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HomeMy WebLinkAboutU S Bank National Association - Trustee - 2009-03-16 FOE CITY OF HUNTINGTON BEACH Interdepartmental Communication TO: FRED WILSON, City Administrator FR SCOTT FIELD, Assistant City Attorney DATE: September 1, 2009 SUBJECT: Supplemental Employee Retirement Plan and Trust Enclosed please find the final version of the Trust Agreement between the City and U.S. Bank National Association. At the March 16, 2009 City Council meeting, the City Council approved the Supplemental Employee Retirement Plan and Trust. To fund the Plan, the City will make contributions to the Trust, and the Trust will invest the assets, so as to fund the retirement benefits. The Council further authorized the City Administrator to contract with U.S. Bank to manage the Trust investments and provide related Trust services. The City Council directed that the City Attorney would approve the form of the Agreement with U.S. Bank. (Enclosed please find a copy of the approved RCA, including the authority for the City Administrator to sign the Agreement.) After lengthy negotiations, and the assistance of outside counsel, Marcus Wu of Hanson Bridgett, the City Attorney has approved the form of the Trust Agreement. Please sign this Agreement and return the original to me. I will forward the original to the City Clerk and send certified copies to U.S. Bank and the City Treasurer. SCOTT FIELD Assistant City Attorney Enclosures 37976 TRUST AGREEMENT FOR THE CITY OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN&TRUST THIS TRUST AGREEMENT, made, entered into, and effective as of this 24th day of July 2009, by and between City of Huntington Beach, a governmental entity established as a municipal corporation under the Huntington Beach City Charter, organized under the laws of California, (the "City"), and U.S. Bank National Association, a national banking association organized under the laws of the United States,with offices in Minneapolis,Minnesota(the"Trustee"); WHEREAS, the City originally-established the Plan (as defined below), currently sponsors the Plan,and intends to sponsor the Plan indefinitely; WHEREAS, by resolution of its City Council, the City intends to fund the Plan with a trust, and has authorized and directed the creation or continuation,as applicable,of a trust for such purpose; WHEREAS, the City wishes to appoint the Trustee as Plan trustee under the terms of this Trust Agreement,and the Trustee wishes to accept such appointment; WHEREAS,the Trust Agreement is the trust agreement so contemplated; NOW,THEREFORE,the parties hereto do hereby create and establish a trust (the"Trust") to read in full as follows: DEFINITIONS 140 Act. "'40 Act"means the Investment Advisers Act of 1940. Affiliated Entity. "Affiliated Entity" means any organization affiliated with the Trustee, including any department or division of the Trustee,and any future successors thereto. Affiliated Funds. "Affiliated Funds" means the First American Funds, Inc.; the First American Investment Funds,Inc.;and the First American Strategy Funds,Inc. Code. "Code"means the Internal Revenue Code of 1986,as amended. ERISA. "ERISA"means the Employee Retirement Income Security Act of 1974,as amended. Investment Manager. "Investment Manager"means any person or firm other than the Trustee which(a) has the power to manage, acquire, or dispose of any asset of a plan; (b) is either registered as an investment adviser under the `40 Act or a bank as defined in the `40 Act or an insurance company which is qualified to manage, acquire, and dispose plan assets under the laws of more than one state; (c) has acknowledged in writing that it is a fiduciary with respect to the Plan; and (d) has been appointed by the Retirement Board as provided under this Trust Agreement. Participants. "Participants"means Plan participants. Plan. "Plan"means the City of Huntington Beach Supplemental Retirement Plan&Trust i Page 1 of 27 37772 i Retirement Board. "Retirement Board" means the entity established by the City as set forth under the Plan, with the authority to act as Plan administrator, including, among other things, the authority to construe the terms of the Plan and determine eligibility for benefits(including eligibility for participation, vesting,and distribution,as well as the timing,amount,and form thereof). Subfunds. "Subfunds"means two(2)or more separate portions of the Trust. Trust Year. "Trust Year"means the calendar year. SECTION 1 ABOUT THE PLAN The City represents that the Plan is (a) a single-employer defined benefit employee pension benefit plan; (b) not subject to Title I (Protection of Employee Benefit Rights) and Title IV (Plan Termination Insurance)of ERISA; and(c)a"governmental plan"as defined in ERISA Section 3(32)and Code Section 414(d). The Trust is intended to be a qualified trust under Code Section 401(a)and to be tax-exempt under Code Section 501(a). The City represents that the City will take all steps required to preserve the Trust's qualified and tax-exempt status. Unless and until the City notifies the Trustee in writing to the contrary, the Trustee will assume that the Trust is exempt from federal income taxation. The Trustee will have no duty to request or obtain a ruling from the Internal Revenue Service as to tax-qualified status. In any event, indemnification, hold harmless, and release rights hereunder in favor of the Trustee extend to,but are not limited to, any failure to obtain, and any loss of, tax-qualified status, except to the extent such failure or loss is the result of Trustee's negligence or willful misconduct. City contributions to the Trust are conditioned upon the Plan's initial qualification under Code Section 401(a). If the Plan receives an adverse determination with respect to its initial qualification(in response to an application for determination filed by January 31, 2011), the City may direct the Trustee to return City contributions to the City within one(1)year of such determination. Notwithstanding anything in this Trust Agreement to the contrary, Trust assets will revert to the City upon Plan termination, provided (i) Trust assets were sufficient to satisfy all Plan benefits (vested and unvested); and (ii) Trust assets were first distributed to satisfy all such benefits). The Retirement Board may direct the Trustee accordingly. Any such direction will be deemed to include the Retirement Board's representation that all applicable conditions under law for reversion have been satisfied. Subject to Section 2.4 of this Trust Agreement,the Trustee will have the power to deposit and hold Trust assets in,to pool Trust assets with other participating trusts in,and to withdraw Trust assets from a group trust that is exempt from taxation under Code Section 501(a) with respect to its funds which equitably belong to participating trusts described in Code Section 401(a), subject to the group trust's trust instrument. To that end, the group trust instruments listed on any exhibit hereto are hereby incorporated herein by reference and will prevail over contrary provisions of this Trust Agreement, and the subject group trusts are hereby adopted as part of the Plan. SECTION 2 ESTABLISHMENT OF TRUST 2.1. Trust Established. The City hereby deposits with the Trustee in trust an amount which will be Page 2 of 27 37772 the initial principal of the trust. That amount may include assets transferred from any other funding medium maintained in connection with the Plan. Such initial principal, along with additional cash and other property the City may deposit from time to time with the Trustee in trust, investments and reinvestments thereof,and any earnings thereon will be held,administered,and disposed of by the Trustee as provided in this Trust Agreement. The principal and income of the Trust will be held separate and apart from the assets of the City, and except as permitted by law, will never inure to the benefit of the City and will be held for the exclusive purposes of providing benefits to Participants and defraying reasonable expenses of administering the Plan. It will be impossible at any time before the satisfaction of all liabilities to Participants for any part of the principal or income of the Trust to be used for, or diverted to, purposes other than for the exclusive benefit of Participants. If the Trustee is a national bank, the Trustee will keep the Trust's assets(other than deposits, such as cash or CDs)separate and apart from the assets of the Trustee pursuant to paragraph (b) (Separation of fiduciary assets) of 12 Code of Federal Regulations Section 9.13 and paragraph (c) (Segregation of fiduciary and general assets) of 12 United States Code Section 92a. 2.2. Delegation,Generally. To the extent that the City or the Retirement Board delegates its rights or duties hereunder to a third party other than an Investment Manager (as defined herein), the City or Retirement Board, as the case may be, will be liable under this Trust Agreement as if it had exercised such rights or performed such duties directly. 2.3. Delegation to Investment Manager. The Retirement Board may appoint an Investment Manager to manage (including the power to acquire and dispose of) any part or all of the Trust. The Retirement Board will notify the Trustee of any such appointment and will monitor the Investment Manager's continued eligibility as such. The Trustee may assume that any such appointment is a delegation of the Retirement Board's authority hereunder to manage, acquire, and dispose of the entire Trust, except to the extent that such notice expressly limits the Investment Manager's authority to a particular Subfund (as defined in Section 2.7 hereof) or Subfunds. The Retirement Board may remove any Investment Manager and may appoint a successor from time to time to any Investment Manager who resigns, is removed,or otherwise ceases to serve hereunder. Upon termination of an Investment Manager, the Investment Manager's investment authority will revert to the Retirement Board. The fees and expenses of any Investment Manager, as agreed upon from time to time between the Investment Manager and the Retirement Board, will be charged to and paid from the Trust as directed by the Retirement Board, except to the extent that the City, in its discretion, may pay such directly to the Investment Manager. 2.4. Management and Control;Allocation of Authority. 2.4.1 The Trust held by the Trustee,together with all additional contributions made thereto and all net income thereof, will be controlled, managed, invested, reinvested, and ultimately paid and distributed to or on behalf of Participants by the Trustee with all the powers generally possessed by trustees, and with all the additional powers conferred upon the Trustee under this Trust Agreement, except to the extent that such powers have been delegated to an Investment Manager or reserved by the City or by the Retirement Board. To the extent of such delegation or reservation, the Trustee will be subject to the direction of the Investment Manager, the City, and the Retirement Board, as the case may be. 2.4.2. The City hereby reserves to the Retirement Board the authority to invest and reinvest Trust assets and to direct the Trustee accordingly, except insofar as the City has otherwise reserved such rights hereunder and except insofar as the Retirement Board may delegate its investment authority to an Page 3 of 27 37772 Investment Manager. Absent such delegation and direction to invest and reinvest as provided hereunder, the Trustee will invest and reinvest Trust assets in its sole discretion. Subject to such limitations, the Trustee will therefore be what is commonly known as a discretionary trustee. 2.5. Investment Policy and Guidelines and Funding Policy. The Retirement Board will determine the investment policy and guidelines(including proxy voting guidelines)for the Trust; establish and carry out a funding policy and method consistent with the objectives of the Plan; and deliver to each of the Trust's discretionary investment fiduciaries such policies and guidelines(along with(i)the written record of actions taken under the funding policy, including but not limited to cash flow history, liquidity needs, short-term financial needs, long-term financial needs, expected levels of contributions, and other significant information which would affect the exercise of investment discretion and (ii)the reasons for those actions). Without limiting the generality of the foregoing, the Retirement Board will direct each discretionary investment fiduciary from time to time as to the minimum amount of liquidity required for Plan administration purposes (such as making benefit distributions) within the portion of the Trust over which the investment fiduciary has investment authority. 2.6. Establishment of Subfunds. As directed by the Retirement Board, the Trustee will divide the Trust into two(2)or more Subfunds,dissolve any Subfund,and consolidate one or more Subfunds. 2.7. Contributions Upon Mistake of Fact. If a City contribution to the Trust was made by a mistake of fact, the City may direct the Trustee to return the contribution to the City within one (1)year of such contribution. In such a case, the City will direct the return of no more than the excess of the amount contributed over the amount that would have been contributed had no mistake occurred, adjusted for the excess's pro rata share of any net loss (but not any net gain) experienced by the Trust while the excess was held in the Trust. 2.8. Valuation,Accounting Method. The Trustee will value the Trust as of the close of business on each Trust Year end or at another frequency agreed to in writing by the Retirement Board and the Trustee. Each valuation will reflect, as nearly as possible, the then fair market value of the applicable assets (including income accumulations therein). The City acknowledges that such fair market values are intended to be reliable but are not guaranteed by the Trustee or otherwise. The Retirement Board will direct the Trustee as to the value of the portion of the Trust involving any investment for which fair market value is unavailable, provided the Trust acquired the investment through the exercise of investment authority of anyone other than the Trustee. Any such Retirement Board direction will (i) be deemed to include the Retirement Board's representation that the Retirement Board understands such investment's underlying investments and investment strategy and that the valuation methodology is consistent with the investment's written valuation provisions and reflects fair value and(ii) identify, and explain the qualifications of, the person or entity that performed valuation. If the Retirement Board fails to provide such direction, the Trustee may take whatever action it deems reasonable, including employment of attorneys, appraisers, or other professionals, the expense of which will be an expense of the Trust. In any event, a valuation made by the Trustee in good faith will be binding and conclusive upon all persons interested, or becoming interested, in the Plan or the Trust. The Trustee will also cause the value of the Trust to be increased (or decreased) from time to time for distributions, contributions, investment gains (or losses), expenses and fees, if any,charged to the Trust. Furthermore,the Retirement Board may direct the Trustee to adopt an alternative"unit" method of accounting for deposits, transfers, withdrawals, and distributions which issues,transfers, redeems, and adjusts (for changes in value)"units" which will have a uniform value in the Trust. 2.9. Subcustody. Any subcustodian appointed hereunder will be deemed to be an agent of the Page 4 of 27 37772 Trustee and to exercise the Trustee's custodial powers, rights, and duties with respect to holding and administering Trust assets delivered to the subcustodian(including any duty to hold and safe-keep assets; maintain records and accounts; and submit periodic reports to the appropriate parties). SECTION 3 CONCERNING THE TRUSTEE 3.1 Trustee Powers. Subject to Section 2.4 of this Trust Agreement, the Trustee will have the following powers: 3.1.1. To receive contributions under the Plan; 3.1.2 To invest and reinvest Trust assets (without distinction between principal and income), subject to the investment policy and guidelines for the Trust, in any securities or property in which an individual could invest his own funds, without limitation by any statute,rule of law, or regulation of any governmental body prescribing or limiting the investment of trust assets by corporate or individual trustees, in or to certain kinds,types,or classes of investments or prescribing or limiting the portion of the Trust which may be invested in any one property or kind, type or class of investment. Specifically and without limiting the generality of the foregoing, the Trustee may so invest and reinvest in any real or personal property; preferred or common stocks of any kind or class of any corporation, including but not limited to investment and small business investment companies of all types; voting trust certificates; interests in investment trusts; shares of mutual funds; interests in any limited or general partnership or other business enterprise, however organized and for whatever purpose; interests in collective funds maintained by a bank or similar institution; bonds, notes, and debentures, secured or unsecured; mortgages, leases, or other interests in real or personal property; interests in mineral, gas, oil or timber properties or other wasting assets; call options; put options; commodity or financial futures contracts; foreign currency; deposits of a bank or similar financial institution (such as a certificate of deposit), provided such deposits bear a reasonable rate of interest; or conditional sales contracts. Otherwise- permissible investments hereunder include investments administered, advised, custodied, held, issued, offered, sponsored, underwritten, or otherwise serviced by the Trustee or any of the Trustee's affiliates. The City hereby acknowledges (i) that the Trustee's affiliate is the investment advisor for the Affiliated Funds; (ii) that the Trustee is the sub-administrator, securities lending agent, and custodian for the Affiliated Funds; (iii)that the Trustee receives compensation from the Affiliated Funds as detailed in the prospectuses for the Affiliated Funds; (iv) that the City has received such prospectuses; (v) that the Affiliated Funds are neither insured by the Federal Deposit Insurance Corporation or any other governmental agency nor guaranteed by the Trustee or by any Affiliated Entity; and (vi) that any mutual fund investment involves risks(including but not limited to the possible loss of principal). 3.1.3 To segregate any part or portion of the Trust for the purpose of administration or distribution thereof and to hold the Trust un-invested whenever and for so long as the same is likely to be required for the payment in cash of distributions normally expected to be made in the near future, or whenever, and for as long as,market conditions are uncertain, or for any other reason which requires such action or makes such action advisable. 3.1.4 To hold un-invested reasonable amounts of cash whenever it is deemed advisable to do so to facilitate disbursements or for other operational reasons, and to deposit the same, in an interest-bearing or noninterest-bearing deposit account of the Trustee or of any other financial institution including those affiliated with the Trustee, notwithstanding the Trustee's or other financial institution's receipt of float from such un-invested cash. Page 5 of 27 37772 3.1.5 To register any investment held in the Trust in the name of the Trustee, without trust designation,or in the name of a nominee or nominees,and to hold any investment in bearer form,but the records of the Trustee will at all times show that all such investments are part of the Trust,and the Trustee will be as responsible for any act or default of any such nominee as for its own. 3.1.6 To appoint a subcustodian over any part or all of the Trust assets, as directed by the Retirement Board,or by the Trustee with the Retirement Board's advance written approval. 3.1.7 To retain and employ such accountants, agents, attorneys, brokers, custodians, consultants, and legal counsel as may be necessary or desirable, in the opinion of the Trustee, in the administration of the Trust, including, but not by way of limitation, power to employ and retain counsel upon any matter of doubt as to the meaning of or interpretation to be placed upon the Trust Agreement or any provisions thereof with reference to any question arising in the administration of the Trust or pertaining to the distribution thereof or pertaining to the rights and liabilities of the Trustee hereunder or to the rights and claims of Participants. 3.1.8 As directed by the Retirement Board, to institute, prosecute and maintain, or to defend, any proceeding at law or in equity concerning the Plan or the Trust or the assets thereof or claims in favor thereof or any claims thereto, fiduciaries thereof, or the interests of Participants hereunder at the sole cost and expense of the Trust or at the sole cost and expense of the beneficial interest in the Trust of the Participant who may be concerned in or who may be affected thereby as, in the Trustee's opinion,will be fair and equitable in each case, and to compromise, settle and adjust all claims and liabilities asserted by or against the Plan or the Trust or asserted by or against the Trustee, on such terms as the Trustee,in each such case, will deem reasonable and proper. However, the Trustee need not seek the Retirement Board's direction regarding the Trustee's defense of any fiduciary or other claims brought by the Retirement Board or the City against the Trustee with respect to the Trustee's performance under this Trust Agreement. Notwithstanding any provision herein to the contrary, the City hereby directs the Trustee to file any proof of claim received by the Trustee regarding class action litigation over a security held in the Trust during the class action period, regardless of any waiver, release, discharge, satisfaction, or other condition that might result from such filing. 3.1.9 To institute, participate and join in any plan of reorganization, readjustment, merger or consolidation with respect to the issuer of any securities held by the Trustee hereunder, and to use any other means of protecting and dealing with any of the assets of the Trust which it believes reasonably necessary or proper and, in general, to exercise each and every other power or right with respect to each asset or investment held by it hereunder as individuals generally have and enjoy with respect to their own assets and investment, including power to vote upon any securities or other assets having voting power which it may hold from time to time and to give proxies with respect thereto, with or without power of substitution or revocation,and including the exercise of any rights,privileges,options, and elections with respect to any insurance policy or contract held in the Trust,and to deposit assets or investments with any protective committee, or with trustees or depositaries designated by any such committee or by any such trustees or any court. An Investment Manager or the Retirement Board will exclusively have the foregoing powers with respect to any Trust asset it manages, will direct the Trustee accordingly, and will maintain a complete record of how such powers were exercised (including how any such proxies were voted). Notwithstanding the foregoing, neither the Trustee nor the Investment Manager, as the case may be,will vote or take similar actions with respect to any security in which it may have an interest,direct or indirect. In such case, the Trustee or Investment Manager will notify the Retirement Board and the Retirement Board will direct the Trustee or Investment Manager with respect to such voting or similar Page 6 of 27 37772 action or, alternatively, will retain an independent fiduciary to vote or take such similar action, as applicable. 3.1.10 To construe the meaning of provision in this Trust Agreement to the extent the provision affects the Trustee's rights or duties hereunder. 3.1.11 To require, as a condition to distribution of any beneficial interest in the Trust, proof of identity or of authority of the person entitled to receive the same, including power to require reasonable indemnification on that account as a condition precedent to its obligation to make distribution hereunder. 3.1.12 To collect, receive, and give quittance for all payments that may be or become due and payable on account of any asset in trust hereunder which has not, by act of the Trustee taken pursuant thereto, been made payable to others; and payment thereof by the company issuing the same, or by the party obligated thereon, as the case may be, when made to the Trustee hereunder or to any person or persons designated by the Trustee, will acquit, release and discharge such company or obligated party from any and all liability on account thereof. 3.1.13 To retain any fiords or property subject to any dispute without liability for payment of interest, and to withhold payment or delivery thereof until final adjudication of the dispute by a court of competent jurisdiction. 3.1.14 To engage in any transaction with, or acquire any service from, an Affiliated Entity, regardless of whether such transactions or services are available from an institution which is not an Affiliated Entity; provided that such transaction or service is otherwise authorized by this Trust Agreement and is at a reasonable price and is based upon reasonable terms and conditions; the transactions and services hereby authorized include, but not by way of limitation, custody; securities brokerage; investment advice; insurance brokerage; loans; deposits; commercial banking services; cash management; purchases of securities or of mutual fund shares underwritten, issued, advised, or otherwise serviced by an Affiliated Entity; purchases of securities supported by the credit of an Affiliated Entity; administrative and accounting advice and services; and such other transactions or services as the Trustee, in the performance of its duties hereunder, may deem appropriate or as directed by the City. Fees and commissions for the foregoing at the Affiliated Entity's standard or published rates will be an expense of the Trust and may be paid directly or indirectly but will not be offset from Trustee fees hereunder unless required by law. 3.1.15 To pay from the Trust any taxes that may be levied or assessed upon the Trust. 3.1.16 To distribute Trust assets,as directed by the Retirement Board. 3.1.17 To provide ancillary services to the Trust for not more than reasonable compensation. 3.1.18 To have and to exercise such other and additional powers as may be advisable for the effective and economical administration of the Trust. 3.2. Dealings with Trustee. 3.2.1. No Duty to Inquire. No person dealing with the Trustee will be required to take cognizance of the provisions of the Plan document or this Trust Agreement; to make inquiry as to the authority of the Trustee to do any act which the Trustee will do hereunder; or to see either to the Page 7 of 27 37772 administration of the Trust or to the faithful performance by the Trustee of its duties hereunder. Any such person will be entitled to assume conclusively that the Trustee is properly authorized to do any act which it will do hereunder. Any such person will be under no liability to anyone for any act done hereunder pursuant to the written direction of the Trustee. 3.2.2. Assumed Authority. Any such person may conclusively assume that the Trustee has authority to receive any money or property becoming due and payable to the Trustee. No such person will be bound to inquire as to the disposition or application of any money or property paid to the Trustee or paid in accordance with the written directions of the Trustee. 