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FIXED INCOME INVESTMENT ADVISORY AGREEMENT FIXED INCOME INVESTMENT ADVISORY AGREEMENT BETWEEN THE BOARD OF TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES' PENSION FUND AND WESTERN ASSET MANAGEMENT COMPANY THIS AGREEMENT, is made and entered into this ~~ay of h CITY OF , 2004, by and between the BOARD OF TRUSTEES OF THE CLEARWATER EMPLOYEES' PENSION FUND, an autonomous governmental body, hereinafter referred to as the "BOARD" and WESTERN ASSET MANAGEMENT COMPANY, hereinafter referred to as the "INVESTMENT ADVISOR": WITNESSETH: WHEREAS, Florida Statutes Chapter 112 vests the BOARD with full authority, power and responsibility to manage and administer the Pension Fund; and WHEREAS, the INVESTMENT ADVISOR has expressed an interest in serving the BOARD to manage the fixed income component of the BOARD'S portfolio, hereinafter referred to as the "Account"; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties agree as follows: 1. APPOINTMENT OF FIXED INCOME INVESTMENT ADVI SOR. The BOARD does hereby appoint the INVESTMENT ADVISOR as the manager for the fixed income portfolio of the Pension Fund, and any additions thereto, including proceeds of sales, dividends and interest. The -1- (/",0; ....f)V.) ,(, 'l. ~. t/ (.. .x. ,.).-( (/, I ...:' I / "'-.':::./ ,/ INVESTMENT ADVISOR hereby accepts such appointment and agrees to manage the investment and reinvestment of such assets of the Pension Fund. 2. TERM. This Agreement shall commence upon the date set forth above and shall ter.minate as provided herein. 3. DISCRETION. The INVESTMENT ADVISOR hereby acknowledges and agrees that it has been provided with the statement of investment policy duly adopted by the BOARD in accordance with its authority under state law. Consistent with that policy the INVESTMENT ADVISOR shall, in the perfor.mance of its duties, place orders for the purchase, sale, or exchange of fixed income securities on behalf of the Pension Fund whenever the INVESTMENT ADVISOR deems it to be in the best interest of the Pension Fund to do so . The INVESTMENT ADVISOR shall diligently execute such transactions in a method and manner and at such times as to procure the best realized price. In selecting brokers or dealers for execution, the INVESTMENT ADVISOR will consider a number of factors including, but not limited to, price (including commissions or mark-up), the size and difficulty of the order, the reliability, integri ty and financial soundness of the broker or dealer, the general operation or execution capabilities or the broker or dealer, the broker or dealer's expertise in particular markets and the research services provided by the broker or dealer. The -2- INVESTMENT ADVISOR may pay a broker or dealer a payment in excess of that which another broker or dealer might have charged for executing a transaction if the INVESTMENT ADVISOR deter.mines, in good faith, that the amount paid is reasonable in relation to the value of the brokerage and/or research services provided by such broker or dealer. Research services obtained by brokers or dealers may be used in servicing all accounts managed by the INVESTMENT ADVISOR and its affiliates. 4. INVESTMENT OBJECTIVE AND POLICY. The primary objective of the fixed income portfolio is to seek as high a level of total return that is consistent with prudent risk through investments in a diversified portfolio of fixed income securities and cash equivalents. Eligible cash equivalents would generally include the following categories with duration of less than one year: a. Any United States Government security which is guaranteed by the full faith and credit of the United States; b. Any United States Government security which is an obligation of, and issued by, any of its agencies or instrumentalities, including the Federal National Mortgage Association; c. Certificates of deposit or money market certificates issued and guaranteed by any commercial bank, trust -3- company or savings and loan association having its principal place of business in the City; d. Commercial paper rated A-lor P-l by a nationally recognized rating service; e. Bankers Acceptances of United States banks rated AAA by a nationally recognized rating service; f. Any other cash or equivalent security authorized under the laws governing the Fund. The INVESTMENT ADVISOR agrees to observe the Code of the City of Clearwater and the investment policy as set forth by the BOARD. In the event that the INVESTMENT ADVISOR should purchase any security in violation of the policy of the BOARD, and as a result of any sale thereof realizes a loss as measured by the initial purchase price of the security, the INVESTMENT ADVISOR shall make the Board whole for any such losses. 