to its respective Separate Account. Northern is hereby directed to receive and pay for securities purchased in accordance with industry practice and to deliver in accordance with industry practice, securities sold by the Board or by an investment manager. Under no circumstance shall Northern pay any money to an investment manager except pursuant to written instructions by the Board. Northern shall issue its operating instructions to the Board and an investment manager as it deems appropriate. 4. Northern is authorized, but shall not be obligated, to credit the Account on payable date with interest, dividends, distributions, redemptions or other amounts due. Otherwise, such amounts will be credited to the Account on the date such amounts are actually received by Northern and reconciled to the Account. In cases where Northern has credited the Account with such amount prior to actual collection and reconciliation, the Board acknowledges that Northern shall be entitled to recover any such credit on demand and further agrees that Northern may reverse such credit as of payable date if and to the extent that it does not receive such amounts in the ordinary course of business. 5. Northern is authorized, but shall not be obligated, to advance its own funds to complete transactions in cases where adequate funds may not otherwise be available to the Account. In such situations Northern shall be entitled to repayment ofthe amounts advanced plus its cost of providing funds. 6. Northern may execute and deliver as agent of the Board and pursuant to the Board's directions or the directions of an investment manager any assignments, stock or bond powers or other documents or instruments and, in particular (a) may sell, assign, transfer, or make other disposition of any security or other property in the Account in accordance with industry practice; (b) may obtain any payment due; and (c) may make payment in accordance with industry practice for any securities purchased or otherwise acquired. In connection therewith, Northern may execute any and all documents associated with the activities set forth in the preceding sentence by signing as agent of the Board or as its attorney-in-fact pursuant to this authorization. 7. Subject to contrary instructions from the Board or an investment manager, Northern shall invest United States Dollars held by Northern in the United States in a Separate Account on a short-term basis pending permanent investment. Northern is authorized to invest such United States Dollars so held in bonds, notes, and other evidences of indebtedness including investments in United States Treasury Bills, commercial paper, bankers' acceptances and certificates of deposit and undivided interests or participations therein, collective or commingled funds and regulated investment companies. Notwithstanding any other provision of this agreement Northern may invest United States Dollars held by Northern in the United States in a Separate Account in its collective short term investment fund or pursuant to the direction of the Board or an investment manager in any other collective fund maintained pursuant to Northern's collective trust fund which is maintained as a medium for the collective investment of funds of pension, profit sharing or other employee benefit plans including government plans, and which is qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, and any assets invested 2 in such collective trust fund shall be held and invested pursuant to all the terms and conditions of the trust agreement or declaration of trust establishing such trust, which are hereby incorporated by reference and shall prevail over any contrary provision of this agreement. For currencies held by Northern outside the United States, including United States Dollars, Northern shall invest cash as directed by the Board, or an investment manager, which may include interest bearing accounts of a foreign custodian. 8. If a corporation in which the Account holds common stock declares a dividend in stock, and such payment results in a fractional share, Northern shall sell such fraction. 9. In the event the Board invests, or authorizes any investment manager to invest, the assets of any Separate Account in financial futures or options on futures, the Board shall direct Northern: (i) to transfer initial margin to a futures commission merchant or third party safekeeping bank as directed by the Board or the investment manager; and (ii) to payor demand variation margin in accordance with industry practice to or from the designated futures commission merchant based on daily marking to market calculations. Northern shall have no investment or custodial responsibility with respect to assets of any Separate Account transferred to a futures commission merchant or safekeeping bank. 10. In the event that the Board or an investment manager engage in any type of options transactions including, but not limited to, put and call options, Northern is authorized to sign any escrow receipt presented to you as custodian of the assets of a Separate Account which may serve as collateral for such transaction, and are directed to adhere to the provisions of such escrow receipt, the provisions of which shall control in the event of a conflict with the terms of this agreement. 11. In the event that the Board engages, or authorizes any investment manager to engage, in short sale transactions with respect to any Separate Account, Northern's responsibilities shall be limited to putting the short positions on record, and accepting or transferring assets to or from the Separate Account, as the Board or the investment manager directs. Northern shall have no responsibility to calculate realized gains or losses, nor shall Northern have any investment or custodial responsibility with respect to cash or securities held by brokers or others, in connection with such transactions. 