3.2.3. Incompetent Beneficiaries. If the Retirement Board determines that a person entitled to a Trust distribution is incompetent (such as a minor), the Retirement Board may direct the Trustee to make the distribution to a guardian, conservator, or other legal personal representative who has demonstrated such role to the Retirement Board's satisfaction. Prior to such demonstration, the Retirement Board may direct the Trustee to make the distribution to the person's caregiver for the benefit of the person. 3.3 Compensation. The Trustee will be entitled to receive compensation from the Trust for its services as Trustee hereunder. A schedule of the Trustee's compensation is attached as Exhibit A (Benefit Plan Fee Disclosure and Authorization), Exhibit B (Trustee & Investment Management Fee Schedule)and Exhibit C(Money Market Mutual Fund Investment Direction Form)hereto. The Trustee will also be entitled to receive reimbursement for reasonable expenses, fees, costs, and other charges incurred by it or payable by it on account of services rendered to the Plan and the Trust (including,but not by way of limitation,legal or other professional fees and expenses). 3.4. Resignation, Removal,Succession. The Trustee may resign by giving thirty(30)calendar days' notice of intention so to do to the Retirement Board or such shorter notice as the Retirement Board may approve. The Retirement Board may remove any Trustee hereunder by giving the Trustee fifteen (15) calendar days' written notice of removal by certified U.S. mail. The Retirement Board will have the power to appoint a successor Trustee. The Retirement Board will deliver to the terminating Trustee a successor Trustee's signed, written acceptance of trusteeship, on or before the effective date of resignation or removal. The Retirement Board's failure to so deliver will entitle the terminating Trustee to petition a court immediately for appointment of a successor,and the cost of such petition will be a cost of the Trust. Upon accepting trusteeship (or upon judicial declaration of trusteeship), a successor trustee will become vested with full title and right to possession of all assets and records of the Plan and the Trust in the possession or control of such prior Trustee. The terminating Trustee will promptly account for and deliver the same to such remaining or successor Trustee or Trustees. 3.5. Accountings by Trustee. 3.5.1. Periodic Reports. The Trustee will render to the Retirement Board an account and report within ninety (90) calendar days after the end of each quarter of the Trust Year showing all transactions affecting the administration of the Trust, including, but not by way of limitation, such information concerning Trust administration as agreed to by the Trustee and the Retirement Board. Failure of the Retirement Board to object to such account and report within one (1) year after receiving any such report will release the Trustee from liability with respect to the propriety of the Trustee's acts or omissions reflected therein, except with respect to those acts or omissions which could not be discovered through reasonable examination or which were the result of the Trustee's gross negligence or willful misconduct. Page 8 of 27 37772 3.5.2. Special Reports. The Trustee, if it so agrees,will also render such further reports from time to time as may be requested by the Retirement Board. The Trustee will submit its final report and account to the Retirement Board when it will cease to be Trustee hereunder, whether by resignation or other cause. 3.6 Tax Calculating,Withholding,Disclosing,Reporting,Remitting. Except as separately agreed to in a writing signed by the Trustee and the City, the Retirement Board will perform any calculating, withholding, disclosing, reporting, and remitting to the appropriate taxing authorities, or Participants of any federal, state, or local taxes that may be required to be calculated, withheld, disclosed, reported, or remitted with respect to the administration of the Plan (for example, paying Plan benefits) or the Trust, and the Retirement Board may direct the Trustee in every detail accordingly. 3.7. Fiduciary Duties. A Plan fiduciary will discharge its duties with respect to the Plan solely in the interest of the Participants (a) for the exclusive purpose of providing benefits to Participants and defraying reasonable expenses of administering the Plan; (b) with the care, skill,prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (c) by diversifying the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and(d)in accordance with the documents and instruments governing the Plan. 3.8. Prohibited Transaction Determinations. The City, on its own behalf and on behalf of the Retirement Board, hereby represents that the Plan maintains and follows procedures for identifying prohibited transactions and, if prohibited, identifying the individual or class exemption applicable to the transaction. In connection with any direction given to the Trustee under this Trust Agreement, the Trustee has the right, but not the duty, to require the directing fiduciary to provide (i) a written representation that the directed action will satisfy the requirements of, and be entitled to full exemptive relief under, a particular prohibited transaction exemption under the Code, and a specific reference to such exemption; and(ii)an opinion of the directing fiduciary's legal counsel to that effect. 3.9. Indemnification. Each party to this Agreement (the "Indemnifying Party") will indemnify and release the other (the "Indemnified Party") and hold the other harmless from and against, and the Indemnified Party will incur no liability to any person for, any claims, costs, expenses (including legal and other professional fees), interest, liabilities, loss, penalties, and taxes (collectively, "Daman") that may be imposed on, incurred by, or asserted against the Indemnified Party hereunder, but only to the extent Damages are caused by following the Indemnifying Party's direction or caused by the Indemnifying Party's negligence, omission, or willful misconduct. This Section will survive the termination of this Trust Agreement and will inure to the benefit of the successors of such Indemnified Party. 3.10 ]Limitations on Duties. The Trustee is not an administrator with respect to the Plan. The duties of the Trustee will be strictly limited to those set forth in this Trust Agreement. Without limiting the generality of the foregoing,the Trustee will have no duty to: 3.10.1. prescribe or maintain a Plan document or forms (including but not limited to forms for electing participation, distribution,withdrawal and for providing notices to Participants); 3.10.2. request or obtain a ruling or other guidance from the Internal Revenue Service or any Page 9 of 27 37772 other governmental authority as to (or otherwise determine or monitor)the tax consequences of the form and operation of the Plan,Plan document,Trust,and Trust Agreement; 3.10.3 construe the terms of the Plan,determine eligibility for Plan benefits(including eligibility for participation, vesting, and distribution, as well as the timing, amount, and form thereof), resolve benefit claims or claim appeals, maintain participant-level records, determine whether any expense is a proper Plan expense,or perform any functions of a plan administrator; 3.10.4. determine, monitor, and collect Plan contributions; rather, the Trustee will be subject to the Retirement Board's direction with regarding to such matters; or monitor compliance with any applicable funding requirements under applicable law. 3.10.5. determine, conduct a review of, make recommendations with respect to, or otherwise question (i) the investment policy and guidelines; (ii) the funding policy and actions taken under the funding policy; (ii) the classes of permissible investments under this Trust Agreement; (iii) buying, holding, or selling Trust assets with respect to any portion of the Trust over which anyone other than the Trustee has investment authority; (iv) compliance with the investment policy or guidelines or funding policy with respect to any portion of the Trust over which anyone other than the Trustee has investment authority; or (v) the terms of any document the Trustee executes or receives in connection with the exercise of investment authority by anyone other than the Trustee; 3.10.6. give notices or make filings required by applicable law regarding the Plan, including calculating, withholding, reporting, or remitting to the appropriate taxing authorities any federal, state, or local taxes that may be required to be calculated,withheld,reported,or remitted with respect to the Trust, unless otherwise required by law; 3.10.7. monitor service providers hired by the City or by the Retirement Board, including any Investment Manager; 3.10.8. maintain or defend any legal proceeding in the absence of indemnification, to the Trustee's satisfaction, against all expenses and liabilities which it may sustain or anticipate by reason thereof, or 3.10.9. make a distribution to the extent that Trust assets, when reduced by taxes applicable to such a distribution, when further reduced by expenses payable by the Trust, are less than the amount of the payment. 3.11 Force Majeure. The Trustee will not be responsible for any delay or failure in performing its obligations under this Trust Agreement caused by circumstances beyond the Trustee's reasonable control. SECTION 4 SPENDTHRIFT PROVISIONS Except as expressly permitted by the terms of the Plan and applicable law, no Participant will have any transmissible interest in any beneficial interest in the Trust; nor will any Participant or other person have any power to anticipate, alienate,dispose of,pledge or encumber any beneficial interest in the Trust while in the possession or control of the Trustee; nor will the Trustee, the City, or the Retirement Board recognize any assignment thereof, either in whole or in part, nor will any beneficial interest in the Trust herein be subject to attachment, garnishment, execution following judgment, or other legal process while Page 10 of 27 37772 in the possession or control of the Trustee. SECTION 5 AMENDMENT AND TERMINATION 5.1. Adoption of this Trust Agreement. Adoption of this Trust Agreement will not, by itself, serve to terminate a plan or establish a new plan. 5.2. Amending the Trust Agreement or Terminating the Trust. This Trust Agreement may be amended at any time and from time to time,in whole or in part,by a written instrument signed by the City and the Trustee. The City may terminate the Trust at any time, by action of the City Council. In connection with such a termination, the Retirement Board will give the Trustee a copy of the written action and direct the Trustee as to the distribution of all Trust assets, prioritizing the satisfaction of all liabilities to existing Plan beneficiaries,then Trust expenses attendant to termination,and then payment of taxes. 5.2 Plan Termination. In the event of partial or full Plan termination, the Retirement Board will direct the Trustee as to the distribution of Trust assets in a manner consistent with the provisions of the Plan. SECTION 6 MISCELLANEOUS 6.1. Co-fiduciary Responsibility. No action taken by any fiduciary hereunder will be the responsibility of any other fiduciary, and no fiduciary will have the duty to question whether any other fiduciary is fulfilling all of the responsibility imposed upon such other fiduciary by this Trust Agreement or the Plan document. 6.2. Authorized Signers. The City will identify each person who is authorized to act on the City's behalf with respect to the Trust Agreement, by giving the Trustee (i) a certificate of incumbency signed by the City's Clerk indicating which City offices have such authority and naming the persons holding those offices; and(ii)the specimen signature of such persons. The City will similarly identify the persons who are authorized to act on the Retirement Board's behalf. The Trustee may assume that any person so identified continues to be so authorized,until the City gives the Trustee written notice to the contrary. To the extent that no person is currently so identified to act on behalf of the City(or the Retirement Board,as the case may be),the Trustee may assume that any person who purports to be an authorized agent of the City(or the Retirement Board,as the case may be)is in fact so authorized. 6.3. Administrative Expenses. The reasonable expenses of administering the trust and the Plan (including, but not by way of limitation, fees and expenses of accountants, agents, attorneys, brokers, custodians, consultants, legal counsel, the Trustee and other professionals as authorized pursuant to this Trust Agreement) will be payable out of the Trust except to the extent that the City, in its discretion, directly pays the expenses. An administrative expense will be payable from the Trust upon such expense remaining unpaid by the City after receiving thirty(30)calendar days' notice of the expense. 6.4. Execution in Counterparts. This Trust Agreement may be executed in any number of counterparts,each of which,without production of the others,will be deemed to be an original. 6.5. No Third Party Beneficiaries. The Parties do not intend nor will this Trust Agreement be Page i 1 of 27 37772 deemed to create in any third party any rights or responsibilities with respect to the Parties. 6.6. No Vested Benefits. Neither the creation nor the operation of the Trust will cause the vesting of a Participant's right to Plan benefits. 6.7. Construction. The provisions of this Trust Agreement are severable. The invalidity of a provision herein will not affect the validity or any other provision. 6.8. Plan document. The Retirement Board represents that it has delivered the Plan document as in effect on the date first written above to the Trustee and will provide the Trustee with any subsequent amendment thereof. In the event of a conflict between the Plan document and this Trust Agreement,this Trust Agreement will prevail with respect to the rights,powers,and duties of the Trustee. 6.9, Governing Law; Venue. This Trust Agreement will be governed, enforced, and interpreted in accordance with the laws of the State of California, except where federal law preempts state law. By executing this Trust Agreement, each party hereto consents to that court's exercise of personal jurisdiction over the party. 6.10. Rules of Interpretation. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular•, the masculine may include the feminine; and the words "hereof," "herein", or"hereunder" or other similar compounds of the word "here"will mean and refer to this entire Trust Agreement and not to any particular paragraph or section of this Trust Agreement unless the context clearly indicates to the contrary. The titles given to the various sections of this Trust Agreement are inserted for convenience of reference only and are not part of this Trust Agreement, and they will not be considered in determining the purpose, meaning or intent of any provision hereof. Any reference in this Trust Agreement to a statute or regulation will be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. 6.11. Successors and Assigns. This Trust Agreement will be binding upon and inure to the benefit of the City,the Trustee, and their respective successors and assigns. 6.12. Solvency. The City represents that the City is not subject to any pending bankruptcy or insolvency proceeding and will notify the Trustee promptly of any such proceeding. 6.13. Delivery of Directions. Any direction or other communication provided for in this Trust Agreement will be given in writing and, unless the recipient has timely delivered a superseding address by way of certified mail(return-receipt requested), addressed as indicated below. The Trustee will not be charged with knowledge of an emailed direction to the Trustee's detriment if the email cannot be shown to have been sent to the Trustee return-receipt requested. If to the Trustee: U.S. Bank National Association c/o Steven Webb,Vice President and Relationship Manager 633 W.5" St., 25'h Floor,Los Angeles,CA 90071 steven.webb@usbank.com Page 12 of 27 37772 If to the City: City of Huntington Beach c/o City Administrator P.O.Box 190 2000 Main Street Huntington Beach,California 92648 City of Huntington Beach c/o City Attorney P.O. Box 190 2000 Main Street Huntington Beach,California 92648 City of Huntington Beach c/o City Clerk P.O.Box 190 2000 Main Street Huntington Beach,California 92648 (Any direction or communication to the City under this Section 6.13 must be delivered to each of the above-named individuals.) If to the Retirement Board: City of Huntington Beach,Retirement Board c/o City Treasurer P.O.Box 190 2000 Main Street Huntington Beach,California 92648 City of Huntington Beach,Retirement Board c/o City Administrator P.O.Box 190 2000 Main Street Huntington Beach,California 92648 City of Huntington Beach,Retirement Board c/o Finance Director P.O.Box 190 2000 Main Street Huntington Beach,California 92648 City of Huntington Beach,Retirement Board c/o City Attorney P.O.Box 190 2000 Main Street Huntington Beach,California 92648 (Any direction or communication to the Retirement Board under this Section 6.13 must be delivered to Page 13 of 27 37772 each of the above-named individuals.) 6.14 Fidelity:Bond. The City hereby represents that neither the City nor the Retirement Board has an obligation under applicable law to carry a fidelity bond that covers individuals who handle assets of the Trust or who otherwise have fiduciary duties with respect to the Trust. 6.15 Damages. The Trustee will not be liable to the City or to the Retirement Board for indirect, incidental, or consequential damages, unless such damages were reasonably foreseeable and could have been avoided through the Trustee's exercise of reasonable care. IN WITNESS WHEREOF, an authorized officer of each party hereby executes this Trust Agreement on the day and year first written above. U.S.BAND NATIONAL,ASS C ION By: l� Its: _ T;T&eYI CITY OF IIUN BEACH By: Name: Fre ilso Title: City Administrator,City of Huntington Beach Reviewed and approved by: By: Y J� Name: ennifer McGrath Title: City Attorney,City of Huntington Beach Page 14 of 27 37772 TRUST AGREEMENT FOR THE CITY OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN&'TRUST EXHIBIT A Benefit Plan Fee Disclosure and Authorization Page 15 of 27 37772 ICI INSTITUTIONAL TRUST & CUSTODY Benefit Plan* Fee Disclosure and Authorization ATTACHMENT A t®Trust Agreement (FOR PLANS RECEIVING U.S.BANK INVESTMENT ADVISORY SERVICES—NO PARTICIPANT DIRECTION) Plan Name:City of Huntington Beach Supplemental Employee Retirement Plan&Trust The undersigned is the named fiduciary or other fiduciary("Independent Fiduciary")of the above named plan("Plan")with authority to select the Plan's investments and approve the fees to be paid from the Plan. U.S.Bank(as defined below)will act in the following capacity for the Plan: ® Trustee ❑ Custodian INTRODUCTION The Independent Fiduciary has selected U.S.Bancorp,acting through its subsidiary,U.S.Bank National Association or one or more of its other subsidiaries or affiliates(collectively,"U.S.Bank"),to provide investment advisory and other services to the Plan. This Fee Disclosure and Authorization describes the Plan's services and fee arrangements,as follows: Part A designates the investments for the Plan,including mutual funds and collective trust funds(the"Funds"),and describes the fees that the Plan will pay to the Funds, including compensation(if any)U.S.Bank receives from the Funds; Part B describes the fees that the Plan will pay directly to U.S.Bank;and Part C describes the circumstances under which this Fee Disclosure and Authorization may be changed and includes the Independent Fiduciary's approval and authorization of the arrangements described in Parts A,B,and C. By executing this Fee Disclosure and Authorization,the Independent Fiduciary is authorizing these services,fees,and compensation. For each designated Fund, U.S. Bank provides the Independent Fiduciary a prospectus or a summary description document. The prospectuses and summary description documents contain important information that supplements the information included in this Fee Disclosure and Authorization. The Independent Fiduciary should carefully review the prospectuses and summary description. documents. 'To be used for all ERISA-covered benefit plans(including retirement plans and VEBAs)and governmental plans. ban k. SHARES OF MUTUAL FUNDS AND COLLECTIVE TRUST FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,OR GUARANTEED BY,ANY BANK, INCLUDING U.S.BANCORP AFFILIATE BANKS,NOR DOES THE FEDERAL DEPOSIT INSURANCE CORPORATION,THE FEDERAL RESERVE BOARD,OR ANY OTHER AGENCY INSURE THEM, INVESTMENT IN MUTUAL FUNDS OR COLLECTIVE TRUST FUNDS INVOLVES INVESTMENT RISKS,INCLUDING POSSIBLE LOSS OF PRINCIPAL,DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE. Fee DiscJAuth.—FORM A— Investment Advisory Services—No Participant Direction 022009 Page I of 6 Page 16 of 27 Benefit Plan* Fee Disclosure and Authorization A. FUND SELECTION AND FEE DISCLOSURE Subject to investment guidelines established for the Plan's account with U.S.Bank,as amended from time to time,U.S.Bank may invest the Plan's account in the following investments. Non-Proprietary Mutual Funds—Subject to the Plan's investment guidelines,U.S.Bank may invest Plan assets in"non-proprietary" Funds, not affiliated with U.S. Bank. U.S.Bank may enter into agreements with non-proprietary Funds or their service providers (including advisers, administrators or transfer agents, and underwriters) whereby U.S. Bank provides shareholder services, sub- transfer agency, custodial and other administrative support services and receives compensation for the services. This compensation may include fees paid under a plan of distribution under SEC Rule 12b-1 ("12b-i fees"). Generally,compensation received by U.S. Bank directly or indirectly from each non-proprietary Fund is based on the value of the Plan's investment in the Fund (an "asset- based" fee)at rates that vary among the Funds and share classes selected. The amount of fees U.S.Bank may receive from each of the non-proprietary Funds is identified on the schedule below. In addition, some non-proprietary Funds pay U.S. Bank a finders fee of up to 125 basis points on new contributions to the Fund. Compensation received by U.S.Bank directly or indirectly from Funds does not increase the Fund fees and expenses the Plan pays as a Fund shareholder,as disclosed in the applicable prospectus. U.S.Bank may invest Plan assets in the following non-proprietary Funds: Fund Name Ticker Share Class Fees Received by Total U.S.Bank* Expense Fidelity Govemment Portfolio Class 11 FCVXX Class 1I 0.25 0.38 * U.S.Bank's affiliate U.S.Bancorp Fund Services Inc.provides certain administration,transfer agency,and other services to a limited number of Funds and receives fees for those services which in the aggregate range from.005%to.30%of net assets of the Fund. These fees are in addition to the fees reported in this column. These fees do not increase or decrease the Fund operating expenses as described in the Fund's prospectus. For more information, including information as to whether Fund Services provides services to and receives fees from any particular Fund,please review the Fund's prospectus or contact your Relationship Manager. WAhk bet�nuaurd�d{ SHARES OF MUTUAL FUNDS AND COLLECTIVE TRUST FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,OR GUARANTEED BY,ANY BANK,INCLUDING U.S. BANCORP AFFILIATE BANKS,NOR DOES THE FEDERAL DEPOSIT INSURANCE CORPORATION,THE FEDERAL RESERVE BOARD,OR ANY OTHER AGENCY INSURE THEM. INVESTMENT IN MUTUAL FUNDS OR COLLECTIVE TRUST FUNDS INVOLVES INVESTMENT RISKS,INCLUDING POSSIBLE LOSS OF PRINCIPAL,DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE. Fee Disc./Auth.—FORM A— Investment Advisory Services—No Participant Direction 022009 Page 2 of 6 Page 17 of 27 Benefit Plan* Fee Disclosure and Authorization Directed Investments—In a separate instruction document,the Independent Fiduciary or an investment manager designated by the Independent Fiduciary has directed that Plan assets be invested in one or more additional investments. These investment(s)shall be made solely at the direction of the Independent Fiduciary. U.S. Bank has not recommended these additional investment(s), exercises no discretion with regard to the additional investment(s), and shall have no responsibility to review or monitor the additional investments(s). Investment in the additional investment(s)may be subject to additional fees and expenses. ❑ There are directed investments,as set forth in a separate instruction document. X There are no directed investments. I�.vr�ser�oSS�ia,satscd. SHARES OF MUTUAL FUNDS AND COLLECTIVE TRUST FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,OR GUARANTEED BY,ANY BANK, INCLUDING U.S. BANCORP AFFILIATE BANKS,NOR DOES THE FEDERAL DEPOSIT INSURANCE CORPORATION,THE FEDERAL RESERVE BOARD,OR ANY OTHER AGENCY INSURE THEM. INVESTMENT IN MUTUAL FUNDS OR COLLECTIVE TRUST FUNDS INVOLVES INVESTMENT RISKS,INCLUDING POSSIBLE LOSS OF PRINCIPAL,DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE. Fee DWAuth.