HomeMy WebLinkAboutWells Fargo Bank Investment Authorization Agreement 2007
Wells Fargo Bank, National Association
Investment Authorization Agreement
Qualified Account: Defined Benefit Plan and Trust for Employees of the City of Winter
Springs
Plan Type:
o 401(k)
0457
IX] Other Defined Contribution _Defined Benefit Plan
Plan Sponsor: City of Winter Springs
Address: 1126 E. State Road 434
City, State Zip: Winter Springs. Florida 32708
Phone Number: 407-327-6557
Plan Sponsor Tax ID #: _59 _ - _1026364 _ Plan ID#: _002 State Domicile:_FL_
Trustee: (if applicable):
Direct Service Provider (TP A firm name): NA
Whereas, the Qualified Account named above is an employee benefit plan, established pursuant to
the terms and provisions of a certain trust agreement, and in accordance with applicable provisions
of the Internal Revenue Code of 1986 (the "Code"); and
Whereas, the Plan Sponsor or Trustee has full power and authority to direct investment of the
assets of the Qualified Account and, in that regard, now desires to direct investment of certain
assets in the Wells Fargo Fixed Income Fund A (the "Fund") established by Wells Fargo Bank, N.A.
("Wells Fargo") under the Wells Fargo Bank Declaration of Trust Establishing Investment Funds
for Employee Benefit Trusts, as amended from time to time (the "Declaration of Trust"); and
Whereas, Wells Fargo is willing to accept such direction from the undersigned as authorized signers
and representatives of the Plan Sponsor for investment in the Fund contingent upon compliance by
the Plan Sponsor or Trustee with the terms and conditions set forth herein:
Now, therefore, Wells Fargo and the Plan Sponsor or Trustee agree as follows:
1. The Plan Sponsor, the Trustee or the duly appointed investment manager for the Plan
directs investment of the assets of the Qualified Account in the Fund and, in connection
with such direction, the Plan Sponsor or the Trustee, as the case may be, acknowledges the
requirements of the Declaration of Trust.
2 The Plan Sponsor or Trustee represents and warrants as follows:
TIC approved 3/27/2006
Fixed Income Fund A
(a) It is a fiduciary with respect to the Qualified Account and has full authority
to enter into this Agreement on behalf of the Qualified Account;
(b) The Qualified Account is (i) either (A) a trust which is exempt from tax
under Sections 401 and 501 of the Code, or (B) a governmental plan (within
the meaning of section 414(d) of the Code) or an eligible deferred
compensation plan (within the meaning of section 457(b) of the Code) and
(ii) may invest in the Fund without adversely affecting the Fund's continued
tax-exempt status under Section 501 of the Code;
(c) The assets of the Qualified Account may be invested in any collective
investment fund or funds, including common and group trust funds, which
consist exclusively of assets of exempt pension and profit sharing trusts and
which are qualified tax exempt under the Internal Revenue Code of 1986,
including any such fund or funds presently in existence or hereafter
established, and which are maintained by a bank or trust company
supervised by a state or federal agency, notwithstanding that the bank or
trust company is the Trustee, Manager or is otherwise a party in interest of
the Plan, including Wells Fargo Bank, N.A. The assets so invested shall be
subject to all the provisions of the instruments establishing such funds, as
they may be amended from time to time. Such instruments of group trusts as
they may be amended from time to time are hereby incorporated and made a
part of the governing Plan documents as if fully set forth therein. The
combining of money and other assets of the Plan with money and other
assets of other qualified trusts in such fund or funds is specifically
authorized; and
(d) The Fund is an authorized investment for the Plan under the Plan's
governing documents, including the investment objectives for the Plan as
established by the Plan Sponsor.
3. The Plan Sponsor or Trustee will promptly notify Wells Fargo of any action or development
which jeopardizes any of the representations or warranties made herein.
4. Where an investment manager has been appointed by the Plan Sponsor, the Plan Sponsor is
responsible for notifying the investment manager of the restrictions and limitations set forth
above.