5. COMPENSATION AND EXPENSES. The BOARD shall compensate from the Pension Fund the INVESTMENT ADVISOR for all services actually, timely and faithfully rendered hereunder, for the period of this Agreement to be billed and paid at the end of each calendar quarter. Said fee shall be computed according to the attached schedule A. -4- A statement showing the amount of the fee payable shall be submitted to the BOARD by the INVESTMENT ADVISOR promptly after the start of each quarterly period. It is understood that the INVESTMENT ADVISOR shall be responsible and liable for all expenses incurred by it in perfor.ming its obligations hereunder, except that any brokerage commissions, stock transfers and other similar charges which may become due on account of transactions for the account shall be payable fram the account hereunder, subject to the availability of funds. Investment Manager may execute on behalf of the Client certain agreements, instruments and documents in connection with the services perfor.med by it under this Agreement. These may include, brokerage agreements, clearing agreements, account documentation, futures and options agreements, swap agreements other investment related agreements and any other agreements, documents or instruments the Investment Manager believes are appropriate or desirable in performing its duties under this Agreement. However, any and all such agreements, instruments and documents must be in compliance with Client's investment policy, the City of Clearwater Code, and Florida Statutes. The Manager may appoint one or more of its affiliates as its agent and may delegate the exercise of all or any of the Manager's powers, discretion and duties in relation to the management of the non-dollar portion of the portfolio to such affiliate(s) . -5- 6 . DELIVERY OF SECURITIES. The INVESTMENT ADVISOR shall direct that all securities purchased for the Pension Fund be registered in the name of, and be delivered to, the Pension Fund and/or the Trustee, custodian or its nominee. 7. REPORTS. The INVESTMENT ADVISOR shall provide the BOARD with a monthly statement of the status of the Account. In addition, the INVESTMENT ADVISOR shall provide quarterly written reviews of the perfor.mance of the Account, presented to the BOARD, and such other periodic reports or infor.mation as the BOARD may reasonably request. All perfor.mance reports reported to the Fund shall be gross of all fees. The written quarterly report shall outline the overall position of the portfolio with a complete listing of each security showing the cost, market value and yield at the close of the reporting period. The report shall also include all portfolio transactions during the preceding quarter. All monthly reports shall include a listing of all trades, broker utilized and the cost of the trade. 8. NON-DISCRIMINATION. The INVESTMENT ADVISOR shall not discriminate in its employment practices during the ter.m of this Agreement on the basis on race, creed, color, sex, age, physical handicap, marital status, or national origin. 9. PROHIBITION AGAINST CONTINGENT FEES. The INVESTMENT ADVISOR warrants that it has not employed or retained any company -6- or person, other than a bona fide employee working solely for the INVESTMENT ADVISOR, to solicit or secure this Agreement and that it has not paid or agreed to pay any person, company, corporation, individual, or fir.m other than a bona fide employee working solely for the INVESTMENT ADVISOR, any fee, commission, percentage, gift, or other consideration contingent upon or resulting from the award or making of this Agreement. 10. DISCLOSURE. The INVESTMENT ADVISOR agrees to disclose, in writing to the BOARD within 10 business days, if the INVESTMENT ADVISOR becomes the subject of an investigation by the Securities and Exchange Commission for alleged breach of federal securities laws; any investigation by the U. S. Department of Justice for allegations relating to violation of federal securities laws or related allegations of fraud; or if the INVESTMENT ADVISOR is named as the defendant in any civil action alleging fraud, negligence or breach of fiduciary responsibility. 