—FORM A— Investment Advisory Services—Nn,participanj Direction 022009 Page 3 of 6 Page 18 of 27 Benefit Plan* Fee Disclosure and Authorization B. FEES PAID BY THE PLAN The Plan shall pay the following fees("Plan Fees")directly to U.S.Bank: Advisory Fee: 15 bps on the first$50 Million 12 bps above$50 Million. Trustee Fee: 3 bps on the first$50 Million 2 bps above$50 Million Distribution Fee: $1.75 per ACH,$2.00 per check,$10 per lump sum The Plan Fees are in addition to fees and expenses the Plan pays as an investor in the Funds("Fund Fees"). Fund Fees are charged against the Funds'assets and reduce the Funds'average daily balance and investment yields. Each of the Fund's fees and expenses are different and also vary based on share class. As of the Effective Date,each of the Funds Fees are as set forth in Part A—Fund Selection and Fee Disclosure and are described in more detail by the applicable prospectus. U.S. Bank's compensation for Plan services includes the Plan Fees and also the compensation received by U.S. Bank directly or indirectly from Funds as a result of the Plans investment in the Funds,as described in Part A—Fund Selection and Fee Disclosure. Plan Fees may be affected by amounts received by U.S. Bank from the Funds because these amounts may reduce Plan Fees that would otherwise be charged by U.S.Bank. Amounts received by U.S.Bank directly or indirectly from Funds vary among the Funds and Funds'share classes. Therefore,selections among Funds and share classes may affect the amount of Plan Fees. Pending Transaction Fees. U.S.Bank or its agent(the"Financial Institution")may hold(i)cash awaiting distribution to participants or other proper recipients, including beneficiaries, or(ii) funds held for other purposes (for example, maintaining liquidity) in an interest-bearing or noninterest-bearing deposit account in the Financial Institution's banking department and,thereby,earn and retain the"float"as part of its compensation for servicing the Plan. For distributions made from the Plan,the float period commences on the date the check,wire transfer,or electronic transfer is issued to the participant or beneficiary(or other proper recipient)and ends on the date the check is presented to the Financial Institution for payment and settles or wire or electronic transfer is accepted by the receiving institution. The time period involved varies for each payment issued,though the average time such payments remain outstanding is one to 15 days from the date of issuance. For funds held for other purposes,the float period commences on the date good funds are deposited in the applicable deposit account and ends on the date the funds are withdrawn or transferred therefrom. The float rate on(i)uncashed checks,pending wire transfers,and pending electronic transfers and(ii)funds held for other purposes is generally no more than the Target Federal Funds Rate (the"Target Rate")of interest applicable during the period involved. The Target Rate is the short-term rate objective announced by the Federal Reserve. The actual rate of interest paid between banks is the Effective Federal Funds Rate (the "Effective Rate"). The Effective Rate changes daily but is generally close to the Target Rate. Changes to the Target Rate are made by the Federal Reserve's Open Market Committee. The announced Target Rate can be obtained upon request from your account representative or can be found in the Wall Street Journal. U.S.Bank's Provision of Services. Services to the Plan and Funds may be provided by U.S.Bank directly or through one or more of its affiliates, including any subsidiary or affiliate of U.S.Bancorp. In particular,U.S.Bank's affiliate,Quasar Distributors,LLC,a registered broker-dealer,or another affiliate,may provide brokerage and other services to the Plan,including effecting transactions in the Funds. U.S.Bank may also engage third parties to assist it in providing Plan services,including Fidelity Brokerage Services LLC and National Financial Services LLC(together, "Fidelity"),which provide certain brokerage and transaction processing services in connection with the Plan. U.S.Bank may change its arrangements for the provision of Plan services from time to time,including its engagement of any of its affiliates or Fidelity. U.S.Bank is solely responsible for compensating its affiliates and any third parties and U.S.Bank may pay such compensation from amounts U.S.Bank receives from the Plan and dir The Plates fees do not change based on U.S.Bank's decision to engage affiliates or third parties in corm Additional information concerning U.S. Bank's compensation is available on request to your account represe ve, mdtu estimate of the annual amounts U.S.Bank receives in connection with the Plans investment in the Funds. SHARES OF MUTUAL FUNDS AND COLLECTIVE TRUST FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,OR GUARANTEED BY,ANY BANK,INCLUDING U.S. BANCORP AFFILIATE BANKS,NOR DOES THE FEDERAL DEPOSIT INSURANCE CORPORATION,THE FEDERAL RESERVE BOARD,OR ANY OTHER AGENCY INSURE THEM. INVESTMENT IN MUTUAL FUNDS OR COLLECTIVE TRUST FUNDS INVOLVES INVESTMENT RISKS,INCLUDING POSSIBLE LOSS OF PRINCIPAL,DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE. Fee Dise./Anth.—FORM A— Investment Advisory Services—N^Participant Direction 022009 Page 4 of 6 Vage 19 of 27 Benefit Plan* Fee Disclosure and Authorization C. APPROVAL AND AUTHORIZATION Disclosure and Approval of Investment in First American Funds. In connection with the Plan's investment in First American Funds,the Independent Fiduciary acknowledges receipt of the following information in accordance with Department of Labor("DOL")Prohibited Transaction Exemption 77-4. The total fees paid by the Plan and by the selected First American Funds to U.S.Bank are described above in Part A—Fund Selection and Fee Disclosure and Part B — Fees Paid by the Plan, including any differential between the fees of the different First American Funds. Additional information about fees paid by the First American Funds is provided in the prospectus for each Fund. Investment in the First American Funds offers diversified investments and provides features that are appropriate for the Plan, including that the Funds are valued daily, may be bought or sold on any business day, and prices of First American Funds are listed daily in most major newspapers and Internet financial sources. The Plan will invest in share classes that do not charge any sales commission,loads,or transfer fees for buying or selling Fund shares. The Plan may invest in share classes that charge redemption fees only to the extent such redemption fees are paid to the investment company and are disclosed in the prospectus at the time of purchase and at the time of sale. The Plan may only be eligible to invest in certain share classes of some First American Funds;such limitations are described in the Funds' prospectuses. By completing this form,the Independent Fiduciary authorizes U.S.Bank to invest the Plan's assets in the designated First American Funds, and this authorization shall apply to the purchase, retention, or sale of shares of any successor funds. The Independent Fiduciary authorizes the payment of expenses and the receipt by U.S.Bank of fees up to the total annual operating expense as disclosed in the prospectus. In connection with the Plan's investment in the First American Funds, advisory fees paid by the Plan (as specified above)will be waived for assets invested in First American Funds. Changes This Fee Disclosure and Authorization may be amended from time to time in writing by the parties, or U.S. Bank may propose changes in writing, including any change in fees, or adding, deleting, or substituting any Funds on the Fund Schedule, by written notice to the Independent Fiduciary at least 30 days before any change. If the Independent Fiduciary does not object in writing before the change is to be effective in accordance with U.S. Bank's written notice, U.S. Bank shall implement the proposed change as a direction of the Independent Fiduciary. However, the selection of First American Funds may not be changed without the express written consent of the Independent Fiduciary. Further,the rates of fees associated with First American Funds may not be changed without the express written consent of the Independent Fiduciary. Imn "' F`�ieSt�r•Se(yaaraoklrl SHARES OF MUTUAL FUNDS AND COLLECTIVE TRUST FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,OR GUARANTEED BY,ANY BANK,INCLUDING U.S. BANCORP AFFILIATE BANKS,NOR DOES THE FEDERAL DEPOSIT INSURANCE CORPORATION,THE FEDERAL RESERVE BOARD,OR ANY OTHER AGENCY INSURE THEM. INVESTMENT IN MUTUAL FUNDS OR COLLECTIVE TRUST FUNDS INVOLVES INVESTMENT RISKS,INCLUDING POSSIBLE LOSS OF PRINCIPAL,DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE. Fee Disc./Auth.—FORM A—Investment Advisory Services—No Participant Direction 022009 Page 5 of b Page 20 of 27 Benefit Plan` Fee Disclosure and Authorization Acknowledgement The Independent Fiduciary(or the Independent Fiduciary's authorized representative)hereby confirms and acknowledges that it: o is independent of U.S.Bank and its affiliates and possesses authority to act as a fiduciary under the Plan; o understands that,subject to the investment guidelines established for the Plan,the Plan may be invested in any of the First American Funds and any of the other Funds listed Part A—Fund Selection and Fee Disclosure; o has received,read,and understands the prospectuses or summary description documents of the First American Funds and other Funds designated in Part A—Fund Selection and Fee Disclosure; o understands and approves the total fees the Plan pays,including(a)the Fund Fees the Plan pays as an investor in the Funds up to the total annual operating expense as disclosed in the applicable prospectuses or summary description documents,(b) Plan Fees paid directly to U.S. Bank, (c) "float" retained by U.S. Bank as compensation for Plan services, and (d)compensation received by U.S.Bank directly or indirectly from the Funds;and o agrees that a failure to object to an addition,deletion,or substitution of the Funds available for Plan investment or a change in the Plan Fees or Fund Fees may be treated as the Independent Fiduciary's direction, unless the Independent Fiduciary objects in writing before the effective date of such change. The Independent Fiduciary approves the program of purchases and sales of shares of the First American Funds in accordance with the disclosures provided herein and the investment guidelines established by the Independent Fiduciary and U.S.Bank for the Plan. lm! k Fivesus cuamued SHARES OF MUTUAL FUNDS AND COLLECTIVE TRUST FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,OR GUARANTEED BY,ANY BANK, INCLUDING U.S. BANCORP AFFILIATE BANKS,NOR DOES THE FEDERAL DEPOSIT INSURANCE CORPORATION,THE FEDERAL RESERVE BOARD,OR ANY OTHER AGENCY INSURE THEM. INVESTMENT IN MUTUAL FUNDS OR COLLECTIVE TRUST FUNDS INVOLVES INVESTMENT RISKS,INCLUDING POSSIBLE LOSS OF PRINCIPAL,DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE. Fee DbcJAnth.—FORM A— Investment Advisory Services—No Participant Direction 022009 Page 6 of 6 Page 21 of 27 TRUST AGREEMENT FOR THE CITY OF HUNTINNGTON BEACH SUPPLEMENTAL RETIREMENT PLAN&TRUST EXHIBIT B Trustee&Investment Management Fee Schedule Page 22 of 27 37772 10 INSTITUTIONAL TRUST & CUSTODY Trustee & Investment Management Fee Schedule ATTACHEMENT B to Trust Agreement City of Huntington Beach TRUSTEE SERVICES TRUSTEE FEE: 3BPS ON THE FIRST $50 MM BPS ABOVE $50 MM ■ Safekeeping of assets(safekeeping includes custody ■ Professional,designated relationship team of specific Auction Rate Securities listed in asset ■ Daily NAV services holdings report provided by client) ■ Unlimited number of DTCC/Federal Reserve ■ Transaction settlement eligible securities to be held in nominee name ■ Cash Management(all cash swept daily) ■ Proxy management(stock splits,spin-offs,name ■ Online account access,management reporting,and changes,etc.) statement delivery ■ Collection of income(dividends,interest, ■ Online balance inquiry and trade affirmations matured bonds,settled sales) ■ Consolidated accounting&reporting ■ U.S.Bank Five Star Service Guarantee ■ Onsite client meetings as needed TRANSACTION PROCESSING ■ On-Site meetings Included a Standard DTC or Fed Buys/Sales/Principal Paydowns Included ■ U.S.Bank Initiated Trades Included ■ Physical Trades Included ■ Mutual Funds Transactions Included ■ Security Holding Fees Included ■ Monthly Pension Payments $1.75 ACH,$2.00 Check ■ Lump Sum Benefit Payments $10 each INVESTMENT MANAGEMENT PROVIDED BY THE ASSET MANAGEMENT GROUP Fees: 0.15%on the First$50 Million 0.12%over$50 Million ■ Annual minimum fee of$10,000 applies. ■ Management fee above waived on assets held in approved money market funds ■ Assets managed by U.S.Bank aggregated for pricing(money market balances excluded from aggregation) ■ Fee schedule assumes portfolio assignment is majority fixed income and minority equity management ■ Portfolio Manager to facilitate information on all assets held in each of the U.S.Bank custody accounts bank. F��SrarServrcr(iaarantzexl V 10/2006 7060-05 Page 23 of 27 Page 1 of 2 10 INSTITUTIONAL TRUST & CUSTODY Custody & Investment Management k4T; Fee Schedule SERVICE AND FEE ASSUMPTIONS ■ U.S.Bank has investment management responsibility ® Fee schedule assumes use of U.S.Bank's approved money funds for investment of short-term cash ■ This fee schedule pertains to domestic securities,i.e.;DTC and ADRs.International securities priced separately ■ U.S.Bank reserves the right to re-evaluate pricing and implement a change in the fee schedule with 30-day notice ■ U.S.Bank to maintain multiple accounts and sub-accounts as directed by the County of Riverside ■ Investment Management Fees are charged to the account on a monthly basis U.S.Bank reserves the right to adjust the fees quoted in this fee schedule should any of the information and assumptions used to generate these fees change prior to the conversion of the account to U.S.Bank. Page 24 of 27 Page 2of2 TRUST AGREEMENT FOR THE CITY OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN&TRUST EXHIBIT C Money Market Mutual Fund Investment Direction Form Page 25 of 27 37772 IN INSTITUTIONAL TRUST & CUSTODY Moneys Market Mutual Fund Investment Direction Form ATTACHMENT C to Trust Agreement In the absence of specific written direction to the contrary, Customer hereby authorizes and directs U.S. Bank National Association ("U.S. Bank") to invest and reinvest Account proceeds and other available Account cash in the following money market mutual fund. Customer acknowledges receipt of the fund's prospectus and its understanding and approval of the information provided on this form. Fidelity Govemment Portfolio Class 11(FCVXX) AN INVESTMENT IN A MONEY MARKET MUTUAL FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. SHARES OF A MONEY MARKET MUTUAL FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,OR GUARANTEED BY,ANY BANK. ALTHOUGH A MONEY MARKET MUTUAL FUND SEEKS TO PRESERVE THE VALUE OF CUSTOMER INVESTMENTS AT $1.00 PER SHARE, MUTUAL FUND INVESTING INVOLVES RISK AND PRINCIPAL LOSS IS POSSIBLE. Fee Disclosure: Fund Level: U.S. Bank has entered and will, from time to time, enter into agreements with mutual funds and/or mutual fund service providers whereby U.S. Bank receives fees as compensation for performing various shareholder services or administrative support services.U.S.Bank may receive a fee for providing shareholder service and administrative support services to the fund(which may be paid as 12b-1 service fees)or omnibus record keeping services of up to 60 basis points (.006) of the moneys invested in the fund. Payment of these fees by the mutual funds or mutual fund service providers does not result in any increase in fees charged against the fund's assets or earnings above the fee and expense levels established for the fund as disclosed in the fund's prospectus.Customer's investment direction acknowledged on this form includes Customer's approval of the fund fees as detailed in the fund's prospectus, including applicable advisory, . custodial, distribution, and/or shareholder service fees, which may be so-called 12b-1 shareholder service fees, that are paid to U.S.Bank or any of its affiliates. City of Huntington Beach Supplemental Employee Retirement Plan&Trust �ba n . F,trrS�Sei+mxfs�araa!�e,S�'� Page 26 of 27 10 INSTITUTIONAL TRUST & CUSTODY Authorized Signature Form k*]i Account/Plan Name: ('.sty J\A y M 1 ng):o-� 6 cnc�, .S v ep%C r1 r r)i a 1 P l a 3 "Try 3} Account Principal/Plan Sponsor Name: NA In accordance with the provisions of the above referenced account, the following people are authorized on behalf of the Plan/Account to direct U.S. Bank N.A. to take action with regard to this account and hereby authorize and direct U.S. Bank, N.A. to act on directives signed by: L l Name: �(7U �" �✓U 6,C�� l7V Title: Z — 4 E Gl O Signature: Z� Z�� Name: .,Z W t )S 0,1 Title: l•. 14 y A c1m)/,j Signature: Name: J�8R1 ��el C{C� )e IC Title: C y Signatur 0426td Name: Title: Signatu . Authorized by: I hereby acknowledge and represent that I am authorized on behalf of the Plan/Account to provide this authorized signature form to U.S. Bank, N.A. This form shall remain in effect until it is changed or revoked in writing by the Plan/Account.Any change or revocation of this form shall be effective upon U.S.Bank's receipt of such written notice. Name: S&q A 1 Gi PnR t e Signature Title: C 14V^�rts�,( y�e �iC Date Signe . � '01 bank., Page 27 of 27 1 City of Huntington Beach 2000 Main Street ® Huntington Beach, CA 92648 OFFICE OF THE CITY CLERIC JOAN L. FLYNN 9 CITY CLERK September 9, 2009 U. S. Bank National Association Attn: Steven Webb, Vice President and Relationship Manager 633 W. Fifth Street, 25th Floor Los Angeles, CA 90071 Dear Mr. Webb: Enclosed for your records is a certified copy of the Trust Agreement for the City of Huntington Beach Supplemental Retirement Plan and Trust. Please note the original authorized signatures are on page 27. Sincerely, J L. Flynn, CMC City Clerk JF:pe Enclosure cc: Scott Field, City Attorney's Office Shari Freidenrich, City Treasurer G:followup:agrmtltr Sister Cities: Anjo, Japan ® Waitakere, New Zealand (Telephone:714-536-5227) Council/Agency Meeting Held: 3o Deferred/Continued to: App ve ❑ Conditionally Approved ❑ Denied '..rVL&-P City, erk' SignatG e Council Meeting Date: 3/16/2009 Departmel Number: 09-005 CITY OF HUNTINGTON BEACH REQUEST FOR CITY COUNCIL ACTION SUBMITTED TO: Honorable Mayor and City C01mcil Members SUBMITTED BY: Fred A. Wilson, City AdminVe3b r PREPARED BY: Jennifer McGrath, City Atto Shari L. Freidenrich, CPA, City Treasu Paul Emery, Deputy City Administrator Dan Villella, CPA, Finance Director SUBJECT: Supplemental Employee Retirement Plan and Trust Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s) Statement of Issue: City Council is requested to adopt a Resolution approving the Supplemental Employee Retirement Plan and Trust, and further, establishing the members of the Retirement Board. In addition, an agreement is required to provide investments and related trust services. Funding Source: Funding for the Supplemental Employee Retirement Plan and Trust is determined by an actuarial study prepared for the City. The annual appropriation to the Plan is pursuant to the City budget. The city has prefunded approximately $24 million for this benefit. The amount has been recorded in a pension trust fund of the City and these funds will be contributed to the irrevocable trust upon approval of the trust and the execution of the agreement. Compensation for the firm providing investment and trust services will be paid from the trust in an amount estimated at $47,500 annually. Recommended Action: Motion to: 1. Adopt Resolution No. 2009-1bf the City Council Approving the Supplemental Employee Retirement Plan and Trust and authorize the Mayor to Execute the Plan and Trust Establishing the Retirement Board, and 2. Authorize the City Administrator to execute the Agreement between the City and US Bank for investment and trust related services in a form approved by the City Attorney. v REQUEST FOR CITY COUNCIL ACTION MEETING DATE: 3/16/2009 DEPARTMENT ID NUMBER: 09-005 Alternative Action(s): Do not adopt the Resolution establishing the Supplemental Employee Retirement Plan and Trust and risk non-compliance with Government Code requirements. Do not select US Bank as the provider of investment and trust related services. Analysis: BACKGROUND. Pursuant to MOUs with each employee association, the City provides retirees with a Supplemental Retirement Benefit in addition to the CalPERS retirement plans. Depending upon the bargaining unit, the Supplemental Benefit is limited to employees hired prior to 1997 or 1998. The Supplemental Benefit pays the retiree the difference between the retiree's unmodified CalPERS pension and the reduced CalPERS pension where the retiree designates a beneficiary to receive his or her PERS pension after the retiree's death. Where a beneficiary is selected, the CalPERS pension is reduced based on both the employee's life expectancy at retirement and the beneficiary's — the younger the beneficiary, the greater the reduction. The City's Supplemental Benefit remains constant, with no cost of living increase and upon the death of the retiree, the City's Benefit obligation ceases. According to the September 16, 2008, Actuarial Valuation Update of the Supplemental Benefit Plan for FY 2007-08, the Actuarial Accrued Liability for the entire Plan was $52,777,290 of which 43.1% ($22,722,000) is already funded by the City. The annual required contribution for fiscal year 2008/09 is anticipated to be $3.07 million. LEGAL REGULATION OF PENSIONS. Currently, the Supplemental Benefit funds are pooled with other City operating investments earning the same return on investment as all other operating funds in the City. However, Gov't. C. § 20894(c) requires that as a condition of the City's participation in PERS, any supplemental defined benefit plan like the Supplemental Benefit must be established as a trust approved qualified under Internal Revenue Code § 401(a). The effect of the Trust is to protect the contributions and assets from City creditors and dedicates them irrevocably to retirees and beneficiaries in accordance with the Plan. The effect of qualification under Internal Revenue Code § 401(a) is to exempt as taxable income to the employee contributions to the pension trust. The establishment of the Trust enables the City to separate these investments from operating fund investments. Presently, Gov't. C. § 53601 limits the Treasurer's investment portfolio to principally United States Treasury Notes and Bills, Government Sponsored Agencies, State of California Local Investment Fund (LAIF), Commercial Paper, and Medium Term Notes. If the City establishes a pension trust as a separate legal entity, then the only limit on the investment portfolio is Section 53216.6, which requires the Trust to invest the funds "with the care, skill, prudence, and diligence under the circumstances then prevailing -3- 3/6/2009 9:46 AM REQUEST FOR CITY COUNCIL ACTION MEETING DATE: 3/16/2009 DEPARTMENT ID NUMBER: 09-005 that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims." This will increase the flexibility and range of investment choice available to this supplemental pension, while ensuring protection of the interests of the beneficiaries. The duty of the Retirement Board, in consultation with the investment advisor, is to manage funds in the exclusive interest of the beneficiaries; minimizing employer contributions is a secondary duty. Based on the longer term investment horizon, short term risk is considered to be an acceptable trade-off in order to achieve a long-term rate of return sufficient to preserve or enhance the value of the assets relative to inflation. Despite the recent volatility in the stock market, the pension board can set investment policies to minimize short term risk if necessary. The Trust is to be governed by the Retirement Board. The Resolution appoints the City Treasurer, City Finance Director, and the City Administrator (or his/her designee) as the Retirement Board. The Retirement Board is responsible for supervising all investments, resolving Benefit disputes, and insuring that the necessary City contributions are made in order to pay the required Benefits. The members of the Retirement Board will be subject to the Brown Act and the Political Reform Act. Under Section 53216.3, the legislative body shall employ investment counsel and a trust company or bank trust company to render service in connection with the investment program. SELECTION OF INVESTMENT AND TRUST RELATED SERVICES PROVIDER. The City issued a Request for Proposals to solicit firms to provide investment and trust related services. A total of five proposals were received and reviewed by senior staff members from the Finance Department, City Treasurer, and the Human Resources Departments. The review assessed the qualifications and experience of the firm, their approach and work plan, and the fee schedule for services. Staff reviewed the proposals and conducted interviews with the three highest rated firms. City staff has selected US Bank as the firm best qualified to perform the investment and trust related services. Since recent events have caused financial difficulty among certain banks, staff studied the financial information for US Bank. The assets of the trust will not be comingled with other US Bank assets, however, staff felt due diligence required independent analysis of the bank's specific situation. Finance and City Treasurer's staff have researched the Dunn and Bradstreet report for US Bank, examined the most recent audited financial statements for US Bank, and various other financial information related to the stability of the bank including credit rating and any US Treasury funding. Staff has determined that that the bank is in stable financial condition. US Bank has a current Standard and Poor's rating of AA and is the 6th largest commercial bank in the United States. They currently manage over 1600 accounts with over $12.5 billion in assets. -4- 3/6/2009 9:46 AM REQUEST FOR CITY COUNCIL. ACTION MEETING DATE: 3/16/2009 DEPARTMENT ID NUMBER: 09-005 Strategic Plan Goal: Fully understand the financial implications of financial decisions before they are made, and recognize and disclose fiscal impacts of the pension crisis. Environmental Status: Not applicable. Attachment(s): PA 0 0 ® B 0 Resolution No. 2009-11 of the City Council Approving the Supplemental Employee Retirement Plan and Trust, and Establishing the Retirement Board 2 City of Huntington Beach Supplemental Retirement Plan & Trust Effective January 1, 2009 3 Request for Proposals for Retirement Trust and Management Services .; 4. US Bank Proposal for Retirement Trust and Management Services 5 Financial Information for US Bank -5- 3/6/2009 9:46 AM ATTACHMENT # 1 RESOLUTION NO. 2009-11 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH APPROVING THE SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN AND TRUST AND ESTABLISHING THE RETIREMENT BOARD WHEREAS, the City of Huntington Beach provides retirement benefits to its employees pursuant to several agreements between the City and the California Public Employees Retirement System ("CaIPERS"); and WHEREAS,the City also provides, pursuant to various memorandums of understanding with its employee associations, a supplemental pension to the CaIPERS retirement plans; and WHEREAS, California Government Code Section 20894(c)requires that as a condition of the City's participation in the CaIPERS retirement system, any supplemental defined benefit plan be established as a trust qualified under Internal Revenue Code Section 401(a); and WHEREAS, in compliance with Section 20894, the City Council has caused to be prepared the City of Huntington Beach Supplemental Retirement Plan and Trust. NOW, THEREFORE, the City Council of the City of Huntington Beach does hereby resolve as follows: Section 1. The City Council hereby approves the Supplemental Employee Retirement Plan and Trust("Trust"), a copy of which is attached hereto. Section 2. Section 5 of the Trust provides that the Trust will'be administered by the Retirement Board. The City Council hereby determines that the Retirement Board shall consist of three members. The members of the Retirement Board shall be the City Treasurer,the City Finance Director, and the City Administrator, or his/her written designee. Section 3. The Retirement Board shall meet not less than twice per calendar year. All meetings shall be conducted in compliance with the California Open Meeting Laws, California Government Code Section 54950 et seq. Section 4. All members of the Retirement Board shall file annual Statement of Economic Interests, pursuant to California Political Reform Act, Government Code Section 87200, et seq. Section 5. The Board may appoint a hearing officer to adjudicate the claims against the Trust, including, but not limited to whether an employee of the City is a Participant in the Plan. The hearing officer shall conduct an evidentiary hearing, at which time all relevant evidence may be presented and considered by the hearing officer. The hearing officer shall issue 1 27950 Resolution No. 2009-11 a written decision. The hearing officer's decision shall be the final decision of the Retirement Board, subject to judicial review pursuant to California Code of Civil Procedure Section 1094.5. PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the 16th day of March 12009 Mayor REVIEWE PPROVED: INITI AND APPROVED: City Ad fn r or Deputy City Admin rator APPROVED AS TO FORM: F� City Attorney 2 27950 Resolution No.2009-11 CITY OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN & TRUST EFFECTIVE JANUARY 1, 2009 Resolution No.2009-11 TABLE OF CONTENTS Page SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN.................................. 1 SECTION 2. DEFINITIONS.....................................................•---......-•---.........-----------•--...... 1 SECTION 3. ELIGIBILITY AND PARTICIPATION.........................................................4 SECTION 4. PLAN BENEFITS .......................................................................................... 