12. Pursuant to the Board's direction or the direction of an investment manager, and subject to Northern's consent, Northern shall enter into such additional procedural, safekeeping, custody, or other agreements with brokers, futures commission merchants, safekeeping banks or others as the Board or the investment manager may deem necessary to effectuate any futures, options on futures, options or short sale transactions undertaken with respect to any Separate Account, and Northern shall establish such collateral accounts (which may be sub-accounts of a Separate Account) as the Board or an investment manager shall direct. The Board or the investment manager shall approve the form and content of any such additional agreements, and the provisions of such agreements shall control in the event of a conflict with this agreement. Northern shall have no investment or custodial responsibility hereunder for any assets held pursuant to any such agreement. 3 13. Northern's duties shall be limited to those expressly set forth in this agreement. Except as otherwise provided above in Section 7 regarding the short term investment of cash consisting of U.S. Dollars, Northern shall have no obligation to make any investment review or to consider the propriety of holding or selling any property in a Separate Account. Northern shall be responsible for any loss to the Account or the Fund to the extent that such loss results from Northern's failure to prudently perform its duties under this agreement with the care, skill, prudence, and diligence under the circumstances then prevailing which persons of prudence, acting in a like capacity and familiar with such matters would use. 14. Northern shall furnish the Board with periodic statements of account showing all receipts and disbursements and the property in each Separate Account and the market value thereof. A statement of account shall be approved by the Board by written notice delivered to Northern or by failure to object to the statement of account within eighteen months of the date upon which the statement of account was delivered to the Board. To the extent permitted by law, the approval of a statement of account shall constitute a full and complete discharge to Northern (except with respect to claims of fraud or willful misconduct by Northern) as to all matters set forth in that statement of account. In no event shall Northern be precluded from having its statement of account settled by a judicial proceeding. 15. This Account may be terminated at any time upon 30 days written notice from the Board to Northern or upon 90 days written notice from Northern to the Board and upon the expiration of such notice period, Northern shall promptly deliver all cash, securities and other property then in the Account to the Board or in accordance with its order. 16. The Board may appoint Northern a lending fiduciary whereupon Northern shall lend securities of the Account held by it pursuant to a written agreement with the Board. The terms of the written agreement shall be consistent with the Federal Financial Institutions Examination Council Supervisory Policy on Securities Lending. The written agreement shall direct Northern to enter into lending agreement with the borrower or borrowers. Northern shall transfer the securities to the borrower and invest the collateral received in exchange for the securities. Notwithstanding anything in this agreement to the contrary the borrower shall have the authority and responsibility to vote securities it has borrowed. Northern shall maintain a record of the market value of the loaned securities and shall be paid reasonable compensation as agreed upon between it and the Board. 17. Northern shall be reimbursed for all expenses incurred in the management and protection of the Account, including accounting and legal fees and shall receive such reasonable compensation for its services as agreed upon from time to time between it and the Board. Those items of expense and compensation shall be paid from the Account unless previously paid by the Board. The initial charges for compensation for custodial services are attached as Appendix A. 18. Northern shall make distributions from the Account to such persons, in such amounts, at such times and in such manner as the Board shall from time to time direct in writing and the Board warrants that any such directions shall be in compliance with the plan or plans underlying the respective pension funds whose assets comprise the Fund. Northern shall not be liable for any distribution made in accordance with the directions of the Board without actual notice or knowledge of the changed condition or status of the recipient. If any distribution made 4 by Northern is returned unclaimed, it shall notify the Board and shall dispose of the distribution as the Board directs. Pursuant to making distributions, Northern may deposit cash in any depository including its own banking department, without any liability for the payment of interest thereon, notwithstanding your receipt of "float" from such uninvested cash. 19. The provisions of the law of Florida shall govern the validity, interpretation and enforcement of this agreement. The invalidity of any part of this agreement shall not affect the remaining parts hereof. This agreement may be modified at any time by a writing signed by the parties hereto. With respect to the services to be performed by Northern under this agreement, the City Request for Proposal dated 10-17-02, Calv.1 (the "RFP") and the Proposal from Northern to the Board, dated June 13,2002 ("Northern's Proposal"), are hereby incorporated herein by reference and, in the event of a conflict between the provisions of such documents or an interpretation of their provisions is required, the provisions of the agreement shall first be considered and shall have priority, then the provisions ofthe RFP and Northern's Proposal. The Board and Northern agree that any civil action arising out of or related to this agreement shall be brought in Pinellas County, Florida. 