5. The Plan Sponsor or Trustee acknowledges the following:
(a) Wells Fargo will charge fees and expenses in connection with the Fund as set
forth in Attachment A; and
(b) The Investment Advisor will manage the fund in conformance with the
investment guidelines established by the Fund which may include participation in
the securities lending program as set forth in Attachment B.
TIC approved 3/27/2006
2
Fixed Income Fund A
Dated:
~~ dY- 0'1
Plan Sponsor or Trustee
By /?~W. ?n J~
Its C. I '7' t.j W14 AI A (r t? /(
Accepted:
"~J
Its
TIC approved 3/27/2006
3
Fixed Income Fund A
TIC approved 3/27/2006
Attachment A
Fixed Income Fund A Fee Schedule
No Other Fees Payable
4
Fixed Income Fund A
Attachment B
WELLS FARGO COLLECTIVE INVESTMENT FUNDS
SECURITIES LENDING NOTICE
This Notice is provided to you as a fiduciary of an employee benefit plan, which may hold an investment in one or more of
the portfolios created under the Wells Fargo Bank Declaration of Trust Establishing Investment Funds for Employee
Benefit Plans (the "Funds"). This Notice is furnished pursuant to the requirements established by the U.S. Department of
Labor in Prohibited Transaction Exemption 2006-16.
As described in this Notice, Wells Fargo Bank, N.A., which, together with its affiliates, referred to in this Notice as "Wells
Fargo", lends securities held in the Stable Return Fund G.
This Notice is intended to provide you with information, which describes the aspects of securities lending which are
necessary to enable you as a fiduciary to determine whether you want your plan to invest in the Funds. Wells Fargo also
will provide you with any reasonably available additional information which you request. If at any time you want to
discontinue the plan's investment in the Funds, please contact your Relationship Manager who can arrange for an
alternative investment.
DESCRIPTION OF SECURITIES LENDING
Securities lending programs provide large portfolios, like the Funds, the opportunity to add incremental income and to
enhance their return by lending securities to sound borrowing institutions while retaining the integrity of the Funds.
Securities lending is the transfer of securities by the owner (the "lender"), in this case Wells Fargo as trustee of the Funds,
to another investor or financial intermediary (the "borrower"). The borrower becomes the legal owner ofthe securities, but
agrees to return identical securities to the lender in the future. The borrower backs this agreement by delivering collateral of
a predetermined value to the lender. The borrower also pays either an explicit or implicit fee for the use of the borrowed
securities. The lender surrenders voting rights while effectively retaining the other benefits of ownership, such as capital
change decisions, interest and dividend payments, and the right to sell the securities. Standard securities loan agreements,
which each borrower is required to sign, contain provisions addressing collateral requirements, valuation procedures,
collection of dividends and interest, and remedies upon default.
CREDIT ANALYSIS AND APPROVAL OF BORROWERS
Wells Fargo carefully screens borrowers, which are subject to credit standards and ongoing credit review. As a result,
lending is limited to the most financially sound banks and brokers in the United States. Appropriate credit limits are
established for each approved borrower based on Wells Fargo's internal review and analysis of the financial condition of a
borrower. These limits are reviewed at least annually and as circumstances warrant. Review and analysis includes an
evaluation of a borrower's business results and practices, focusing on audited financial reports and credit agency ratings.
SECURITIES LENDING ADMINISTRATION
The administration of the securities lending activity is handled by a dedicated team of Wells Fargo securities lending
professionals. Securities lending activities are operated and monitored in accordance with established policies, and
guidelines. Specific lending collateral investment guidelines are established based on the purposes and objectives of each
Fund. Wells Fargo uses an automated securities lending system that ensures equitable allocation of loans among all funds.
COLLA TERAL MANAGEMENT
Borrowers are initially required to provide collateral equal to 102% of the market value plus accrued interest for loans of
domestic securities, and 105% of the market value plus accrued interest for loans of international securities. Additional
collateral is obtained when the market value of the collateral is less than 100% of the loan. All loans are marked to market
daily. The cash collateral portfolios are valued daily by an independent fund accountant.
Loans are collateralized by cash, U.S. Government securities, U.S. Government Agency securities, or letters of credit.