5 SECTION 5. ADMINISTRATION OF THE PLAN ............................................................7 SECTION 6. TRUST FUND................... :..............................................................................9 SECTION 7. ADMINISTRATION OF TRUST................................................................. 10 SECTION 8. BENEFIT LIMITATIONS ............................................................................ 17 SECTION 9. GENERAL PROVISIONS ............................................................................ 19 SECTION 10. MODIFICATION AND TERMINATION OF THE PLAN .........................20 SECTION 11. CHOICE OF LAW....................: ..............21 SECTION 12. EXECUTION....................................•-----•--------------------•--------.........._.......__.....21 -i- »6n; Resolution No.2009-11 CITY OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT FLAN& TRUST SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN This City of Huntington Beach Supplemental Retirement Plan and Trust(the"Plan") is hereby established effective January 1, 2009, by the City of Huntington Beach. The sole purpose of the Plan is to supplement benefits payable to eligible retirees of the City under the California Public Employees' Retirement System. Accordingly, the Plan provides for payment of such benefits in the form of an annuity payable over the life of the eligible retiree; no survivor benefits are provided under the Plan. The Plan is intended to be a qualified retirement plan as provided in section 401(a) of the Internal Revenue Code of 1986, as amended(the"Code"), and a governmental plan within the meaning of section 414(d) of the Code. Capitalized terrns are defined in Section 2, except where expressly indicated otherwise. SECTION 2_ DEFINITIONS (a) --CalPERS" means the California Public Employees' Retirement System, as reflected in the California Government Code and as amended from time to time, and any regulations issued under laws governing CalPERS. (b) --City Council" means the Huntington Beach City Council. (c) --Code" means the Internal Revenue Code of 1986, as amended. (d) means an employee of the Employer who (1) on the employee's Termination Date, is employed by the Employer in a position covered by one of the bargaining units listed below; and (ii) was first hired in a position covered by that bargaining unit before the applicable date below: -1- ?bi13 Resolution No.2009-11 (1) For employees represented by the Municipal Employees Association ("MEA"), December 27, 1997. (2) For employees represented by the Management Employees Organization ("MEO"), August 17, 1998. (3) For employees represented by the Fire Management Association ("FMA"), August 17, 1998. (4) For employees represented by the Huntington Beach Firefighters Association("HBFA"), October 4, 1999. (5) For employees represented by the Marine Safety Officers Association ("MSOA"), November 2, 1998. (6) For employees subject to the Non-Associated Employees Benefits Resolution("NA") at the time of their hiring, December 27, 1997. (7) For employees represented by the Police Management Association ("PMA"), July 6, 1998. (8) For employees represented by the Huntington Beach Police Officers' Association (`HBPOA"), July 6, 1998. By way of example, if an employee is in a position covered by the MEO on his or her Termination Date, he or she would be an Eligible Employee only if hired in a MEO position before August 17, 1998. Extending this example, if the employee was hired on January 1, 1998 in an MEA position, and promoted to an MEO position on September 1, 1998, the employee would not be an Eligible Employee; but if the employee was promoted on August 1, 1998, he or she would be an Eligible Employee. 27603 Resolution No.2009-11 Regardless of the date of hiring, members of the City Council, employees represented by the Surf City Lifeguard Employees' Association ("SCLEA"), and any employee who was hired to work less than 20 hours per week, are not Eligible Employees. (e) "Employer" means the City of Huntington Beach, a governmental entity established as a municipal corporation pursuant to the Huntington Beach City Charter. (f) "IRS" means the Internal Revenue Service. (g) "Optional Retirement Benefit" means an amount payable under CalPERS pursuant to a member's election to receive an optional settlement under any of sections 21455, 21456, 21457, 21458 or 21459 of the California Government Code, as amended (which sections collectively set out optional settlements 1, 2, 2W, 3, 3W and 4 under CAPERS). (h) "Participant"means an Eligible Employee or former Eligible Employee who is a Participant in accordance with Section 3. (1) "Plan" means this City of Huntington Beach Supplemental Retirement Plan. 0) "Plan Year" means the 12-month period ending June 30 of each year. (k) "Qualified Domestic Relations Order" means a domestic relations order that creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a Participant under the Plan and that specifies (1) the name and the last known mailing address of the Participant and each alternate payee covered by the order, (ii) the amount or percentage of the Participant's benefits to be paid by the Plan to each such alternate payee, or the manner in which such amount or percentage is to be determined, (iii) the number of payments or period to which such order applies, and (iv) each plan to which such order applies. A domestic relations order refers to any judgment, decree or order (including approval of a property settlement agreement) J 27603 Resolution No.2009-11 that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a Participant and is made pursuant to a state domestic relations law. (1) "Retirement Board" means one or more persons appointed by the Employer to administer the Plan and control and manage assets under the Plan. See Section 5. (m) . "Supplemental Retirement Benefit" means the benefit provided under the Plan. See Section 4. (n) "Termination Date" means the date on which a Participant's employment with the Employer ceases. (o) "Trust" means the trust established pursuant to the terms of this Plan to hold the Plan's assets. See Section 7. (p) "Trustee" means the trustee appointed by the Retirement Board to hold and invest assets under the Trust. SECTION 3. ELIGIBILITY AND PARTICIPATION Each Eligible Employee on January 1, 2009 will become a Participant on such date. In addition, each former Eligible Employee (whose Termination Date occurred before 2009) who was receiving the Supplemental Retirement Benefit prior to 2009 will become a Participant on January 1, 2009 at the same level of Supplemental Retirement Benefit. A Participant's participation in the Plan will cease on the earliest of(1) his or her death, (ii) upon the Participant's Termination Date, if he or she is not then eligible for Supplemental Retirement Benefits under Section 4(b), (iii) the cessation of Supplemental Retirement Benefit payments under this Plan to the Participant in accordance with Section 4(g), or (iv) the complete distribution of the Participant's interest under the Plan following the termination of the Plan. 4 27603 Resolution No.2009-11 SECTION 4. PLAN BENEFITS (a) General. The Plan provides for monthly Supplemental Retirement Benefit payments to Participants who meet the requirements under Section 4(b). Such Supplemental Retirement Benefit payments will be made in the amount specified in Section 4(d), and at the time and form specified in Section 4(e). (b) Eligibility for Supplemental Retirement Benefits. In order to receive benefits under the Plan, a Participant must: (i) have a vested retirement benefit under CAPERS upon his or her Termination Date; (ii) retire under CAPERS following the Termination Date, triggering commencement of payment of his or her retirement benefits under CaIPERS; and (iii) elect to receive such CalPERS benefits in the form of Optional Retirement Benefit 2, 2W, 3, 3W or 4. (c) Deferral of CaIPERS Benefits Following Termination Date. The Participant may defer immediately retiring from CaIPERS following his or her Termination Date and still receive Supplemental Retirement Benefits under the Plan, but only if there is no intervening employment with another CaIPERS agency for which the Participant receives service credit under CAPERS. Intervening employment with a non-CalPERS employer is permitted. See Section 4(g). The Participant is ineligible to receive Supplemental Retirement Benefits under the Plan if he or she retires from another CAPERS agency- (d) Amount of Supplemental Retirement Benefit The monthly Supplemental Retirement Benefit payable under the Plan to a Participant will be determined upon the effective date of his or her retirement under CalPERS ("Retirement Date") following the Participant's Termination Date. Such monthly Supplemental Retirement Benefit will equal the excess, if any, of(i) the monthly payment the Participant would have received under CalPERS if he or she had not elected to receive an Optional Retirement Benefit, over(ii) the monthly payment actually 5 27603 Resolution No.2009-11 made under CalPERS to the Participant pursuant to the elected Optional Retirement Benefit. Any subsequent increases in the Participant's CalPERS benefits after his or her Retirement Date will have no effect on the amount payable to such Participant under this Plan. Notwithstanding anything to the contrary, if the Retirement Board determines that a Participant has received any Supplemental Retirement Benefit payments under this Plan in excess of the amount to which such Participant is entitled under the preceding provisions of this Section 4(d), each future Supplemental Retirement Benefit payment to the Participant under the Plan will be reduced to the maximum extent necessary(including to zero) until the total reductions equal the sum of the aggregate prior overpayments plus interest; for this purpose, interest will be calculated at a reasonable rate as determined by the Retirement Board through the date(s) of reduction. (e) Form and Time of Supplemental Retirement Payment. Supplemental Retirement Benefit payments under the Plan to a Participant will be payable after his or her Termination Date in the form of an annuity for the Participant's life that provides for payments under the Plan at the same times as the Participant's corresponding benefit payments under CalPERS, subject to Section 4(1) below. (f) Reemployment with Employer. Notwithstanding the preceding provisions of this Section 4 to the contrary, if a Participant is reemployed by the Employer after distribution of his or her Supplemental Retirement Benefit under this Plan has commenced, payment of such Supplemental Retirement Benefit will be terminated on the reemployment date (or, if later, the date he or she is not entitled to receive CalPERS benefits due to such reemployment), and the Participant will not be entitled to any further Supplemental Retirement Benefits under the Plan, unless the Participant is reinstated in accordance with the City's Personnel Rules. If the 6 27603 Resolution No.2009-11 Participant is entitled to continued payment of his or her CalPERS benefits on and after the reemployment date, then he or she will be entitled to receive continued Supplemental Retirement Benefits under the Plan. (g) Reinstatement in CalPERS. If a Participant is reinstated in CalPERS as an active member after his or her Termination Date, all Supplemental Retirement Benefit payments to such Participant under this Plan will cease and his or her participation in the Plan will cease. (h) No Survivor Benefits. No survivor benefits will be payable under the Plan after the Participant's death, regardless of whether any person is entitled to survivor benefits under CalPERS due to the Participant's death. (1) Minimum Distribution Requirements. All distributions under the Plan will comply with the minimum distribution requirements of section 401(a)(9) of the Code and the regulations thereunder as set forth in Appendix A. SECTION 5. ADMINISTRATION OF THE PLAN (a) Plan Administration. The Plan will be administered by the Retirement Board. The City Council shall establish by Resolution the procedures for appointing and removing the Board members as well as their terms. (b) Authority of Retirement Board. (1) The Retirement Board has the authority to control and manage the operation and administration of the Plan. The Retirement Board will have the sole discretion to interpret the terms of the Plan, determine eligibility under the Plan, and direct the investment of Plan assets. The Retirement Board shall prescribe such forms and shall adopt such rules, interpretations and procedures and shall take such other actions to administer the Plan as it 7 27603 Resolution No.2009-11 deems appropriate. Such rules, interpretations and procedures will be conclusive and binding on all persons claiming an interest in the Plan. (ii) With respect to the control and management of the assets of the Plan, the Retirement Board will have: (A) the duty to appoint a Trustee to hold the assets of the Plan in trust and to enter into a trust agreement with the Trustee with respect to the assets held in trust thereunder; (B) to cause the Trustee to enter into a contract with an insurance company, which contract may be a group annuity contract, guaranteed investment contract, deposit administration contract, or other type of contract commonly used to fund retirement benefits; (C) the authority to appoint one or more investment managers, for any assets held in trust pursuant to the Plan and to enter into a contract with each such investment manager with respect to management of such assets; (D). the authority to direct the sale, investment or reinvestment of Plan assets; and (E) the authority to remove any Trustee, insurance company or investment manager. (c) Responsibilities of the Retirement Board. The Retirement Board may delegate any of its responsibilities under the Plan to a person or persons pursuant to a written instrument that specifies the responsibilities so delegated to each such person- (d) Engagement of Services of Others. The Retirement Board may engage the services of such persons or organizations to render advice or perform services with respect to its b 27603 Resolution No.2009-11 responsibilities under the Plan as it determines necessary or appropriate. The Retirement Board will be entitled to rely conclusively upon all tables, valuations, certificates and reports furnished by any actuary or accountant engaged by the Retirement Board and upon all opinions of counsel or other experts, and the Retirement Board will be fully protected as to any action taken in good faith reasonable reliance upon any such tables, valuations, certificates, reports or opinions. (e) Service Capacity_. Any person or group of persons may serve in more than one capacity with respect to the Plan, including service as both Trustee and Retirement Board. (f) Expenses of the Retirement Board. All reasonable expenses incurred by the Retirement Board in connection with the administration of the Plan will be paid out of the Trust unless paid by the Employer. SECTION 6. TRUST FUND (a) Trust Fund. The Employer shall establish and maintain a retirement fund under the Plan to carry out the purposes of the Plan. (b) Amount. The Employer shall make contributions to the Plan from time to time for the purpose of providing benefits. Such contributions will maintain the Plan at an amount determined from time to time by the Employer, after consultation with the Plan's actuary, as the amount necessary to keep the Plan sufficiently funded. Forfeitures arising under the Plan because of severance of employment before a Participant becomes eligible for the Supplemental Retirement Benefit, or for any other reason, will be applied to reduce the cost of the Plan, not to increase the Supplemental Retirement Benefits otherwise payable to Participants. (c) Irrevocability. Subject to Section 10(b) and this paragraph, all contributions made by the Employer to the Plan will be used and applied for the exclusive benefit of Participants, and such contributions will not be used for, nor diverted to, purposes other than for such 9 27603 Resolution No.2009-11 exclusive benefit of Participants; provided, that for this purpose, payment of administrative expenses by the Plan to the extent not paid by the Employer, will be considered paid for such exclusive benefit. A contribution made to the Plan by mistake of fact may, upon direction of the City Council, be returned within one year after payment to the Plan. If, subsequent to the initial effective date of the Plan, the Commissioner of Internal Revenue or its representative issues a determination letter stating that the Plan does not initially qualify under section 401(a)of the Code, any contribution made to the Plan by the Employer and to which the letter relates may be returned to the Employer within one year from the date of the letter, upon direction of the City Council, but only if an application for determination on qualification of the Plan under section 401(a) of the Code has been made by the time prescribed by the Secretary of the Treasury. SECTION 7. ADMINISTRATION OF TRUST (a) Investment Manager. The Retirement Board may delegate its investment responsibilities over any portion of the Plan assets to one or more investment managers. Each investment manager will be a fiduciary under the Plan and will acknowledge its action as a fiduciary under the Plan in a writing delivered to the Trustee and to the Retirement Board. Subject to the terms of any agreement with the Retirement Board, the investment manager may direct the Trustee to invest all or such portion of the Trust placed in the discretion of the investment manager in securities or other properties as are selected by the investment manager, and may direct the Trustee to sell any securities or other property of the Trust placed in its discretion_ In directing investments, the investment manager shall diversify the investments so as to minimize the risk of large losses, unless under the circumstances and in the opinion of the investment manager, it is clearly prudent not to do so. To the extent Plan assets are invested at 10 27603 Resolution No.2009-11 the direction of an investment manager in any stocks, bonds, or other securities, the investment manager shall vote such investments solely in the interest of Participants. (b) Appointment of Trustee. The Retirement Board shall select the Trustee, who may be one or more individuals, a corporate trustee or trustee, or both, and shall enter into an agreement with the Trustee setting forth the duties and responsibilities of the Trustee. The Retirement Board may modify any such agreement(s) from time to time. (c) Authority and Power of Trustee. Subject to such instructions, rules and restrictions as may be adopted by the Retirement Board and communicated to the Trustee: (1) the Trustee will have the authority to invest assets in accordance with the directions of the Retirement Board or the investment manager(s) appointed by the Retirement Board; and (ii) the Trustee will have the following powers: (A) Investment Powers_ The Trustee may improve, lease for any term irrespective of the duration of the Trust, rent, sell, exchange, hold, control, invest and reinvest the same in such manner and upon such terms as the Trustee deems best, including(without limitation of these powers) the power to purchase shares in investment trusts or stock in corporations. The"Trustee is authorized to hold cash uninvested from time to time. The Trustee will not be personally liable upon any contract of indebtedness of or claim against the Trust or upon a mortgage, trust deed, note or other instrument executed under the provisions of this Plan. (B) Holding and Transferring Real Estate. To take and hold title to real estate or interests therein in the Trustee's name or in the name of the Trustee's nominee without disclosing the Trust; and in accepting title to the real estate, neither the Trustee nor the Trustee's nominee will be held to have assumed the payment of any encumbrances thereon, nor 11 ?7603 Resolution No.2009-11 any responsibility as to the validity of the title conveyed to or held by the Trustee or the Trustee's nominee. All conveyances executed and delivered by the Trustee or the Trustee's nominee will be without covenants of warranty except as against the Trustee's own acts. (C) Voting and Related Powers. To vote any stocks, bonds, or other securities held by the Trust at the direction of an investment manager or Retirement Board, as applicable; to give general or special powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options and to make any payments incidental thereto; to consent to or otherwise participate in corporate reorganizations or other changes affecting corporate securities and to delegate discretionary powers and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities or other property held in the Trust. (D) Claims by or Against the Trust. To sue or defend in any suit or legal proceedings by or against the Trust. The Trustee will have full power in the Trustee's discretion to compound, compromise and adjust all claims and demands in favor of or against the Trust upon such terms as the Trustee deems best. In the administration of the Trust, the Trustee will not be obligated to take any action that may subject the Trustee to any expense or liability unless the Trustee is first indemnified to the Trustee's satisfaction for all expenses and liabilities, including attorneys' fees, that the Trustee may incur in connection with such action. (E) Nominee. To register any investment held in the Trust in the Trustee's own name or in the name of a nominee and to hold any investment in bearer form; provided, however, that the books and records of the Trustee will at all times show that all such investments are part of the Trust, and provided further that such registration or holding will neither increase nor decrease the liability of the Trustee. 1? 27603 Resolution No.2009-11 (F) Employment of Agents. To employ such agents, attomeys-in-fact, experts and investment and legal counsel, including any firm or corporation with which the Trustee may be associated as a partner, director, stockholder or otherwise, and to delegate discretionary powers to or to rely upon information or advice furnished by such agents, attorneys-in-fact,experts or counsel. (G) Execution of Instruments. To execute and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted, and to perform any and all acts that may be necessary or convenient in the proper administration of the Trust- (H) Collective Investment Trust. To the extent permitted by law, to commingle assets of the Trust with assets of other trusts, which in each case form a part of a pension or profit-sharing plan qualified under the Code and constitute an exempt trust within the meaning of the Code, (A) through the medium of any collective investment trust for employee benefit trusts established and maintained by any bank, or(B) through the medium of any collective investment trust for employee benefit trusts established and maintained by any trust company. To the extent of the equitable share of this Trust in any such investment trust, the instrument establishing such investment trust, as the same has been or may be amended, and the trust maintained thereunder, will be deemed a part of this Plan and Trust as if fully set forth herein. (I) Necessary Acts_ To do all acts whether or not expressly authorized that may be necessary or proper for the protection of the property held hereunder or for the carrying out of any duty under this Plan or under the Trust. t3 27603 Resolution No.2009-11 (d) Responsibilities of Trustee (i) The Trustee shall sell, invest, or reinvest the Trust assets in accordance with the directions of the Retirement Board or the investment manager(s) appointed by the Retirement Board. The Trustee will have no liability for any depreciation or loss with respect to any investments acquired by the Trustee pursuant to such direction, and will have no duty to review or to make recommendations with respect thereto. Notwithstanding any other provision of the Plan or any trust agreement, the Trustee will be fully protected in relying upon the certification of the Retirement Board with respect to the appointment of an investment manager. (ii) The Trustee shall receive, hold, invest and reinvest contributions to the Trust and shall make disbursements from the Trust pursuant to the terms of this Plan. Subject to the consent of the Trustee, the Employer will have the right to make its contributions hereunder in property to the Trustee. The Trustee shall make payments from the Trust only to such persons, in such manner, at such times, and in such amounts as specified in written directions from the Retirement Board, and the Trustee will be fully protected in making payments under the direction of the Retirement Board. For purposes of accounting and valuation, the records of the Trust will be maintained on a cash receipts and disbursements basis. The Trustee shall periodically capitalize unexpended income and add the same to the principal of the Trust. (e) Agent. The Trustee shall act in accordance with instructions from directions from any person designated as agent for such purpose by the Retirement Board. The Retirement_ Board shall notify the Trustee of any change of agent. The Trustee will be entitled to rely upon information or instructions received from the agent of the Retirement Board whose authority to act was last certified by the Retirement Board. In the absence of instructions from the Retirement Board, the Trustee will have full power and authority to act in the Trustee's 14 27603 Resolution No.2009-11 discretion, if the Trustee determines that failure to act would frustrate the purpose of the Trust or Plan. (f) Reliance on Documentation. The Trustee may rely upon any affidavit, certificate, letter, notice, telegram or other paper or document believed by the Trustee to be genuine and upon any information or evidence believed by the Trustee to be sufficient; and the Trustee will be protected in all payments hereunder if made in good faith and without actual knowledge of the happening of an event or a change in conditions that would affect such payments. (g) Pooled Assets. Except as otherwise provided hereinabove, all the assets in the Trust will be held collectively for all the Participants with no physical division thereof until such assets are actually distributed. (h) Nonliability of Successor Trustee. Each successor Trustee may accept as complete and correct and may rely upon any accounting that has been made by or on behalf of any Trustee before the successor Trustee becomes a Trustee under this instrument, and may rely upon any statement or representation made by any Trustee acting hereunder as to the assets comprising the Trust or as to any other fact bearing upon the prior administration of the Trust; and such successor Trustee will not be subject to any liability by reason of having accepted and relied upon such accounting, statement or representation in case it is subsequently established that the same was incomplete, inaccurate or untrue. No successor Trustee will be subject to any liability or responsibility with respect to any act or omission of any other Trustee, and no successor Trustee will have any duty to enforce or to seek to enforce any claims of any kind against any predecessor Trustee on account of or in connection with any act or omission of any Trustee hereunder. 