11. GENERAL. (a) The INVESTMENT ADVISOR warrants that it is registered as an investment advisor under the Investment Advisers Act of 1940, and that it will maintain such registration during the ter.m of this Agreement. The INVESTMENT ADVISOR acknowledges that it is a fiduciary with respect to the management of the assets of the Fund and that it is subject to and shall be governed by the "prudent man -7- rule," and the "prudent investor rule" as those ter.ms are defined and interpreted under the provisions of the Employee Retirement Income Security Act and under the provisions of the law of Florida. (b) This Agreement may be ter.minated by either the INVESTMENT ADVISOR or the BOARD on thirty (30) days' written notice, with or without cause. (c) The INVESTMENT ADVISOR acknowledges that it is fully familiar with the laws of the State of Florida governing public employee retirement systems (Chapter 112, Part VII), and is fully familiar with the provisions of the Code of the City of Clearwater relating specifically to the management of this Pension Fund. The Agreement shall be perfor.med in accordance with all applicable federal, state, and local laws and administrative regulations and shall in its interpretation be governed by the laws of the State of Florida. (d) In any action to enforce the provisions of this Agreement venue shall be in Pinellas County, Florida, and should any action be necessary to enforce the ter.ms of this Agreement, the prevailing party shall be made whole, including any costs and legal fees. (e) The BOARD agrees to furnish the INVESTMENT ADVISOR with all documents, authorizations and powers as might be reasonably -8- required by the INVESTMENT ADVISOR to carry out its obligations according to the ter.ms of this Agreement. (f) The INVESTMENT ADVISOR shall on an annual basis offer the BOARD with Securities and Exchange Commission for.m ADV and a copy of the annual company report of the Advisors parent company. (g) The INVESTMENT ADVISOR shall for the ter.m of this Agreement maintain an errors and omissions insurance policy in the amount of one million dollars. The INVESTMENT ADVI SOR shall furnish the BOARD with proof of its errors and omissions insurance. The Board will maintain a fidelity bond satisfying the requirements of Section 412 of ERISA and shall include the Investment Advisor as its agent in its coverage. (h) All proxy materials relating to any security held by the INVESTMENT ADVISOR shall be voted in accordance with the proxy voting policy adopted by the BOARD, acknowledged by the INVESTMENT ADVISOR. (i) Any portfolio manager or other key personnel assigned by receipt of which is the INVESTMENT ADVISOR to perfor.mance under this Agreement may not be removed by the INVESTMENT ADVISOR without notice to the BOARD. (j) In the event of a dispute between the parties, the parties may by mutual consent agree to submit the matter to binding arbitration. -9- (k) This Agreement constitutes the entire understanding of the BOARD and the INVESTMENT ADVISOR and may be amended only by written instrument executed by both parties. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. COUNTERSIGNED: THE CITY OF CLEARWATER By: ~~ ~rian gst Mayor-Commissioner Bydll4.t.....-a ~-xc William B. Hor~e II City Manager By: Attest: , A.AnhJ~ a E... Goudea~ Clerk ".. WESTERN ASSET MANAGEMENT COMPANY ?W By: Authorized Officer {!.:J-{ (~F i/...J v'E ~T/-1. EJ..JT oFF /ClJ;:./C 7 - 13- 0 Lj -10- EXHIBIT A City of Clearwater Employees' Pension Fund Fee Schedule The fees payable to Western Asset for services under this agreement shall be calculated as follows: Annual Fee Schedule: Minimum Quarterly Fee: Timing of fee calculation and payment: Source of market values: Billing Methodology: Exceptions: .30 of 1 % on the first $100,000,000 .15 of 1 % on amounts over $100,000,000 The quarterly fee payable will be no less than $56,250. The quarterly minimum fee will be prorated for any quarter during which the agreement is in effect for only a portion of the quarter. Fees shall be calculated quarterly in arrears and payable to Western Asset upon receipt. The market values used to determine fees shall be those calculated by Western Asset. Western Asset shall average the month-end market values in the calendar quarter to which fees apply. The annual fee schedule, as outlined above, shall be applied to the average market value. Cashflows during the quarter will not be prorated for purposes of the fee calculation. Initial Billing Period: For the initial billing period, the fee shall be prorated based on the number of days the assets are managed divided by the number of days in a year. Final Billing Period: For the final billing period, the fee shall be prorated based on the number of days the assets are managed divided by the number of days in a year. -11-