Irrevocable standby letters of credit can be used and the issuers must meet the credit criteria established in Wells Fargo's
credit guidelines. The investment of the cash collateral is managed by an investment officer of Wells Fargo who is the
designated Securities Lending Portfolio Manager. The Portfolio Manager is an integral part of the securities lending process
5 Fixed Income Fund A
and is regularly informed of the lending aspect of transactions. Portfolio activity is monitored for investment quality,
diversification and compliance on a daily basis and reported to Wells Fargo's Securities Lending Risk Management
Executive Committee monthly. Investment of cash collateral is made in accordance with the guidelines approved for the
Funds, including high quality U.S. dollar denominated short term money market instruments which emphasize safety of
principal and liquidity. The issuer must be rated in the highest rating category by at least one Nationally Recognized
Statistical Rating Organization (NRSRO).
HOW SECURITIES LENDING PROCEEDS ARE ALLOCATED
The net earnings from securities lending activities are divided between the Fund and Wells Fargo as securities lending
agent. Income from securities lending activities is generated by fees paid by the borrowers and income from the investment
of cash collateral. As securities lending agent, Wells Fargo will receive up to 30% of the net earnings from each loan and
the Funds will receive at least 70% of the net earnings. Wells Fargo is responsible for all operational costs related to
securities lending transactions entered into on behalf of the Funds.
RISKS INVOLVED IN SECURITIES LENDING
A critical factor in a successful securities lending program is managing risk. Primarily, risk management involves
adherence to strict credit guidelines and criteria when determining to whom securities will be lent. Wells Fargo applies its
credit management skills to assess credit worthiness of borrowers. On a monthly basis, or more often as situations arise,
Wells Fargo reviews the list of approved borrowers. The review process involves rigorous analysis of the borrowers'
financial results, business prospects, and industry quality ratings. Individual lines of credit are established for each
borrower based on these analyses. There are three types of risks that exist in securities lending activities: counterparty risk,
operational risk, and investment risk.
Counterparty risk refers to the risk that a borrower may be unable to return borrowed securities on a timely basis under
contractual requirements. Counterparty risk is mitigated through stringent review of borrower creditworthiness, assignment
of appropriate credit limits, and diversification across multiple borrowers. Counterparty risk is further mitigated by strict
adherence to the collateral requirements discussed above.
Operational risk refers to the risk of losses resulting from problems in the settlement and accounting process. Exposure to
operational risk is mitigated through definitive collateral management procedures and comprehensive safeguards to ensure
that lent securities are returned. The program employs a professional fund accounting firm to ensure accurate reporting of
income from collateral reinvestment. Other operational controls include a detailed record-keeping system and an active
management group overseeing the daily reconciliation of cash, security, and collateral positions.
Investment risk involving collateral in a securities lending program falls into three main categories: credit quality risk,
interest rate risk, and liquidity risk. The following is a description of these three categories:
1. Credit quality risk is mitigated through the use of Wells Fargo's expertise in analyzing individual issuer credits. Only
top tier liquid investments in issuers included on a pre-approved list developed by internal credit analysts can be
purchased for collateral reinvestment.
2. Interest rate risk is the risk that prices of securities owned by the collateral portfolio generally increase when interest
rates go down and decrease when interest rates go up. Interest rate risk is managed by coordinating the duration of the
loans and the collateral portfolio.
3. Liquidity risk refers to the liquidity of collateral. The program must maintain a sufficient allocation in overnight cash
equivalents to fund any returns of previously lent securities. The appropriate amount of liquidity is maintained by
establishing a minimum percentage of the portfolio that must be available on demand.
USE OF DERIVATIVES
Derivatives are employed in the securities lending program in a limited manner. Derivative investments provide a valuable
risk management tool for securities lenders. Wells Fargo has written guidelines describing the objectives and scope of the
use of derivative instruments to protect against adverse interest rate movements.
Specific derivatives allowed are floating rate or variable rate notes only. Floating rate obligations add value by minimizing
interest rate risk. Floating rate or variable rate notes employed in the securities lending program must be based on a single
index. In addition there can be no cap on the coupon rate. The use of debt obligations containing embedded options, such
as a callable note, is allowed under the investment guidelines.
6 Fixed Income Fund A