15 27603 Resolution No.2009-11 (1) Accounts. The Trustee shall keep accurate and detailed accounts of all investments, receipts and disbursements and other transactions hereunder, and all accounts, books and records relating thereto will be open to inspection by any person designated by the Retirement Board at all reasonable times. For each Plan Year, the Trustee shall provide the Retirement Board with a written report setting forth all investments, receipts, disbursements, and other transactions effected by the Trustee from the date of the prior such report to the close of such Plan Year, or the date of removal or resignation of a Trustee, as the case may be. Such report is expected to be provided not later than 120 days after the end of each Plan Year, and within 60 days after the effective date of the removal or resignation of a Trustee. Such report must contain an exact description of all securities and investments held at the close of such Plan Year or the effective date of such removal or resignation of a Trustee, as the case may be, and the cost of each item thereof, as carried on the books of the Trustee. (j) Removal or Resignation of Trustee. The Retirement Board may remove any Trustee by delivery of written notice to such Trustee. Any Trustee hereunder may resign as Trustee, upon written notice to that effect, delivered to the Retirement Board. Such removal or resignation will be effective upon the date specified in such notice, which may be not less than 15 days after the delivery of such notice. In the event of the removal, resignation, death or inability to serve of any Trustee hereunder, a successor will be appointed by resolution of the Retirement Board, a certified copy of which resolution will be delivered to such successor. In the event of the removal, resignation, death or inability to serve of any Trustee after the Employer has ceased to exist or been dissolved, voluntarily or involuntarily, or has a receiver or trustee in bankruptcy appointed, a successor may be appointed by election by a majority in interest of the Participants. A successor Trustee, upon accepting such appointment, will become 16 27603 Resolution No.2009-11 vested with the same powers, duties, privileges, and immunities as if such Trustee had been originally named in this Plan as a Trustee. In case of the removal, resignation, death or inability to serve of an individual Trustee, said Trustee or his personal representative shall forthwith turn over to the remaining or succeeding individuals serving as Trustee all accounts and records in such individual Trustee's possession, and shall execute such instruments as may be necessary to terminate his or her trusteeship. SECTION 8. BENEFIT LIMITATIONS (a) General Rule. Unless the alternative limitation of Section 8(b) applies, a Participant's Annual Benefit (defined below) for a Plan Year(which will be the Plan's "limitation year") will not exceed $180,000, adjusted as described below. (1) As of January 1 of each calendar year, the adjusted dollar limitation for such calendar year announced by the IRS pursuant to section 415(d) of the Code will automatically be substituted for the $180,000 amount set forth above and will become the dollar limitation applicable under the Plan Year ending during such calendar year. (ii) If a Participant would exceed the limitation of this Section 8(a), then the Participant's Annual Benefit under this Plan will be reduced to the extent necessary to meet the limitation. (iii) The limitation provided in this Section 8 will be applied in accordance with the provisions of section 415(b) of the Code and regulations issued thereunder. (b) Adjusted Dollar Limitation for Supplemental Retirement Benefits Commencing Before Age 62 or After Age'65. (1) In the case of a Participant whose Supplemental Retirement Benefit commences before age 62, the amount described in Section 8(a) (adjusted as described therein) 17 27603 Resolution No.2009-11 will be reduced. The reduced limit will be the amount determined by treating the amount described in Section 8(a) (adjusted as described therein) as an annual single-life annuity commencing at age 62 and converting it on an actuarial basis into a single-life annuity that commences at the age when the Participant's retirement benefit commences (using the mortality factors prescribed.by the IRS in Revenue Ruling 2001-62 and a 5% interest rate). Notwithstanding the preceding provisions of this paragraph, no reduction will be made in the amount described in Section 8(a) (adjusted as described therein) with respect to any Qualified Participant whose retirement benefit commences before age 62. For this purpose, "Qualified Participant" means a Participant who, upon his or her Termination Date, has.completed at least 15 years of full-time employment with the Employer's police or fire department that are taken into account for purposes of determining the Participant's retirement benefits under Ca1PERS. (ii) In the case of a Participant whose Supplemental Retirement Benefit commences after age 65, the amount described in Section 8(a) (adjusted as described therein) will be increased. The increased limit will be calculated by treating such amount as an annual single-life annuity commencing at age 65 and by converting it on an actuarial basis into a single- life annuity that commences at the age when the Participant's retirement benefit commences (using the mortality factors prescribed by the IRS in Revenue Ruling 2001-62 and a 5% interest rate). (c) Annual Benefit. For purposes of this Section 8, a Participant's "Annual Benefit" will be equal to the sum of the following: (i) The annual Supplemental Retirement Benefit to which the Participant is entitled under this Plan; and 18 27603 Resolution No.2009-11 (ii) The aggregate annual retirement benefits (if any) to which the Participant is entitled under all other qualified defined-benefit plans (including CalPERS) maintained by the Employer, other than benefits attributable to employee contributions. SECTION 9. GENERAL PROVISIONS (a) Incompetence. If, in the opinion of the Retirement Board, any individual becomes unable to properly handle any amount distributable under the Plan, the Retirement Board may make any arrangement for distribution on such individual's behalf that it determines will be beneficial to such individual, including, without limitation, distribution to such individual's guardian, conservator, spouse or dependent. (b) Anti-Assignment. Except as otherwise provided in this paragraph, the rights of a Participant to Supplemental Retirement Benefits will not be subject to alienation or assignment, and will not be subject to anticipation, encumbrance or claims of creditors. Notwithstanding the preceding sentence, the Plan shall pay Supplemental Retirement Benefits in accordance with the terms of any Qualified Domestic Relations Order, provided that such Order(i) does not require the Plan to provide any type or form of benefits, or any option, that is not otherwise provided hereunder, (ii) does not require the Plan to provide increased benefits, and (iii) does not require the payment of benefits to an alternate payee that are required to be paid to another alternate payee under another order previously detennined to be a Qualified Domestic Relations Order. (c) Employment Rights. Nothing in the Plan will be deemed to give any person a right to remain in the employ of the Employer. The Employer reserves the right to terminate any person's employment, with or without cause or, if applicable, in accordance with any agreement affecting the Participant's rights to employment and the Employer's right to terminate employment. 19 27603 Resolution No.2009-11 SECTION 10. MODIFICATION AND'ITEPMINATION OF THE PLAN. (a) Amendment and Termination. The Employer will have the power to amend or terminate the Plan at any time; provided, however,that no amendment will: (1) Reduce the Supplemental Retirement Benefits of any Participant or other person accrued under the Plan prior to the date the amendment is adopted, except to the extent that a reduction in accrued Supplemental Retirement Benefits is permitted by applicable law; or (ii) Divert any part of the assets of the Trust to purposes other than the exclusive purpose of providing Supplemental Retirement Benefits to Participants and other persons who have an interest in the Plan and defraying the reasonable expenses of administering the Plan. The Employer shall notify the Trustee of any amendment or the termination or partial termination of the Plan. (b) Termination and Reversion. Upon termination of the Plan, no part of the assets of the Plan will revert to the Employer or be used or diverted for purposes other than the exclusive purpose of providing Supplemental Retirement Benefits to those individuals who have an interest in the Plan; provided, however, that any assets remaining in the Trust may be returned to the Employer if: (1) All liabilities of the Plan to Participants have been satisfied; and (ii) Such return does not contravene any applicable provision of law. Upon a partial termination of the Plan, this Section 10(b) will apply only with respect to those Participants who are affected by such partial termination. (c) 100% Vesting on Termination. Upon termination or partial termination of the Plan, the right of each Participant to his or her accrued Supplemental Retirement Benefit under the Plan will, to the extent funded, be 100% vested and nonforfeitable. Upon termination or 20 27603 Resolution No. 2009-11 partial termination of the Plan, the Trust will continue to exist until all assets held under the Trust or the appropriate portion thereof has been distributed as provided in Section 10(d). (d) Limitation of Obligations. Notwithstanding any other provision hereof, the Employer will have no obligation to continue to make contributions to the Plan after the Plan's termination. Neither of the Employer, the Retirement Board, the Trustee nor any other person or entity will have any liability or obligation to provide benefits hereunder after the termination of the Plan. Upon termination of the Plan, all Participants shall look solely to the Trust for their benefits. In the event of a partial termination of the Plan, this Section 10(d) will apply only with respect to those Participants who are affected by such partial termination. SECTION 11. CHOICE OF LAW The validity, interpretation, construction and performance of the Plan will be governed by the laws of the State of California. SECTION 12. EXECUTION To record the adoption of the Plan, the Employer has caused this document to be executed by its duly authorized representative(s) on this day of , 2009. ATTEST: CITY OF HUNTINGTON BEACH, a municipal corporation of the State of California JOAN FLYNN KEITH BOHR City Clerk Mayor APPROVED AS TO FORM: 9 �JENNIFERMcAAT[f ►2 r 8 City Attorney 21 27603 Resolution No.2009-11 CITY OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN & TRUST APPENDIX A Minimum Distribution Requirements A.1 General Rules A.1.1 Effective Date. Notwithstanding any other provision of the Plan to the contrary, the provisions of this Appendix will apply for purposes of determining required minimum distributions. A.1.2 Precedence. The requirements of this Appendix will take precedence over any inconsistent provisions of the Plan. A.1.3 Requirements of Treasury Regulations Incorporated. All distributions required under this Appendix will be determined and made in accordance with the Treasury regulations under section 401(a)(9) of the Code. A.2 Time and Manner of Distribution A.2.1 Required Bep_inninp_ Date. The Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's Required Beginning Date. A.2.3 form of Distribution. Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a lump sum distribution on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with Section A.3 of this Appendix A. If the Participant's interest is distributed in the fonri of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations. Any part of the Participant's interest which is in the form of an A-1 Resolution No.2009-11 individual account described in section 414(k) of the Code shall be distributed in a manner satisfying the requirements of section 401(a)(9) of the Code and the Treasury regulations that apply to individual accounts. A.3 Determination of Amount to be Distributed Each Year A.3.1 General Annuity Requirements. if the Participant's interest is paid in the form of annuity distributions under the Plan, payments under the annuity must satisfy the following requirements: (a) The annuity distributions will be paid in periodic payments made at intervals not longer than one year. (b) The distribution period will be over the life of the Participant. (c) Payments will either be non-increasing or increase only as follows: (1) by an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that is based on prices of all items and issued by the Bureau of Labor Statistics; or(2) to pay increased benefits that result from a Plan amendment. A.3.2 Amount Required to be Distributed by Required Bep_inninp, Date. The amount that must be distributed on or before the Participant's Required Beginning Date is the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year_ Payment intervals are the periods for which payments are received, e.g., bi-monthly, monthly, semi-annually, or annually_ All of the Participant's bencfit accruals as of the last day of the first Distribution Calendar Year will be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the Participant's Required Beginning Date. A-2 Resolution No.2009-11 A.3.3 Additional Accruals After )First Distribution Calendar Year. Any additional benefits accruing to the Participant in a calendar year after the first Distribution Calendar Year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues. A.4 Definitions The following words and phrases used in this Appendix A have the following meanings. A.41 "Distribution Calendar Year" means calendar year for which a minimum distribution is required. The first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. A.4.2 "Required Beginning Date" means April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 '/ or the calendar year in which the Participant retires. A.4.3 Other Capitalized Terms. All other capitalized terms used in this Appendix A have the meanings set forth in Section 2 of the Plan, unless the context requires otherwise. A-3 Res. No. 2009-11 STATE OF CALIFORNIA COUNTY OF ORANGE ) ss: CITY OF HUNTINGTON BEACH ) I, JOAN L. FLYNN the duly elected, qualified City Clerk of the City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do hereby certify that the whole number of members of the City Council of the City of Huntington Beach is seven; that the foregoing resolution was passed and adopted by the affirmative vote of at least a majority of all the members of said City Council at a regular meeting thereof held on March 16, 2009 by the following vote: AYES: Carchio, Dwyer, Green, Bohr, Coerper, Hardy, Hansen NOES: None ABSENT: None ABSTAIN: None CityV,lerk and ex-officio Nferk of the City Council of the City of Huntington Beach, California ATTACHMENT #2 CITE' OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN & TRUST EFFECTIVE JANUARY 1,2009 TABLE OF CONTENTS Page SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN.................................. 1 SECTION2. DEFINITIONS................................................................................................. 1 SECTION 3. ELIGIBILITY AND PARTICIPATION.........................................................4 SECTION 4. PLAN BENEFITS ...........................................................................................5 SECTION 5. ADMINISTRATION OF THE PLAN ............................................................7 SECTION 6. TRUST FUND.................................................................................................9 SECTION 7. ADMINISTRATION OF TRUST................................................................. 10 SECTION 8. BENEFIT LIMITATIONS ............................................................................ 17 SECTION 9. GENERAL PROVISIONS ............................................................................ 19 SECTION 10. MODIFICATION AND TERMINATION OF THE PLAN .........................20 SECTION 11. CHOICE OF LAW ........................................................................................21 SECTION 12. EXECUTION.................................................................................................21 -i- 27603 CITE' OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN & TRUST SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN This City of Huntington Beach Supplemental Retirement Plan and Trust(the "Plan") is hereby established effective January 1, 2009,by the City of Huntington Beach. The sole purpose of the Plan is to supplement benefits payable to eligible retirees of the City under the California Public Employees' Retirement System. Accordingly, the Plan provides for payment of such benefits in the form of an annuity payable over the life of the eligible retiree; no survivor benefits are provided under the Plan. The Plan is intended to be a qualified retirement plan as provided in section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and a governmental plan within the meaning of section 414(d) of the Code. Capitalized terms are defined in Section 2, except where expressly indicated otherwise. SECTION 2. DEFINITIONS (a) "CalPERS"means the California Public Employees' Retirement System, as reflected in the California Government Code and as amended from time to time, and any regulations issued under laws governing CalPERS. (b) "City Council" means the Huntington Beach City Council. (c) "Code"means the Internal Revenue Code of 1986, as amended. (d) "Eligible Employee_" means an employee of the Employer who (1) on the employee's Termination Date, is employed by the Employer in a position covered by one of the bargaining units listed below; and (ii) was first hired in a position covered by that bargaining unit before the applicable date below: -1- 27603 (1) For employees represented by the Municipal Employees Association ("MEA"), December 27, 1997. (2) For employees represented by the Management Employees Organization ("MEO"), August 17, 1998. (3) For employees represented by the Fire Management Association ("FMA"), August 17, 1998. (4) For employees represented by the Huntington Beach Firefighters Association ("HBFA"), October 4, 1999. (5) For employees represented by the Marine Safety Officers Association ("MSOA"), November 2, 1998. (6) For employees subject to the Non-Associated Employees Benefits Resolution ("NA") at the time of their hiring, December 27, 1997. (7) For employees represented by the Police Management Association ("PMA"), July 6, 1998. (8) For employees represented by the Huntington Beach Police Officers' Association ("HBPOA"), July 6, 1998. By way of example, if an employee is in a position covered by the MEO on his or her Termination Date, he or she would be an Eligible Employee only if hired in a MEO position before August 17, 1998. Extending this example, if the employee was hired on January 1, 1998 in an MEA position, and promoted to an MEO position on September 1, 1998, the employee would not be an Eligible Employee;but if the employee was promoted on August 1, 1998, he or she would be an Eligible Employee. 2 27603 Regardless of the date of hiring, members of the City Council, employees represented by the Surf City Lifeguard Employees' Association ("SCLEA"), and any employee who was hired to work less than 20 hours per week, are not Eligible Employees. (e) "Employer"means the City of Huntington Beach, a governmental entity established as a municipal corporation pursuant to the Huntington Beach City Charter. (f) "IRS"means the Internal Revenue Service. (g) "Optional Retirement Benefit" means an amount payable under CalPERS pursuant to a member's election to receive an optional settlement under any of sections 21455, 21456, 21457, 21458 or 21459 of the California Government Code, as amended (which sections collectively set out optional settlements 1, 2, 2W, 3, 3W and 4 under CalPERS). (h) "Participant"means an Eligible Employee or former Eligible Employee who is a Participant in accordance with Section 3. (i) "Plan" means this City of Huntington Beach Supplemental Retirement Plan. 0) "Plan Year"means the 12-month period ending June 30 of each year. (k) "Qualified Domestic Relations Order"means a domestic relations order that creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a Participant under the Plan and that specifies (1) the name and the last known mailing address of the Participant and each alternate payee covered by the order, (ii) the amount or percentage of the Participant's benefits to be paid by the Plan to each such alternate payee, or the manner in which such amount or percentage is to be determined, (iii) the number of payments or period to which such order applies, and (iv) each plan to which such order applies. A domestic relations order refers to any judgment, decree or order (including approval of a property settlement agreement) 3 27603 that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a Participant and is made pursuant to a state domestic relations law. (1) "Retirement Board"means one or more persons appointed by the Employer to administer the Plan and control and manage assets under the Plan. See Section 5. (m) "Supplemental Retirement Benefit" means the benefit provided under the Plan. See Section 4. (n) "Termination Date" means the date on which a Participant's employment with the Employer ceases. (o) "Trust"means the trust established pursuant to the terms of this Plan to hold the Plan's assets. See Section 7. (p) "Trustee"means the trustee appointed by the Retirement Board to hold and invest assets under the Trust. SECTION 3. ELIGIBILITY AND PARTICIPATION Each Eligible Employee on January 1, 2009 will become a Participant on such date. In addition, each former Eligible Employee (whose Termination Date occurred before 2009) who was receiving the Supplemental Retirement Benefit prior to 2009 will become a Participant on January 1, 2009 at the same level of Supplemental Retirement Benefit. A Participant's participation in the Plan will cease on the earliest of(i)his or her death, (ii) upon the Participant's Termination Date, if he or she is not then eligible for Supplemental Retirement Benefits under Section 4(b), (iii) the cessation of Supplemental Retirement Benefit payments under this Plan to the Participant in accordance with Section 4(g), or (iv) the complete distribution of the Participant's interest under the Plan following the termination of the Plan. 4 27603 SECTION 4. PLAN BENEFITS (a) General. The Plan provides for monthly Supplemental Retirement Benefit payments to Participants who meet the requirements under Section 4(b). Such Supplemental Retirement Benefit payments will be made in the amount specified in Section 4(d), and at the time and form specified in Section 4(e). (b) Eligibility for Supplemental Retirement Benefits. In order to receive benefits under the Plan, a Participant must: (i) have a vested retirement benefit under CalPERS upon his or her Termination Date; (ii) retire under Ca1PERS following the Termination Date, triggering commencement of payment of his or her retirement benefits under CalPERS; and (ill) elect to receive such CalPERS benefits in the form of Optional Retirement Benefit 2, 2W, 3, 3W or 4. (c) Deferral of CalPERS Benefits Following Termination Date. The Participant may defer immediately retiring from CalPERS following his or her Termination Date and still receive Supplemental Retirement Benefits under the Plan, but only if there is no intervening employment with another CalPERS agency for which the Participant receives service credit under CaIPERS. Intervening employment with a non-CalPERS employer is permitted. See Section 4(g). The Participant is ineligible to receive Supplemental Retirement Benefits under the Plan if he or she retires from another CalPERS agency. (d) Amount of Supplemental Retirement Benefit. The monthly Supplemental Retirement Benefit payable under the Plan to a Participant will be determined upon the effective date of his or her retirement under CalPERS ("Retirement Date")following the Participant's Termination Date. Such monthly Supplemental Retirement Benefit will equal the excess, if any, of(1) the monthly payment the Participant would have received under CalPERS if he or she had not elected to receive an Optional Retirement Benefit, over (ii) the monthly payment actually 5 27603 made under Ca1PERS to the Participant pursuant to the elected Optional Retirement Benefit. Any subsequent increases in the Participant's Ca1PERS benefits after his or her Retirement Date will have no effect on the amount payable to such Participant under this Plan. Notwithstanding anything to the contrary, if the Retirement Board determines that a Participant has received any Supplemental Retirement Benefit payments under this Plan in excess of the amount to which such Participant is entitled under the preceding provisions of this Section 4(d), each future Supplemental Retirement Benefit payment to the Participant under the Plan will be reduced to the maximum extent necessary(including to zero) until the total reductions equal the sum of the aggregate prior overpayments plus interest; for this purpose, interest will be calculated at a reasonable rate as determined by the Retirement Board through the date(s) of reduction. (e) Form and Time of Supplemental Retirement Payment. Supplemental Retirement Benefit payments under the Plan to a Participant will be payable after his or her Termination Date in the form of an annuity for the Participant's life that provides for payments under the Plan at the same times as the Participant's corresponding benefit payments under CaIPERS, subject to Section 4(1) below. (f) Reemployment with Employer. Notwithstanding the preceding provisions of this Section 4 to the contrary, if a Participant is reemployed by the Employer after distribution of his or her Supplemental Retirement Benefit under this Plan has commenced,payment of such Supplemental Retirement Benefit will be terminated on the reemployment date(or, if later, the date he or she is not entitled to receive Ca1PERS benefits due to such reemployment), and the Participant will not be entitled to any further Supplemental Retirement Benefits under the Plan, unless the Participant is reinstated in accordance with the City's Personnel Rules. If the 6 27603 Participant is entitled to continued payment of his or her CalPERS benefits on and after the reemployment date, then he or she will be entitled to receive continued Supplemental Retirement Benefits under the Plan. (g) Reinstatement in CalPERS. If a Participant is reinstated in CalPERS as an active member after his or her Termination Date, all Supplemental Retirement Benefit payments to such Participant under this Plan will cease and his or her participation in the Plan will cease. (h) No Survivor Benefits. No survivor benefits will be payable under the Plan after the Participant's death, regardless of whether any person is entitled to survivor benefits under CalPERS due to the Participant's death. (i) Minimum Distribution Requirements. All distributions under the Plan will comply with the minimum distribution requirements of section 401(a)(9) of the Code and the regulations thereunder as set forth in Appendix A. SECTION 5. ADMINIS'I'I2ATION OF THE PLAN (a) Plan Administration. The Plan will be administered by the Retirement Board. The City Council shall establish by Resolution the procedures for appointing and removing the Board members as well as their terms. (b) Authority of Retirement Board. (1) The Retirement Board has the authority to control and manage the operation and administration of the Plan. The Retirement Board will have the sole discretion to interpret the terms of the Plan, determine eligibility under the Plan, and direct the investment of Plan assets. The Retirement Board shall prescribe such forms and shall adopt such rules, interpretations and procedures and shall take such other actions to administer the Plan as it 7 27603 deems appropriate. Such rules, interpretations and procedures