20. Attached as Appendix B is a resolution of the Board indicating the person or persons authorized to direct Northern with respect to the actions so identified. Northern may conclusively rely on a direction of the persons identified in Appendix B as having authority to take such action until further notice. Notices to the Board shall be sent to: Finance Director P.O. Box 4748 City of Clearwater Florida, 33758 21. The Board authorizes Northern to payor withhold any income or other taxes payable on investments or transactions of the Account and, on a best efforts basis, to file for and obtain refunds of any taxes withheld to which the Account may be entitled under applicable tax treaties, laws and regulations. The Board shall provide Northern with any documentation and information it may reasonably require to perform its duties under this paragraph, and Northern may rely upon such documentation and information without further inquiry. 22. Section 287.113, Florida Statutes, provides that a person or affiliate who has been placed on the convicted vendor list following a conviction for a public entity crime may not submit a bid on a contract to provide any goods or services to a public entity, may not submit a bid on a contract with a public entity for the construction or repair of a public building or public work, may not submit bids on leases of real property to a public entity, may not be awarded or perform work as a contractor, supplier, subcontractor, or consultant under a contract with any public entity, and may not transact business with any public entity in excess of the threshold 5 amount provided in Section 287.017, Florida Statues, for CATEGORY TWO for a period of36 months from the date of being placed on the convicted vendor list. 23. By execution of this agreement, Northern acknowledges that by virtue of its appointment as custodian of assets of the Fund, a retirement plan governed by the laws of the State of Florida, it is a fiduciary of the Fund pursuant to ~112.656(2), Florida Statutes. In addition, Northern acknowledges that to the extent it exercises discretionary authority or control (as described in Section 3(21)(A) of the Employee Retirement Income Security Act of 1974) with respect to the investment of United States Dollars held in the Account, pursuant to Section 7 of this agreement, it is a fiduciary of the Fund with respect to such services it provides. Northern agrees that it will perform all services under this agreement with the care, skill, prudence, and diligence under the circumstances then prevailing which persons of prudence, acting in a like capacity and familiar with such matters would use. In the event the Board appoints Northern a lending fiduciary pursuant to a separate agreement as provided in Section 16 of this agreement, Northern acknowledges that it will be a fiduciary in the manner and to the extent provided in such separate written agreement. IN WITNESS WHEREOF, the Board and Northern have executed this agreement by their respective duly authorized officers the day and year first above written. Approved as to form: By,1Al THE BOARD OF TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES' PENSION FU By: Pamela K. Akin City Attorney By: Chairperson ATTEST: ~~ad:&~ ':i'dynt1 a.,. GouG.~u ". ' .: fl ~ City Cl~rk: THE NORTHERN ,?,UST COMPANY By: ~l J~ Its: VICE PilES l f)&v1 6 Appendix A City of Clearwater Master Custodian Search Northern Trust - Revised Fee Schedule November 15,2002 Below are four scenarios based on assumptions that the City of Clearwater would or would not participate in Northern Trust's Securities Lending Program for either the Pension Fund and/or the Cash Management Investment Pool portfolio: Scenario 1: Pension Fund Fee Schedule If City of Clearwater participates in Northern Trust's Securities Lendin!!: Pro!!:ram Flat, Annual Custody Fee (based on $410 million Fund) $85,000 Securities Lending - U.S. Securities Revenue Split 70/30 Estimated Gross Earnings $189,157 Estimated City of Clearwater Revenue $132,410 Estimated Northern Trust Revenue/Fee $56,747 (based on $410 million total assets and $267 million in lendable securities) Scenario 2: Pension Fund Fee Schedule If City of Clearwater does NOT participate in Northern Trust's Securities Lendin!!: Pro!!:ram Flat, Annual Custody Fee (based on $410 million Fund) $120,000 Footnotes: I. As requested by the City of Clearwater, Northern Trust's Securities Lending estimate is based upon backward looking historical figures rather than future projections of market activity. Our Securities Lending evaluation assumes participation in a Core USA Collateral Section. As indicated above, we have offered a revised revenue split of 70/30 if both the Pension Fund portfolio and the Cash Management Investment Pool portfolio participate in Northern Trust's Securities Lending program. If only one of the portfolios participate in our Securities Lending program, then the Securities Lending revenue split would be 65/35 as quoted in our original proposal. 2. Fees quoted above were based on the volumes, market values, and service requirements as stated in the original RFP as well as detailed asset listings provided to us on August 5, 2002. If any volumes, market values, and/or service requirements substantially change from the information provided to us, Northern Trust reserves the right to re-evaluate fees. 3. As stated in our original proposal, fees for actively managed international assets are not included in any of these scenarios since the City of Clearwater currently has only international commingled funds. If the City of Clearwater added actively managed international assets to your mix in the future, Northern Trust would work with you to recalculate the annual flat custody fee based on the market value of the international assets and the applicable countries where trades occur. 4. As stated in our original proposal, there is an investment fee for Cash Management (STIF) services of 15 basis points for qualified pension plans. Additionally, ifthe City of Clearwater is interested in subscribing to Northern Trust's Compliance Analyst service, there will be an annual fee of $25,000 for this service. 7