will be conclusive and binding on all persons claiming an interest in the Plan. (ii) With respect to the control and management of the assets of the Plan, the Retirement Board will have: (A) the duty to appoint a Trustee to hold the assets of the Plan in trust and to enter into a trust agreement with the Trustee with respect to the assets held in trust thereunder; (B) to cause the Trustee to enter into a contract with an insurance company, which contract may be a group annuity contract, guaranteed investment contract, deposit administration contract, or other type of contract commonly used to fund retirement benefits; (C) the authority to appoint one or more investment managers, for any assets held in trust pursuant to the Plan and to enter into a contract with each such investment manager with respect to management of such assets; (D) the authority to direct the sale, investment or reinvestment of Plan assets; and (E) the authority to remove any Trustee, insurance company or investment manager. (c) Responsibilities of the Retirement Board. The Retirement Board may delegate any of its responsibilities under the Plan to a person or persons pursuant to a written instrument that specifies the responsibilities so delegated to each such person. (d) Engagement of Services of Others. The Retirement Board may engage the services of such persons or organizations to render advice or perform services with respect to its 8 27603 responsibilities under the Plan as it determines necessary or appropriate. The Retirement Board will be entitled to rely conclusively upon all tables, valuations, certificates and reports furnished by any actuary or accountant engaged by the Retirement Board and upon all opinions of counsel or other experts, and the Retirement Board will be fully protected as to any action taken in good faith reasonable reliance upon any such tables, valuations, certificates,reports or opinions. (e) Service CapacitX. Any person or group of persons may serve in more than one capacity with respect to the Plan, including service as both Trustee and Retirement Board. (f) Expenses of the Retirement Board. All reasonable expenses incurred by the Retirement Board in connection with the administration of the Plan will be paid out of the Trust unless paid by the Employer. SECTION 6. TRUST ]FUND (a) Trust Fund. The Employer shall establish and maintain a retirement fund under the Plan to carry out the purposes of the Plan. (b) Amount. The Employer shall make contributions to the Plan from time to time for the purpose of providing benefits. Such contributions will maintain the Plan at an amount determined from time to time by the Employer, after consultation with the Plan's actuary, as the amount necessary to keep the Plan sufficiently funded. Forfeitures arising under the Plan because of severance of employment before a Participant becomes eligible for the Supplemental Retirement Benefit, or for any other reason, will be applied to reduce the cost of the Plan, not to increase the Supplemental Retirement Benefits otherwise payable to Participants. (c) Irrevocability. Subject to Section 10(b) and this paragraph, all contributions made by the Employer to the Plan will be used and applied for the exclusive benefit of Participants, and such contributions will not be used for, nor diverted to, purposes other than for such 9 27603 exclusive benefit of Participants;provided, that for this purpose,payment of administrative expenses by the Plan to the extent not paid by the Employer, will be considered paid for such exclusive benefit. A contribution made to the Plan by mistake of fact may, upon direction of the City Council,be returned within one year after payment to the Plan. If, subsequent to the initial effective date of the Plan, the Commissioner of Internal Revenue or its representative issues a determination letter stating that the Plan does not initially qualify under section 401(a) of the Code, any contribution made to the Plan by the Employer and to which the letter relates may be returned to the Employer within one year from the date of the letter, upon direction of the City Council,but only if an application for determination on qualification of the Plan under section 401(a) of the Code has been made by the time prescribed by the Secretary of the Treasury. SECTION 7. ADM[INISTRATION OF TRUST (a) Investment Manager. The Retirement Board may delegate its investment responsibilities over any portion of the Plan assets to one or more investment managers. Each investment manager will be a fiduciary under the Plan and will acknowledge its action as a fiduciary under the Plan in a writing delivered to the Trustee and to the Retirement Board. Subject to the terms of any agreement with the Retirement Board, the investment manager may direct the Trustee to invest all or such portion of the Trust placed in the discretion of the investment manager in securities or other properties as are selected by the investment manager, and may direct the Trustee to sell any securities or other property of the Trust placed in its discretion. In directing investments, the investment manager shall diversify the investments so as to minimize the risk of large losses, unless under the circumstances and in the opinion of the investment manager, it is clearly prudent not to do so. To the extent Plan assets are invested at 10 27603 the direction of an investment manager in any stocks,bonds, or other securities, the investment manager shall vote such investments solely in the interest of Participants. (b) Appointment of Trustee. The Retirement Board shall select the Trustee, who may be one or more individuals, a corporate trustee or trustee, or both, and shall enter into an agreement with the Trustee setting forth the duties and responsibilities of the Trustee. The Retirement Board may modify any such agreement(s) from time to time. (c) Authority and Power of Trustee. Subject to such instructions, rules and restrictions as may be adopted by the Retirement Board and communicated to the Trustee: (1) the Trustee will have the authority to invest assets in accordance with the directions of the Retirement Board or the investment manager(s) appointed by the Retirement Board; and (ii) the Trustee will have the following powers: (A) Investment Powers. The Trustee may improve, lease for any term irrespective of the duration of the Trust, rent, sell, exchange,hold, control, invest and reinvest the same in such manner and upon such terms as the Trustee deems best, including (without limitation of these powers) the power to purchase shares in investment trusts or stock in corporations. The Trustee is authorized to hold cash uninvested from time to time. The Trustee will not be personally liable upon any contract of indebtedness of or claim against the Trust or upon a mortgage, trust deed, note or other instrument executed under the provisions of this Plan. (B) Holding and Transferring Real Estate. To take and hold title to real estate or interests therein in the Trustee's name or in the name of the Trustee's nominee without disclosing the Trust; and in accepting title to the real estate, neither the Trustee nor the Trustee's nominee will be held to have assumed the payment of any encumbrances thereon, nor 11 27603 any responsibility as to the validity of the title conveyed to or held by the Trustee or the Trustee's nominee. All conveyances executed and delivered by the Trustee or the Trustee's nominee will be without covenants of warranty except as against the Trustee's own acts. (C) Voting,and Related Powers. To vote any stocks, bonds, or other securities held by the Trust at the direction of an investment manager or Retirement Board, as applicable; to give general or special powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options and to make any payments incidental thereto; to consent to or otherwise participate in corporate reorganizations or other changes affecting corporate securities and to delegate discretionary powers and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks,bonds, securities or other property held in the Trust. (D) Claims by or Against the Trust. To sue or defend in any suit or legal proceedings by or against the Trust. The Trustee will have full power in the Trustee's discretion to compound, compromise and adjust all claims and demands in favor of or against the Trust upon such terms as the Trustee deems best. In the administration of the Trust, the Trustee will not be obligated to take any action that may subject the Trustee to any expense or liability unless the Trustee is first indemnified to the Trustee's satisfaction for all expenses and liabilities, including attorneys' fees, that the Trustee may incur in connection with such action. (E) Nominee. To register any investment held in the Trust in the Trustee's own name or in the name of a nominee and to hold any investment in bearer form;_ provided, however, that the books and records of the Trustee will at all times show that all such investments are part of the Trust, and provided further that such registration or holding will neither increase nor decrease the liability of the Trustee. 12 27603 (F) Employment of Agents. To employ such agents, attorneys-in-fact, experts and investment and legal counsel, including any firm or corporation with which the Trustee may be associated as a partner, director, stockholder or otherwise, and to delegate discretionary powers to or to rely upon information or advice furnished by such agents, attorneys-in-fact, experts or counsel. (G) Execution of Instruments. To execute and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted, and to perform any and all acts that may be necessary or convenient in the proper administration of the Trust. (H) Collective Investment Trust. To the extent permitted by law, to commingle assets of the Trust with assets of other trusts, which in each case form a part of a pension or profit-sharing plan qualified under the Code and constitute an exempt trust within the meaning of the Code, (A) through the medium of any collective investment trust for employee benefit trusts established and maintained by any bank, or(B) through the medium of any collective investment trust for employee benefit trusts established and maintained by any trust company. To the extent of the equitable share of this Trust in any such investment trust, the instrument establishing such investment trust, as the same has been or may be amended, and the trust maintained thereunder, will be deemed a part of this Plan and Trust as if fully set forth herein. (I) Necessary Acts. To do all acts whether or not expressly authorized that may be necessary or proper for the protection of the property held hereunder or for the carrying out of any duty under this Plan or under the Trust. 13 27603 (d) Responsibilities of Trustee (1) The Trustee shall sell, invest, or reinvest the Trust assets in accordance with the directions of the Retirement Board or the investment manager(s) appointed by the Retirement Board. The Trustee will have no liability for any depreciation or loss with respect to any investments acquired by the Trustee pursuant to such direction, and will have no duty to review or to make recommendations with respect thereto. Notwithstanding any other provision of the Plan or any trust agreement, the Trustee will be fully protected in relying upon the certification of the Retirement Board with respect to the appointment of an investment manager. (ii) The Trustee shall receive, hold, invest and reinvest contributions to the Trust and shall make disbursements from the Trust pursuant to the terms of this Plan. Subject to the consent of the Trustee, the Employer will have the right to make its contributions hereunder in property to the Trustee. The Trustee shall make payments from the Trust only to such persons, in such manner, at such times, and in such amounts as specified in written directions from the Retirement Board, and the Trustee will be fully protected in making payments under the direction of the Retirement Board. For purposes of accounting and valuation, the records of the Trust will be maintained on a cash receipts and disbursements basis. The Trustee shall periodically capitalize unexpended income and add the same to the principal of the Trust. (e) Agent. The Trustee shall act in accordance with instructions from directions from any person designated as agent for such purpose by the Retirement Board. The Retirement Board shall notify the Trustee of any change of agent. The Trustee will be entitled to rely upon information or instructions received from the agent of the Retirement Board whose authority to act was last certified by the Retirement Board. In the absence of instructions from the Retirement Board, the Trustee will have full power and authority to act in the Trustee's 14 27603 discretion, if the Trustee determines that failure to act would frustrate the purpose of the Trust or Plan. (f) Reliance on Documentation. The Trustee may rely upon any affidavit, certificate, letter, notice, telegram or other paper or document believed by the Trustee to be genuine and upon any information or evidence believed by the Trustee to be sufficient; and the Trustee will be protected in all payments hereunder if made in good faith and without actual knowledge of the happening of an event or a change in conditions that would affect such payments. (g) Pooled Assets. Except as otherwise provided hereinabove, all the assets in the Trust will be held collectively for all the Participants with no physical division thereof until such assets are actually distributed. (h) Nonliability of Successor Trustee. Each successor Trustee may accept as complete and correct and may rely upon any accounting that has been made by or on behalf of any Trustee before the successor Trustee becomes a Trustee under this instrument, and may rely upon any statement or representation made by any Trustee acting hereunder as to the assets comprising the Trust or as to any other fact bearing upon the prior administration of the Trust; and such successor Trustee will not be subject to any liability by reason of having accepted and relied upon such accounting, statement or representation in case it is subsequently established that the same was incomplete, inaccurate or untrue. No successor Trustee will be subject to any liability or responsibility with respect to any act or omission of any other Trustee, and no successor Trustee will have any duty to enforce or to seek to enforce any claims of any kind against any predecessor Trustee on account of or in connection with any act or omission of any Trustee hereunder. 15 27603 (1) Accounts. The Trustee shall keep accurate and detailed accounts of all investments, receipts and disbursements and other transactions hereunder, and all accounts, books and records relating thereto will be open to inspection by any person designated by the Retirement Board at all reasonable times. For each Plan Year, the Trustee shall provide the Retirement Board with a written report setting forth all investments, receipts, disbursements, and other transactions effected by the Trustee from the date of the prior such report to the close of such Plan Year, or the date of removal or resignation of a Trustee, as the case may be. Such report is expected to be provided not later than 120 days after the end of each Plan Year, and within 60 days after the effective date of the removal or resignation of a Trustee. Such report must contain an exact description of all securities and investments held at the close of such Plan Year or the effective date of such removal or resignation of a Trustee, as the case may be, and the cost of each item thereof, as carried on the books of the Trustee. 0) Removal or Resignation of Trustee. The Retirement Board may remove any Trustee by delivery of written notice to such Trustee. Any Trustee hereunder may resign as Trustee, upon written notice to that effect, delivered to the Retirement Board. Such removal or resignation will be effective upon the date specified in such notice, which may be not less than 15 days after the delivery of such notice. In the event of the removal, resignation, death or inability to serve of any Trustee hereunder, a successor will be appointed by resolution of the Retirement Board, a certified copy of which resolution will be delivered to such successor. In the event of the removal, resignation, death or inability to serve of any Trustee after the Employer has ceased to exist or been dissolved, voluntarily or involuntarily, or has a receiver or trustee in bankruptcy appointed, a successor may be appointed by election by a majority in interest of the Participants. A successor Trustee, upon accepting such appointment, will become 16 27603 vested with the same powers, duties,privileges, and immunities as if such Trustee had been originally named in this Plan as a Trustee. In case of the removal, resignation, death or inability to serve of an individual Trustee, said Trustee or his personal representative shall forthwith turn over to the remaining or succeeding individuals serving as Trustee all accounts and records in such individual Trustee's possession, and shall execute such instruments as may be necessary to terminate his or her trusteeship. SECTION 8. BENEFIT LIMITATIONS (a) General Rule. Unless the alternative limitation of Section 8(b) applies, a Participant's Annual Benefit (defined below) for a Plan Year (which will be the Plan's "limitation year") will not exceed $180,000, adjusted as described below. (i) As of January 1 of each calendar year, the adjusted dollar limitation for such calendar year announced by the IRS pursuant to section 415(d) of the Code will automatically be substituted for the $180,000 amount set forth above and will become the dollar limitation applicable under the Plan Year ending during such calendar year. (ii) If a Participant would exceed the limitation of this Section 8(a), then the Participant's Annual Benefit under this Plan will be reduced to the extent necessary to meet the limitation. (iii) The limitation provided in this Section 8 will be applied in accordance with the provisions of section 415(b) of the Code and regulations issued thereunder. (b) Adjusted Dollar Limitation for Supplemental Retirement Benefits Commencing Before Age 62 or After Age 5. (1) In the case of a Participant whose Supplemental Retirement Benefit commences before age 62, the amount described in Section 8(a) (adjusted as described therein) 17 27603 will be reduced. The reduced limit will be the amount determined by treating the amount described in Section 8(a) (adjusted as described therein) as an annual single-life annuity commencing at age 62 and converting it on an actuarial basis into a single-life annuity that commences at the age when the Participant's retirement benefit commences (using the mortality factors prescribed by the IRS in Revenue Ruling 2001-62 and a 5%interest rate). Notwithstanding the preceding provisions of this paragraph, no reduction will be made in the amount described in Section 8(a) (adjusted as described therein) with respect to any Qualified Participant whose retirement benefit commences before age 62. For this purpose, "Qualified Participant"means a Participant who, upon his or her Termination Date, has completed at least 15 years of full-time employment with the Employer's police or fire department that are taken into account for purposes of determining the Participant's retirement benefits under CaIPERS. (ii) In the case of a Participant whose Supplemental Retirement Benefit commences after age 65, the amount described in Section 8(a) (adjusted as described therein) will be increased. The increased limit will be calculated by treating such amount as an annual single-life annuity commencing at age 65 and by converting it on an actuarial basis into a single- life annuity that commences at the age when the Participant's retirement benefit commences (using the mortality factors prescribed by the IRS in Revenue Ruling 2001-62 and a 5% interest rate). (c) Annual Benefit. For purposes of this Section 8, a Participant's "Annual Benefit" will be equal to the sum of the following: (i) The annual Supplemental Retirement Benefit to which the Participant is entitled under this Plan; and 18 27603 (ii) The aggregate amlual retirement benefits (if any) to which the Participant is entitled under all other qualified defined-benefit plans (including CalPERS) maintained by the Employer, other than benefits attributable to employee contributions. SIECTION 9. GENERAL PROVISIONS (a) Incompetence. If, in the opinion of the Retirement Board, any individual becomes unable to properly handle any amount distributable under the Plan, the Retirement Board may make any arrangement for distribution on such individual's behalf that it determines will be beneficial to such individual, including, without limitation, distribution to such individual's guardian, conservator, spouse or dependent. (b) Anti-Assignment. Except as otherwise provided in this paragraph, the rights of a Participant to Supplemental Retirement Benefits will not be subject to alienation or assignment, and will not be subject to anticipation, encumbrance or claims of creditors. Notwithstanding the preceding sentence, the Plan shall pay Supplemental Retirement Benefits in accordance with the terms of any Qualified Domestic Relations Order, provided that such Order (i) does not require the Plan to provide any type or form of benefits, or any option, that is not otherwise provided hereunder, (ii) does not require the Plan to provide increased benefits, and (iii) does not require the payment of benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a Qualified Domestic Relations Order. (c) Employment Rights. Nothing in the Plan will be deemed to give any person a right to remain in the employ of the Employer. The Employer reserves the right to terminate any person's employment, with or without cause or, if applicable, in accordance with any agreement affecting the Participant's rights to employment and the Employer's right to tenninate employment. 19 27603. SECTION 10. MODIFICATION AND TERMINATION OF THE PLAN. (a) Amendment and Termination. The Employer will have the power to amend or terminate the Plan at any time; provided, however, that no amendment will: (1) Reduce the Supplemental Retirement Benefits of any Participant or other person accrued under the Plan prior to the date the amendment is adopted, except to the extent that a reduction in accrued Supplemental Retirement Benefits is permitted by applicable law; or (ii) Divert any part of the assets of the Trust to purposes other than the exclusive purpose of providing Supplemental Retirement Benefits to Participants and other persons who have an interest in the Plan and defraying the reasonable expenses of administering the Plan. The Employer shall notify the Trustee of any amendment or the termination or partial termination of the Plan. (b) Termination and Reversion. Upon termination of the Plan, no part of the assets of the Plan will revert to the Employer or be used or diverted for purposes other than the exclusive purpose of providing Supplemental Retirement Benefits to those individuals who have an interest in the Plan; provided, however, that any assets remaining in the Trust may be returned to the Employer if: (1) All liabilities of the Plan to Participants have been satisfied; and (ii) Such return does not contravene any applicable provision of law. Upon a partial termination of the Plan, this Section 10(b) will apply only with respect to those Participants who are affected by such partial termination. (c) 100% Vesting on Termination. Upon termination or partial termination of the Plan, the right of each Participant to his or her accrued Supplemental Retirement Benefit under the Plan will, to the extent funded, be 100% vested and nonforfeitable. Upon termination or 20 27603 partial termination of the Plan, the Trust will continue to exist until all assets held under the Trust or the appropriate portion thereof has been distributed as provided in Section I0(d). (d) Limitation of Obligations. Notwithstanding any other provision hereof, the Employer will have no obligation to continue to make contributions to the Plan after the Plan's termination. Neither of the Employer, the Retirement Board, the Trustee nor any other person or entity will have any liability or obligation to provide benefits hereunder after the termination of the Plan. Upon termination of the Plan, all Participants shall look solely to the Trust for their benefits. In the event of a partial termination of the Plan, this Section 10(d) will apply only with respect to those Participants who are affected by such partial termination. SECTION 11. CHOICE OF LAW The validity, interpretation, construction and performance of the Plan will be governed by the laws of the State of California. SECTION 12. EXECUTION To record the adoption of the Plan, the Employer has caused this document to be executed by its duly authorized representative(s) on this 16th day of March , 2009. ATTEST: CITY OF HUNTINGTON BEACH, a municipal corporation of the State of California sd 0A81od rk.-, JOAN FLYNN KEITH BOHR City Clerk Mayor APPROVED AS TO FORM: 9 JENNIFER Mc ATH 2 ° g City Attorney 21 27603 CITY OF HUNTINGTON BEACH SUPPLEMENTAL RETIREMENT PLAN & TRUST APPENDIX A Minimum Distribution Requirements A.1 General Rules A.1.1 Effective Date. Notwithstanding any other provision of the Plan to the contrary, the provisions of this Appendix will apply for purposes of determining required minimum distributions. A.1.2 Precedence. The requirements of this Appendix will take precedence over any inconsistent provisions of the Plan. A.1.3 Requirements of Treasury Regulations Incorporated. All distributions required under this Appendix will be determined and made in accordance with the Treasury regulations under section 401(a)(9) of the Code. A.2 Time and Manner of Distribution A.2.1 Required Beginning Date. The Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's Required Beginning Date. A.2.3 Form of Distribution. Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a lump sum distribution on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with Section A.3 of this Appendix A. If the Participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations. Any part of the Participant's interest which is in the form of an A-1 individual account described in section 414(k) of the Code shall be distributed in a manner satisfying the requirements of section 401(a)(9) of the Code and the Treasury regulations that apply to individual accounts. A.3 Determination of Amount to be Distributed Each Year A.3.1 General Annuity Requirements. If the Participant's interest is paid in the form of annuity distributions under the Plan, payments under the annuity must satisfy the following requirements: (a) The annuity distributions will be paid in periodic payments made at intervals not longer than one year. (b) The distribution period will be over the life of the Participant. (c) Payments will either be non-increasing or increase only as follows: (1) by an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that is based on prices of all items and issued by the Bureau of Labor Statistics; or(2) to pay increased benefits that result from a Plan amendment. A.3.2 Amount Required to be Distributed by Required DeginninI4 Date. The amount that must be distributed on or before the Participant's Required Beginning Date is the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. Payment intervals are the periods for which payments are received, e.g.,bi-monthly, monthly, semi-annually, or annually. All of the Participant's benefit accruals as of the last day of the first Distribution Calendar Year will be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the Participant's Required Beginning Date. A-2 A.3.3 Additional Accruals After First Distribution Calendar Year. Any additional benefits accruing to the Participant in a calendar year after the first Distribution Calendar Year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues. A.4 Definitions The following words and phrases used in this Appendix A have the following meanings. A.4.1 "Distribution Calendar Year" means calendar year for which a minimum distribution is required. The first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. A.4.2 "Required Beginning Date"means April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 % or the calendar year in which the Participant retires. A.4.3 Other Capitalized 'Perms. All other capitalized terms used in this Appendix A have the meanings_set forth in Section 2 of the Plan, unless the context requires otherwise. A-3 ATTAC H M E N T #3 IA REQUEST FOR PROPOSAL FOR TRUST AND INVESTMENT MANAGEMENT SERVICES FOR SUPPLEMENTAL RETIREMENT FUNDING OBLIGATIONS City Treasurer Department CITY OF HUNTINGTON BEACH Released on June 26,2008 TRUST AND INVESTMENT MANAGEMENT SERVICES FOR SUPPLEMENTAL RETIREMENT FUNDING OBLIGATIONS REQUEST FOR PROPOSAL ("RFP") 1. BACKGROUND The City of Huntington Beach is soliciting Request for Proposals (RFP) from qualified firms for investment management services and administration of participant balances. The City of Huntington Beach is an incorporated charter law city, which operates under the council/administration form of government. This organization is a full-service city with a General Fund budget of over $188 million and a total budget of over $330 million for Fiscal Year 2007-08. The City provides a supplemental retirement plan for all employees hired prior to December 27, 1997. It is a defined benefit plan that will pay the retiree an additional amount to his or her normal amount for life. The City's contracts with employee bargaining associations establish the plan, and these associations must agree to any changes to the plan. The amount that is computed as a factor of an employee's normal retirement allowance is computed at retirement and remains constant for his or her life. Of the 1,036 active employees reported on the September 30, 2007 data, only 546 were eligible for plan benefits. No separately prepared financial statements are prepared for this plan and it is not included in the financial report of any other pension plan. The assets used to pay these liabilities have not yet been set up in a legal trust. This supplemental retirement plan currently has approximately $22 million in assets, which are currently invested and pooled with operating funds. The actuarial valuation has determined that as of September 30, 2007, the AAL for post retirement benefits was $51,028,065. The City has prudently set aside approx. $22 million in reserves for this obligation. Using a discount rate of 7.75% and a 30 year amortization of the unfunded accrued liability, the City has determined what the actuarial required contribution (ARC) will be for the next 30 years. The City intends to fund the entire annual contribution to ensure this obligation remains a predictable and manageable expense, while allowing for a great amount of interest earnings to further offset the future retiree healthcare costs. The City intends to establish trusts for this plan, and this trust will allow the City to separate these investments from operating fund investments and invest in higher yielding investment vehicles. Investment of funds of this nature is entirely different than the investment of surplus cash. Although state law does not provide a list of authorized investments for these types of funds, fiduciary standards and practices with respect to pension investing are well established. It is widely understood by pension fiduciary experts that the primary duty of trustees is to manage funds in the exclusive interest of the beneficiaries, minimizing employer contributions is a secondary duty. Based on the longer investment horizon, short term risk is considered to be an acceptable trade-off in order to achieve a long-term rate of return sufficient to preserve or enhance the value of the assets relative to inflation. Investment in riskier assets, such as stocks, is expected to generate long-term returns that more than compensate for their additional market risk. The trust will be initially funded with approximately $22 million with the timing and entrance into the market to be determined as part of the proposal process. Ongoing contributions to the trust will consist of the actuarially determined required contribution and the disbursements from the trust will consist of the related benefit payments. 2. SCHEDULE OF EVENTS This request for proposal will be governed by the following schedule: Release of RFP June 26, 2008 Deadline for Written Questions July 7, 2008 Responses to Questions Posted on Web July 14, 2008 Proposals are Due July 22, 2008 Proposal Evaluation Completed August 22, 2008 Approval of Contract (tentative date) September 30,2008 3. SCOPE OF WORK The selected firm will be required to perform the following: 1) Provide recommendations on the appropriate type and form of trust. Consultant may be requested to assist with the implementation of the irrevocable trust; however, this may be handled by an external law firm hired by the City. 2) Develop comprehensive Investment Objectives and Asset Allocation Guidelines and Performance Standards Guidelines given the nature of the funds and the longevity of the funds. Assist the City in developing an investment policy statement. 3) Perform discretionary portfolio management including investing and reinvesting funds in accordance with those objectives and guidelines and all applicable laws and regulations or assume complete responsibility for the investment of trust assets including determining asset allocation, portfolio structure, engaging appropriate investment managers or personnel, developing performance standards, monitoring investment performance against investment objectives and fees, and separately accounting for the assets of each plan in the trust and reporting at least annually to the City Treasurer or designated City Board. 4) Keep full and complete records of all transactions with regard to the funds and monitor performance and provide for periodic reports to the City. Provide necessary details as requested by City. 5) Render statements, portfolio analysis and performance comparisons quarterly or as agreed upon by City 6) Receive ongoing contributions into the Trust and process request for distributions annually from the Trust for benefits and payments of any administrative expenses attributable to the City plan. 2 7) Provide ongoing consultative services with respect to performance reporting of the investments and necessary adjustments to the Investment Objectives and Guidelines, as well as, training on particular aspects of the investment function. Using the information provided in Appendix A, the proposal should provide recommendations for trust options and an investment approach for the City of Huntington Beach including but not limited to: I) A recommendation on the form and type of trust in compliance with the required governmental accounting standards. 2) A proposed investment strategy outline for the City of Huntington Beach given the time horizon, liquidity requirements, and nature of funds. 3) A proposed sample asset allocation of the portfolio and suggested performance benchmarks. 4) A forecast of the portfolio's expected level of return and projected risks. 5) Confirmation that you will acknowledge your role as a fiduciary with respect to the OPEB trust. 4. PROPOSAL,FORMAT GUIDELINES Interested contractors are to provide the City of Huntington Beach with a thorough proposal using the following guidelines: Proposal should be typed and should contain no more than 20 typed pages using a 12-point font size, including transmittal letter and resumes of key people, but excluding Index/Table of Contents,tables, charts, and graphic exhibits. Each proposal will adhere to the following order and content of sections. Proposal should be straightforward, concise and provide "layman" explanations of technical terms that are used. Emphasis should be concentrated on conforming to the RFP instructions, responding to the RFP requirements, and on providing a complete and clear description of the offer. Proposals, which appear unrealistic in the terms of technical commitments, lack of technical competence or are indicative of failure to comprehend the complexity and risk of this contract, may be rejected. The following proposal sections are to be included in the proposer's response: A. Vendor Application Form and Cover Letter Complete Appendix B, "Request for Proposal-Vendor Application Form" and attach this form to the cover letter. A cover letter, not to exceed three pages in length, should summarize key elements of the proposal. An individual authorized to bind the consultant must sign the letter. The letter must stipulate that the proposal price will be valid for a period of at least 180 days. Indicate the address and telephone number of the contractor's office located nearest to Huntington Beach, California and the office from which the project will be managed. B. Background and Project Summary Section The Background and Project Summary Section has two parts: 1) Description of your organization's background, 2) Description of your understanding of the City, the work to be done and the objectives to be accomplished. Refer to the Scope of Work section of this RFP. In addition,this Section should include the following: 3 ♦ Provide information about your organization, date founded, organization chart including all professionals, company ownership and other business affiliations and the number of years your organization has provided investment management services and trustee services. ♦ Indicate whether there have been significant changes in your organization or if significant changes are expected ♦ Identify the type of accounts and returns currently being managed by your organization (e.g. government, pension, self insurance pools, and foundations). ♦ Identify any pending administrative proceedings, investigations and civil suits against your organization relating to your organization's performance of its professional duties. ♦ List all litigation or proceedings to which your organization is a party and which would either (a) materially impair your ability to perform the services enumerated herein and for which this RFP was issued, or (b) if decided in an adverse manner, materially affect the financial condition of your organization. ♦ Describe any known or perceived actual or potential conflicts of interest with the City, its directors, officers, agents or employees. Please refer to Section 15, City Employees and Officials, of the Professional Services Agreement (Appendix Q. C. Methodology Section Provide a detailed description of the approach and methodology to be used to accomplish the Scope of Work of this RFP. The Methodology Section should include: 1) An implementation plan that describes in detail (i) the methods, including controls by which your firm manages projects of the type sought by this RFP; (ii)methodology for soliciting and documenting views of internal and external stakeholders; (iii) and any other project management, implementation strategies or techniques that the respondent intends to employ in carrying out the work. These should include the following: a) List by sector distribution the market value of aggregate assets under management and/or under custody for your latest reporting period. b) Provide data on account/asset growth over the past three years including the number of account gained and the number of accounts lost. c) Describe the procedures you have in place to address the potential or actual credit downgrade of an issue and to disclose and advise a client of the situation. d) Describe your investment process, as you would apply it to the City's portfolio including the primary strategies for adding value to the portfolio. e) Describe your process of credit risk management and your decision-making process in terms of structure, committees, membership, meeting frequency, responsibilities, integration of research ideas and portfolio management. f) Describe how you typically report performance and provide performance history for the past five years for current accounts comprised of securities with maturities, quality and sectors similar to those proposed for the City. List by sector distribution the market value of aggregate assets under management and/or under custody for your latest reporting period. 2) Detailed description of efforts your firm will undertake to achieve client satisfaction and to satisfy the requirements of the "Scope of Work" section. Describe your 4 procedures to ensure that the portfolios comply with client investment objectives and policies. Describe and include samples of standard reporting available for client's investment transactions and market valuations. Include a project schedule, identifying all tasks and deliverables to be performed, durations for each task, and overall time of completion. 3) Detailed description of specific tasks you will require from City staff. Explain what the respective roles of City staff and your staff would be to complete the tasks specified in the Scope of Work. D. Staffing Provide a list of individual(s) who will be working on this project and indicate the functions that each will perform including number of years at the appropriate organization. Include a resume for each designated individual. Identify which professional staff member will be the primary client contact for the City and discuss how often you are willing to meet with the City. Describe the compensation policies for investment professionals. E. Qualifications The information requested in this section should describe the qualifications of the organization(s), key staff and sub-contractors performing projects within the past five years that are similar in size and scope to demonstrate competence to perform these services. Information shall include: 1) Names of key staff that participated on named projects and their specific responsibilities with respect to this scope of work. 2) A summary of the your firm's demonstrated capability, including length of time that your firm has provided the services being requested in this Request for Proposal. 3) Describe your experience with servicing public agency clients, and in particular, for services similar to those described in this RFP. 4) Describe the make up of your client base in terms of assets under management. Please segment assets as follows: ♦ $5 million or less ♦ $5 million to $25 million ♦ $25 million to $100 million ♦ $100 million to $500 million ♦ $500 million or more 5) Provide at least five local governmental agencies, preferably in California, that received similar services from your organization(s). The City of Huntington Beach reserves the right to contact any of the organizations or individuals listed. Information provided shall include: ♦ Client Name ♦ Project Description ♦ Project start and end dates ♦ Client project manager name, telephone number, and e-mail address 5 F. Fee Proposal I) Provide the trustee administration fees and any investment or transactional fees. 2) Describe the investment management fees and how they are calculated and applied. 3) List all other fees, if any, for ongoing consultation and customized reporting. 4) If there is a minimum fee requirement for this plan, describe the basis for the minimum fee. 5) Describe any revenue sharing agreements you have with investment managers and/or sub-advisors. Include any 12b-1, service, distributor, or platform fees you derive from the investment managers and/or sub-advisors. 6) Describe any surrender, withdrawal or deferred sales charges within your products. Are any additional fees to be netted from fund performance? If yes, please describe. 7) Is there a termination fee or any other fees relating to the transfer of City's assets? Upon notice of termination within 20 days, the City requires that the Consultant will transfer all of the City's OPEB assets in the manner designated by the City with no hold back. 8) Provide an estimate of all costs for the first year using a first year balance of $20 million with monthly payments to 550 retirees with the detail provided for each cost item. 5. PROCESS FOR SUBiMITTING PROPOSALS ♦ Content of Proposal The proposal must be submitted using the format as indicated in the proposal format guidelines. ♦ Preparation of Proposal Each proposal shall be prepared simply and economically, avoiding the use of elaborate promotional material beyond those sufficient to provide a complete, accurate and reliable presentation. ♦ Number of Proposals Submit five (5) copies of your proposal in sufficient detail to allow for thorough evaluation and comparative analysis. ♦ Submission of Proposals Complete written proposals must be submitted in sealed envelopes to: Janet Lockhart, Senior Administrative Analyst City of Huntington Beach Finance Department -Purchasing 2000 Main Street Huntington Beach, CA 92648-2702 RE: Trust and Investment Management Services/ Supplemental Retirement Funding Obligations and received no later than 4:00 p.m. (P.S.T) on July 22, 2008. Proposals will not be accepted after this deadline. Faxed or e-mailed proposals will not be accepted. 6 ® Inquiries Questions about this RFP must be directed in writing, via e-mail to: Janet Lockhart, Senior Administrative Analyst j lockhart@surfcity-hb.org From the date that this RFP is issued until a firm is selected and the selection is announced, firms are not allowed to communicate for any reason with any City employee other than the contracting officer listed above regarding this RFP, except during the pre- proposal conference. The City reserves the right to reject any proposal for violation of this provision. No questions other than written will be accepted, and no response other than written will be binding upon the City. ® Conditions for Proposal Acceptance This RFP does not commit the City to award a contract or to pay any costs incurred for any services. The City, at its sole discretion, reserves the right to accept or reject any or all proposals received as a result of this RFP, to negotiate with any qualified source, or to cancel this RFP in part or in its entirety. All proposals will become the property of the City of Huntington Beach, USA. If any proprietary information is contained in the proposal, it should be clearly identified. 6. EVALUATION CRITERIA The City's consultant evaluation and selection process is based upon Qualifications Based Selection (QBS) for professional services. The City of Huntington Beach may use some or all of the following criteria in its evaluation and comparison of proposals submitted. The criteria listed are not necessarily an all-inclusive list. The order in which they appear is not intended to indicate their relative importance: A. Compliance with RFP requirements B. Understanding of the project C. Recent experience in conducting similar scope, complexity, and magnitude for other public agencies. D. Educational background, work experience, and directly related consulting experiences E. Having a professional staff that has worked together and has successfully managed assets through various market conditions F. Fees Charged G. Responsiveness to Request for Proposal, Contract Terms and Insurance Requirements H. References The City may also contact and evaluate the proposer's and subcontractor's references; contact any proposer to clarify any response; contact any current users of a proposer's services; solicit information from any available source concerning any aspect of a proposal; and seek and review any other information deemed pertinent to the evaluation process. The evaluation committee shall not be obligated to accept the lowest priced proposal, but shall make an award in the best interests of the City. After written proposals have been reviewed, discussions with prospective firms may or may not be required. If scheduled, the oral interview will be a question/answer format for the purpose of clarifying the intent of any portions of the proposal. The individual from your firm that will be directly responsible for carrying out the contract, if awarded, should be present at the oral interview. A Notification of Intent to Award may be sent to the vendor selected. Award is contingent upon the successful negotiation of final contract terms. Negotiations shall be confidential and not subject to disclosure to competing vendors unless an agreement is reached. If contract negotiations cannot be concluded successfully, the City may negotiate a contract with the next highest scoring vendor or withdraw the RFP. 7. STANDARD TERMS AND CONDITIONS ® Amendments The City reserves the right to amend this RFP prior to the proposal due date. All amendments and additional information will be posted to the Huntington Beach Procurement Registry, Huntington Beach - Official City Web Site - Business - Bids & RFP's; proposers should check this web page daily for new information. ® Cost for Preparing Proposal The cost for developing the proposal is the sole responsibility of the proposer. All proposals submitted become the property of the City. ® Contract Discussions Prior to award, the apparent successful firm may be required to enter into discussions with the City to resolve any contractual differences. These discussions are to be finalized and all exceptions resolved within one (1) week from notification. If no resolution is reached, the proposal may be rejected and discussions will be initiated with the second highest scoring firm. A sample agreement is linked to this Request for Proposal in the City web site. o Confidentiality Requirements The staff members assigned to this project may be required to sign a departmental non- disclosure statement. Proposals are subject to the Freedom Information Act. The City cannot protect proprietary data submitted in proposals. ♦ Financial Information The City is concerned about proposers' financial capability to perform, therefore, may ask you to provide sufficient data to allow for an evaluation of your firm's financial capabilities. Insurance Requirements City Resolution 2007-3 requires that licensees, lessees, and vendors have an approved Certificate of Insurance (not a declaration or policy) on file with the City for the issuance of a permit or contract. Within ten (10) consecutive calendar days of award of contract, successful proposer must furnish the City with the Certificates of Insurance proving coverage as specified in Appendix C. Failure to furnish the required certificates within the time allowed will result in forfeiture of the Proposal Security. Please carefully review the Sample Agreement and Insurance Requirements before responding to the Request for Proposal enclosed herein. The terms of the agreement, including insurance requirements have been mandated by City Council and can be modified with Risk Manager and City Attorney approval. Your response to the Request 8 for Proposal must indicate if you are unwilling or unable to execute the agreement as drafted as well as providing the insurance requirements. The City will consider this in determining responsiveness to the Request for Proposal. 9 APPENDIX A i i ON CITY OF HUNTINGTON BEACH RETIREMENT SUPPLEMENT PLAID Actuarial Valuation Report Valuation Date: September 30, 2007 Fiscal Year Ending: September 30, 2007 08 „�' a Date of Report: November 14, 2007 Table of Contents Executive Summary........................................................................................... 1 II Actuarial Certification......................................................................................... 2 III Summary of Assets and Liabilities.....................................................................4 IV Annual Required Contributions..........................................................................5 V GASB No. 25 and 27 — Retirement Supplement Plan Disclosure for Fiscal Year Ended September 30, 2007............................................................................... 6 VI Projected Benefit Payouts ................................................................................. 8 VII Participant Information....................................................................................... 9 VIII Valuation Method and Actuarial Assumptions.................................................. 10 IX Summary of Benefits Provided ........................................................................ 12 City of Huntington Beach AON Retirement Supplement Plan i 0913012007Actuarial Valuation Report I Executive Summary The purpose of the actuarial valuation of the City of Huntington Beach Retirement Supplement Plan is to: • Provide disclosure information for GASB Statements No. 25 and 27 reporting purposes; and • Calculate the plan funding requirements. The following table shows the Annual Required Contribution (ARC) compared to last year: Fiscal Year Fiscal Year 2006-2007 2007-2008 ARC $ 2,849,956 $ 3,418,610 Percent of eligible payroll 7.02% 7.85% Percent of total payroll 3.68% 4.53% The percent of payroll is based on estimated fiscal year compensation. Effective in 1998 (date varies according to bargaining group), new employees are not eligible for the Retirement Supplement Plan. • Retirement Supplement Plan eligible payroll based on $41 million for 2006-2007 and $44 million for 2007-2008. • Total payroll based on $77 million for 2006-2007 and $76 million for 2007-2008. The ARC for the 2007-2008 fiscal year is higher than last year, partially due to adjustments in pay used in the estimated valuation update. City of Huntington Beach AON Retirement Supplement Plan 1 0913012007Actuarial Valuation Report 11 Actuarial Certification This report presents the results of the Actuarial Valuation for the City of Huntington Beach Retirement Supplement Plan as of September 30, 2007 for development of disclosure items under GASB No. 25 and No. 27 for the Fiscal Year Ended September 30, 2007. This report was prepared using generally accepted actuarial practices and methods. The actuarial assumptions used in the calculations are individually reasonable and reasonable in aggregate. Aon Consulting did not audit the employee data and financial information used in this valuation. On the basis of our review of this data, we believe that the information is sufficiently complete and reliable, and that it is appropriate for the purposes intended. Actuarial computations under GASB No. 25 and GASB No. 27 are for purposes of fulfilling employer accounting requirements. The calculations reported herein have been made on a basis consistent with our understanding of these accounting standards. Determinations for purposes other than meeting Employer financial accounting requirements may be different from these results. This report is intended for the sole use of the City of Huntington Beach. It is intended only to supply information for the City to comply with the stated purpose of the report and may not be appropriate for other business purposes. Reliance on information contained in this report by anyone for other than the intended purposes, puts the relying entity at risk of being misled because of confusion or failure to understand applicable assumptions, methodologies, or limitations of the report's conclusions. Accordingly, no person or entity, including the City of Huntington Beach should base any representations or warranties in any business agreement on any statements or conclusions contained in this report without the written consent of Aon Consulting. The actuary whose signature appears below is a Member of the American Academy of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. The actuary is available to answer any questions with regard to the matters enumerated in this report. City of Huntington Beach Retirement Supplement Plan 2 0913012007 Actuarial Valuation Report Il. Actuarial Certification (cont.) Aon's relationship with the Plan and the Plan Sponsor is strictly professional. There are no aspects of the relationship that may impair or appear to impair the objectivity of our work. Bradley J. A A,MAAA Senior Vice President Enrollment No.: 05-5899 Phone number: (213) 996-1729 Email: brad_au@aon.com Aon Consulting 707 Wilshire Boulevard, Suite 5700 Los Angeles, CA 90017 November 14, 2007 3.AClientsVClt}Hbch\cal2007APensionVVaIRpt07 Final.doc ��pp City of Huntington Beach ARetirement Supplement Plan 3 0913012007 Actuarial Valuation Report III Summary of Assets and Liabilities Assets Plan Assets, September 30, 2006 $ 16,820,970 Contributions 4,464,270 Benefit Payments (1,844,025) Interest 1,010,785 Plan Assets, September 30, 2007 $ 20,452,000 Return on Assets 5.57% Liabilities Present Value of Total Benefits $ 57,810,050 Present Value of Future Normal Cost 6,781,985 Actuarial Accrued Liability Active Employees Fire 3,209,773 Police 10,477,806 Lifeguard 715,867 Total Safety 14,403,446 Non-Safety 16,624,454 Total Active Employees 31,027,900 Retired Employees 20,000,165 Total Actuarial Accrued Liability 51,028,065 Plan Assets 20,452,000 Unfunded Actuarial Liability $ 30,576,065 City of Huntington Beach AON Retirement Supplement Plan 4 0913012007Actuarial Valuation Report IV Annual Required Contributions Determination of Unfunded Actuarial Liability (based on 2005 valuation) Fiscal Year Fiscal Year 2006—2007 2007 - 2008 Present Value of Total Benefits $ 48,881,762 $ 57,810,050 Present Value of Future Normal Cost 5,816,170 6,781,985 Actuarial Accrued Liability $ 43,065,591 51,028,065 Plan Assets 16,820,970 20,452,000 Unfunded Actuarial Liability $ 26,244,621 $ 30,576,065 Determination ofAnnual Required Contributions* Normal Cost Percent 1.89% 2.13% Unfunded Liability Funding Percent 5.13% 5.72% Total Funding Percent of Payroll 7.02% 7.85% Normal Cost Amount $ 768,420 $ 927,611 Unfunded Liability Funding Amount 2,081,536 2,490,999 Annual Required Contribution $ 2,849,056 $ 3,418,610 *Based on: ® The unfunded liability is amortized as a level amount over the period ending in 2027. ® The amortization payment also changes due to actuarial gains / losses and contributions different from the previous year's ARC. City of Huntington Beach AON Retirement Supplement Plan 5 091301200 7 Actuarial Valuation Report V GASB No. 25 and 27 - Retirement Supplement flan Disclosure for Fiscal Year Ended September 30, 2007 Development of Net Pension Obligation (NPO) and Annual Pension Cost Interest on Adjustment to Annual NPO Net the Annual Annual Fiscal Required Actual End Pension Required Pension Interest Salary Amortization Year Contributions Contribution of Year Obligation Contribution Cost Rate Scale Factor 91/92 $ 1,391,000 $ 240,000 $1,151,000 $ 0 $ 0 $1,391,000 8.5% 5.0% 17.31 92/93 1,546,000 240,000 2,486,384 97,835 68,451 1,575,384 8.5% 5.0% 16.81 93/94 1,697,000 240,000 4,004,362 211,343 150,364 1,757,979 8.5% 5.0% 16.54 94/95 1,790,000 390,000 5,479,861 340,371 264,873 1,865,498 8.5% 5.0% 15.12 95/96 1,968,000 8067000 6,648,309 465,788 459,340 1,974,448 8.5% 5.0% 11.93 96/97 1,952,000 37022,000 5,592,487 565,106 550,928 1,966,179 8.5% 5.0% 12.07 97/98 2,150,804 1,514,000 6,271,531 307,587 265,347 2,193,044 5.5% 3.0% 21.08 98/99 2,613,162 1,559,063 7,244,509 344,934 426,055 2,532,041 5S% 3.0% 14.72 99/00 2,638,019 1,631,000 8,150,355 398,448 499,621 2,536,846 5.5% 3.0% 14.50 00/01 2,577,662 2,268,000 8,337,534 448,270 570,753 2,455,179 5S% 3.0% 14.28 01/02 3,228,921 2,836,000 8,594,755 458,564 594,265 3,093,221 5.5% 3.0% 14.03 02/03 2,937,625 3,037,000 8,344,379 472,712 623,712 2,786,624 5.5% 3.0% 13.78 03/04 3,231,872 3,002,754 8,414,793 458,941 617,645 3,073,168 5.5% 3.0% 13.51 04/05 3,073,697 3,674,763 7,640,021 462,814 636,520 2,899,991 5.5% 3.0% 13.22 05/06 3,022,198 3,942,855 6,548,233 420,201 591,333 2,851,066 5.5% 3.0% 12.92 06/07 2,849,956 4,464,270 4,774,782 360,153 519,289 2,690,820 5.5% 3.0% 12.61 07/08 3,418,610 N/A* N/A* 262,613 389,143 3,292,080 5.5% 3.0% 12.27 *Not yet available Schedule of Funding Progress (000s omitted) Unfunded UAAL as a Actuarial Actuarial Actuarial Percent of Type of Actuarial value of Accrued Accrued Funded Covered Covered Interest Salary Valuation Valuation Dade Assets Liability Liability Ratio Payroll Payroll Rate Scale Actual 6/30/91 $ 175 $ 11,375 $ 11,200 1.5% $ 43,199 25.9% 8.5% 5.0% Update 6/30/92 157 12,331 12,174 1.3% 47,423 25.7% 8.5% 5.0% Actual 6/30/93 75 14,664 14,589 0.5% 53,703 27.2% 8.5% 5.0°% Update 6/30/94 (52) 14,673 14,725 (0.4)% 53,593 27.5% 8.5% 5.0% Actual 6/30/95 (290) 15,776 16,066 (1.8)% 51,779 31.0% 8.5% 5.0% Update 6/30/96 (120) 16,071 16,191 (0.7)% 54,368 29.8% 8.5% 5.0% Actual 6/30/97 2,334 18,944 16,610 12.3% 49,881 33.3% 8.5% 5.0% Actual 6/30/97 2,334 25,342 23,008 9.2% 49,881 46.1% 5.5% 3.0% Update 6/30/98 3,251 26,493 23,242 12.3% 48,585 47.8% 5.5% 3.0% Actual 6/30/99 4,162 28,601 24,439 14.6% 50,723 48.2% 5.5% 3.0% Update 6/30/00 5,077 28,844 23,767 17.6% 57,674 41.2% 5.5% 3.0% Actual 6/30/01 6,678 36,453 29,775 18.3% 63,345 47.0% 5.5% 3.0% Update 6/30/02 8,775 35,524 26,749 24.7% 65,137 41.1% 5.5% 3.0% Actual 9/30/03 10,308 40,436 30,128 25.5% 65,228 46.2% 5.5% 3.0% Update 9/30/04 11,886 40,979 29,093 29.0°% 63,538 45.8% 5.5% 3.0% Actual 9/30/05 14,077 42,873 28,796 32.8% 65,843 43.7% 5.5% 3.0% Update 9/30/06 16,821 43,066 26,245 39.1% 72,186 36.4% 5.5% 3.0% Actual 9/30/07 20,452 51,028 30,576 40.1% 73,380 41.7% 5.5% 3.0% City of Huntington Beach AON Retirement Supplement Plan 6 0913012007Actuarial Valuation Report V GASB No. 25 and 27 — Retirement Supplement Plan Disclosure for Fiscal Year Ended September 30, 2007 (cont'd) Schedule of Employer Contributions Annual Required Actual Percentage Fiscal Year Contributions Contribution Contributed 91/92 $ 1,391,000 $ 240,000 17% 92/93 1,546,000 240,000 l 6% 93/94 1,697,000 240,000 14% 94/95 1,790,000 390,000 22% 95/96 1,968,000 806,000 41% 96/97 1,952,000 3,022,000 155% 97/98 2,150,804 1,514,000 70% 98/99 2,613,162 1,559,063 60% 99/00 2,638,019 1,631,000 62% 00/01 2,577,662 2,268,000 88% 01/02 3,228,921 2,836,000 88% 02/03 2,937,625 3,037,000 103% 03/04 3,231,872 3,002,754 93% 04/05 3,073,697 3,674,763 120% 05/06 3,022,198 3,942,855 130% 06/07 2,849,956 4,464,270 157% 07/08 3,418,610 N/A* N/A* *Not yet available City of Huntington Beach AON Retirement Supplement Plan 7 0913012007Actuarial Valuation Report VD Projected Benefit Payouts The following table shows the estimated projected net City benefit payments based on the current plan provisions, current plan participants, and the valuation assumptions used in this report. Fiscal Year Ending 2008 2,106,000 2009 2,296,000 2010 2,491,000 2011 2,683,000 2012 2,874,000 2013 3,082,000 2014 3,280,000 2015 3,472,000 2016 3,667,000 2017 3,858,000 2018 4,039,000 2019 4,222,000 2020 4,393,000 2021 4,539,000 2022 4,658,000 2023 4,755,000 2024 4,821,000 2025 4,856,000 2026 4,868,000 2027 4,846,000 2028 4,793,000 2029 4,720,000 2030 4,616,000 2031 4,494,000 2032 4,357,000 City of Huntington Beach AON Retirement Supplement Plan 8 0913012007Actuarial Valuation Report VII Participant Information Employee data are reported as of June 30, 2007. Statistics are shown as of the September 30, 2007 valuation date. Actives Number of Annual Covered Average Average Past Average Participants Payroll Age Service Compensation Fire 84 $ 8,304,978 45.81 18.05 S 98,869 Police 129 13,066,164 46.51 18.52 101,288 Lifeguard 10 942,413 43.45 17.84 94,241 Total Safety 223 22,313,555 46.18 18.35 100,061 Non-Safety 323 21,202,732 52.42 22.21 65,643 Total Actives 546 43,516,287 49.99 20.70 79,700 Effective in 1998 (date varies according to bargaining group), new City employees are ineligible to participate in the Retirement Supplement Plan. Retirees Number Payments Average Age Retirees 498 $ 1,820,888 65.43 City of Huntington Beach AON Retirement Supplement Plan 9 0913012007Actuarial Valuation Report Vlll Valuation Method and Actuarial Assumptions A. Valuation Method The cost method used for determining plan contributions in the valuation is the Entry Age Normal cost method. The Entry Age Normal method spreads the cost of the plan for each participant over the years from the entry date into the plan (assuming the plan existed on the employee's hire date) to the expected retirement date. Cost attributable to present and future services is determined separately from cost attributable to prior service. Actuarial gains or losses are measured at each valuation and amortized in accordance with the amortization policy. When plan amendments are adopted, they are assumed to have been effective on the entry date into the plan to determine the normal cost and unfunded accrued liability. The cost of the Plan is derived by making certain specific assumptions as to the rates of interest, mortality, turnover, and the like, which are assumed to hold for many years into the future. Since actual experience may differ somewhat from the assumptions, the costs determined by the valuation must be regarded as estimates of the true costs of the Plan. B. Valuation of Assets Assets are reported at fair market value. C. Employees and Retirees Included in the Calculations Based on employee and retiree data received from the City of Huntington Beach. There are five groups included: 1. Fire safety employees 2. Lifeguard safety employees 3. Police safety employees 4. Non-safety employees 5. Retired employees D. Actuarial Assumptions 1. Mortality— 1997-2002 Ca1PERS Experience Study for Retirees and Beneficiaries. 2. Withdrawal from Service— 1997-2002 Ca1PERS Experience Study. The following select and ultimate tables were used: Fire safety Public agency fire Lifeguard safety Public agency misc. Police safety Public agency police Non-safety Public agency misc. City of Huntington Beach AON Retirement Supplement Plan 10 0913012007Actuarial Valuation Report Vill Valuation Method and Actuarial Assumptions (cont'd) 3. Disability Retirement— 1997-2002 CalPERS Experience Study. Fire safety Public agency fire Lifeguard safety Public agency misc. Police safety Public agency police Non-safety Public agency misc. 4. Retirement from Service— 1997-2002 Ca1PERS Experience Study. Fire safety Public agency fire 3% at 50 Lifeguard safety Public agency other safety 3% at 50 Police safety Public agency police 3%at 50 Non-safety Public agency misc. 2%at 55 5. Investment Return —5.5% compounded annually 6. Salary Improvement—Based on years of service as follows: Service Non-Safety Safety 1 15% 15% 2 -3 10 10 4 or more 3 3 7. Benefit Limitations — Section 415 defined benefit plan limits and Section 401(a)(17) compensation limits were assumed to increase 4.5%per year. 8. Spouse's Age — Female spouses are assumed to be three years younger and male spouses are assumed to be three years older than the employee. 9. Percentage Married — 85% of eligible employees are assumed to elect Option I1 and receive the Retirement Supplement benefit and have dependents eligible for Retiree Medical benefits. 10. Medicare—All employees and dependents are assumed to be eligible. 11. Non-City Service Assumption — Benefits from the Retirement Supplement Plan include service from Non-City of Huntington Beach employment. City of Huntington Beach AON Retirement Supplement Plan 11 0913012007Actuarial valuation Report IX Summary ®f Benefits Provided Retirement Supplement Plan For each employee hired before 1998 (date varies according to bargaining group) who retires from the City under CalPERS with an optional form of benefit payment (as opposed to the Unmodified Allowance provided by CalPERS), the City's Retirement Supplement Plan will provide a monthly benefit. This benefit will commence at the same time the CalPERS benefit commences and will be payable for the employee's lifetime. The amount of the monthly benefit is calculated as the difference between the employee's Unmodified Monthly Allowance and the actual monthly retirement benefit the individual actually receives. The following gross CalPERS benefit formulas were used: Fire safety Local safety 3%at 50 Lifeguard safety Local safety 3%at 50 Police safety Local safety 3% at 50 Non-safety Local miscellaneous 2%at 55 The monthly benefit payable under the City's Retirement Supplement Plan remains level during the employee's lifetime and will not be reduced as result of the "pop-up" feature of the Joint and Survivor Annuity. Fire Safety members are eligible for a 1/2 survivor continuance benefit from CalPERS. The table below shows the benefit reduction factors which CalPERS uses in converting an employee's Unmodified Allowance to Option II Joint& 100% Survivor with a pop-up feature: Retirement Age Hire Date Before 7/1/82 Hire Date On or After 7/1/82 50 0.934 0.893 51 0.930 0.889 52 0.926 0.883 53 0.922 0.878 54 0.918 0.873 55 0.914 0.868 56 0.910 0.863 57 0.907 0.857 58 0.903 0.852 59 0.899 0.846 60 0.896 0.840 61 0.892 0.834 62 0.888 0.828 63 0.884 0.821 64 0.879 0.815 65 0.874 0.807 66 0.869 0.800 67 0.863 0.792 68 0.857 0.783 69 0.851 0.775 70 0.844 0.766 City of Huntington Beach AON Retirement Supplement Plan 12 09/30/2007Actuarial Valuation Report APPENDIX B TRUST & INVES'TMENT MANAGEMENT SERVICES REQUEST FOR PROPOSAL VENDOR APPLICATION FORM 0 TYPE OF APPLICANT: ❑ NEW ❑ CURRENT VENDOR Legal Contractual Name of Corporation: Contact Person for Agreement: Corporate Mailing Address: City, State and Zip Code: E-Mail Address: Phone: Fax: Contact Person for Proposals: Title: E-Mail Address: Business Telephone: Business Fax: Is your business: (check one) ❑ NON PROFIT CORPORATION ❑ FOR PROFIT CORPORATION Is your business: (check one) ❑ CORPORATION ❑ LIMITED LIABILITY PARTNERSHIP ❑ INDIVIDUAL ❑ SOLE PROPRIETORSHIP ❑ PARTNERSHIP ❑ STATE/LOCAL GOVERNMENT AGENCY Names& Titles of Corporate Board Members (Also list Names&Titles of persons with written authorization/resolution to sign contracts) Names Title Phone I of 2 Federal Tax Identification Number: City of Huntington Beach Business License Number: (If none, you must obtain a Huntington Beach Business License upon award of contract.) Note: Governmental Agencies are exempt from this requirement. City of Huntington Beach Business License Expiration Date: 2 of 2 APPENDIX C PROFESSIONAL SERVICES CONTRACT BETWEEN THE CITY OF HUNTINGTON BEACH AND FOR THIS AGREEMENT ("Agreement") is made and entered into by and between the City of Huntington Beach, a municipal corporation of the State of California, hereinafter referred to as "CITY, and a hereinafter referred to as "CONSULTANT." WHEREAS, CITY desires to engage the services of a consultant to ; and Pursuant to documentation on file in the office of the City Clerk, the provisions of the Huntington Beach Municipal Code, Chapter 3.03, relating to procurement of professional service contracts have been complied with; and CONSULTANT has been selected to perform these services, NOW, THEREFORE, it is agreed by CITY and CONSULTANT as follows: 1. SCOPE OF SERVICES CONSULTANT shall provide all services as described in Exhibit "A," which is attached hereto and incorporated into this Agreement by this reference. These services shall sometimes hereinafter be referred to as the 'PROJECT." CONSULTANT hereby designates who shall represent it and be its sole contact and agent in all consultations with CITY during the performance of this Agreement. agree/surfnet/professional svcs mayor 1 12/07 2. CITY STAFF ASSISTANCE CITY shall assign a staff coordinator to work directly with CONSULTANT in the performance of this Agreement. 3. TERM; TIME OF PERFORMANCE Time is of the essence of this Agreement. The services of CONSULTANT are to commence on , 20 (the "Commencement Date"). This Agreement shall automatically terminate three (3) years from the Commencement Date, unless extended or sooner terminated as provided herein. All tasks specified in Exhibit "A" shall be completed no later than from the Commencement Date. The time for performance of the tasks identified in Exhibit "A" are generally to be shown in Exhibit "A." This schedule may be amended to benefit the PROJECT if mutually agreed to in writing by CITY and CONSULTANT. In the event the Commencement Date precedes the Effective Date, CONSULTANT shall be bound by all terms and conditions as provided herein. 4. COMPENSATION In consideration of the performance of the services described herein, CITY agrees to pay CONSULTANT on a time and materials basis at the rates specified in Exhibit "B," which is attached hereto and incorporated by reference into this Agreement, a fee, including all costs and expenses, not to exceed Dollars 5. EXTRA WORK In the event CITY requires additional services not included in Exhibit "A" or changes in the scope of services described in Exhibit "A," CONSULTANT will undertake agree/surfnet/professional svcs mayor 2 12/07 such work only after receiving written authorization from CITY. Additional compensation for such extra work shall be allowed only if the prior written approval of CITY is obtained. 6. METHOD OF PAYMENT CONSULTANT shall be paid pursuant to the terms of Exhibit "B." 7. DISPOSITION OF PLANS, ESTIMATES AND OTHER DOCUMENTS CONSULTANT agrees that title to all materials prepared hereunder, including, without limitation, all original drawings, designs, reports, both field and office notices, calculations, computer code, language, data or programs, maps, memoranda, letters and other documents, shall belong to CITY, and CONSULTANT shall turn these materials over to CITY upon expiration or termination of this Agreement or upon PROJECT completion, whichever shall occur first. These materials may be used by CITY as it sees fit. 8. HOLD HARMLESS CONSULTANT hereby agrees to protect, defend, indemnify and hold harmless CITY, its officers, elected or appointed officials, employees, agents and volunteers from and against any and all claims, damages, losses, expenses, judgments, demands and defense costs (including, without limitation, costs and fees of litigation of every nature or liability of any kind or nature) arising out of or in connection with CONSULTANT's (or CONSULTANT's subcontractors, if any) negligent (or alleged negligent) performance of this Agreement or its failure to comply with any of its obligations contained in this Agreement by CONSULTANT, its officers, agents or employees except such loss or damage which was caused by the sole negligence or willful misconduct of CITY. CONSULTANT will conduct all defense at its sole cost and expense and CITY shall approve selection of CONSULTANT's counsel. This indemnity shall apply to all claims and liability regardless of whether any agree/surfnet/professional sves mayor 3 12/07 insurance policies are applicable. The policy limits do not act as limitation upon the amount of indemnification to be provided by CONSULTANT. 9. PROFESSIONAL LIABILITY INSURANCE CONSULTANT shall obtain and furnish to CITY a professional liability insurance policy covering the work performed by it hereunder. This policy shall provide coverage for CONSULTANT's professional liability in an amount not less than One Million Dollars ($1,000,000.00)per occurrence and in the aggregate. The above-mentioned insurance shall not contain a self-insured retention, "deductible" or any other similar form of limitation on the required coverage except with the express written consent of CITY. A claims-made policy shall be acceptable if the policy further provides that: A. The policy retroactive date coincides with or precedes the initiation of the scope of work(including subsequent policies purchased as renewals or replacements). B. CONSULTANT shall notify CITY of circumstances or incidents that might give rise to future claims. CONSULTANT will make every effort to maintain similar insurance during the required extended period of coverage following PROJECT completion. If insurance is terminated for any reason, CONSULTANT agrees to purchase an extended reporting provision of at least two (2)years to report claims arising from work performed in connection with this Agreement. If CONSULTANT fails or refuses to produce or maintain the insurance required by this section or fails or refuses to furnish the CITY with required proof that insurance has been procured and is in force and paid for, the CITY shall have the right, at the CITY's election, to forthwith terminate this Agreement. Such termination shall not effect agree/surfnet/professional svcs mayor 4 12/07 Consultant's right to be paid for its time and materials expended prior to notification of termination. CONSULTANT waives the right to receive compensation and agrees to indemnify the CITY for any work performed prior to approval of insurance by the CITY. 10. CERTIFICATE OF INSURANCE Prior to commencing performance of the work hereunder, CONSULTANT shall furnish to CITY a certificate of insurance subject to approval of the City Attorney evidencing the foregoing insurance coverage as required by this Agreement; the certificate shall: A. provide the name and policy number of each carrier and policy; B. state that the policy is currently in force; and C. shall promise that such policy shall not be suspended, voided or canceled by either party, reduced in coverage or in limits except after thirty (30) days' prior written notice; however, ten (10) days' prior written notice in the event of cancellation for nonpayment of premium. CONSULTANT shall maintain the foregoing insurance coverage in force until the work under this Agreement is fully completed and accepted by CITY. The requirement for carrying the foregoing insurance coverage shall not derogate from CONSULTANT's defense, hold harmless and indemnification obligations as set forth in this Agreement. CITY or its representative shall at all times have the right to demand the original or a copy of the policy of insurance. CONSULTANT shall pay, in a prompt and timely manner,the premiums on the insurance hereinabove required. 11. INDEPENDENT CONTRACTOR CONSULTANT is, and shall be, acting at all times in the performance of this Agreement as an independent contractor herein and not as an employee of CITY. agree/surfnet/professional svcs mayor 5 12/07 CONSULTANT shall secure at its own cost and expense, and be responsible for any and all payment of all taxes, social security, state disability insurance compensation, unemployment compensation and other payroll deductions for CONSULTANT and its officers, agents and employees and all business licenses, if any, in connection with the PROJECT and/or the services to be performed hereunder. 12. TERMINATION OF AGREEMENT All work required hereunder shall be performed in a good and workmanlike manner. CITY may terminate CONSULTANT's services hereunder at any time with or without cause, and whether or not the PROJECT is fully complete. Any termination of this Agreement by CITY shall be made in writing, notice of which shall be delivered to CONSULTANT as provided herein. In the event of termination, all finished and unfinished documents, exhibits, report, and evidence shall, at the option of CITY, become its property and shall be promptly delivered to it by CONSULTANT. 13. ASSIGNMENT AND DELEGATION This Agreement is a personal service contract and the work hereunder shall not be assigned, delegated or subcontracted by CONSULTANT to any other person or entity without the prior express written consent of CITY. If an assignment, delegation or subcontract is approved, all approved assignees, delegates and subconsultants must satisfy the insurance requirements as set forth in Sections 9 and 10 hereinabove. 14. COPYRIGHTS/PATENTS CITY shall own all rights to any patent or copyright on any work, item or material produced as a result of this Agreement. agree/surfnet/professional Svcs mayor 6 12/07 15. CITY EMPLOYEES AND OFFICIALS CONSULTANT shall employ no CITY official nor any regular CITY employee in the work performed pursuant to this Agreement. No officer or employee of CITY shall have any financial interest in this Agreement in violation of the applicable provisions of the California Government Code. 16. NOTICES Any notices, certificates, or other communications hereunder shall be given either by personal delivery to CONSULTANT's agent (as designated in Section I hereinabove) or to CITY as the situation shall warrant, or by enclosing the same in a sealed envelope, postage prepaid, and depositing the same in the United States Postal Service, to the addresses specified below. CITY and CONSULTANT may designate different addresses to which subsequent notices, certificates or other communications will be sent by notifying the other party via personal delivery, a reputable overnight carrier or U. S. certified mail-return receipt requested: TO CITY: TO CONSULTANT: City of Huntington Beach ATTN: 2000 Main Street Huntington Beach, CA 92648 17. CONSENT When CITY's consent/approval is required under this Agreement, its consent/approval for one transaction or event shall not be deemed to be a consent/approval to any subsequent occurrence of the same or any other transaction or event. agree/surfnet/professional sves mayor 7 12/07 18. MODIFICATION No waiver or modification of any language in this Agreement shall be valid unless in writing and duly executed by both parties. 19. SECTION HEADINGS The titles, captions, section, paragraph and subject headings, and descriptive phrases at the beginning of the various sections in this Agreement are merely descriptive and are included solely for convenience of reference only and are not representative of matters included or excluded from such provisions, and do not interpret, define, limit or describe, or construe the intent of the parties or affect the construction or interpretation of any provision of this Agreement. 20. INTERPRETATION OF THIS AGREEMENT The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. If any provision of this Agreement is held by an arbitrator or court of competent jurisdiction to be unenforceable, void, illegal or invalid, such holding shall not invalidate or affect the remaining covenants and provisions of this Agreement. No covenant or provision shall be deemed dependent upon any other unless so expressly provided here. As used in this Agreement, the masculine or neuter gender and singular or plural number shall be deemed to include the other whenever the context so indicates or requires. Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision contained herein and any present or future statute, law, ordinance or regulation contrary to which the parties have no right to contract, then the latter shall prevail, and the provision of this Agreement which is hereby affected shall be agree/surfneUprofessional svcs mayor 8 12/07 curtailed and limited only to the extent necessary to bring it within the requirements of the law. 21. DUPLICATE ORIGINAL The original of this Agreement and one or more copies hereto have been prepared and signed in counterparts as duplicate originals, each of which so executed shall, irrespective of the date of its execution and delivery, be deemed an original. Each duplicate original shall be deemed an original instrument as against any party who has signed it. 22. IMMIGRATION CONSULTANT shall be responsible for full compliance with the immigration and naturalization laws of the United States and shall, in particular, comply with the provisions of the United States Code regarding employment verification. 23. LEGAL SERVICES SUBCONTRACTING PROHIBITED CONSULTANT and CITY agree that CITY is not liable for payment of any subcontractor work involving legal services, and that such legal services are expressly outside the scope of services contemplated hereunder. CONSULTANT understands that pursuant to Huntington Beach City Charter Section 309, the City Attorney is the exclusive legal counsel for CITY; and CITY shall not be liable for payment of any legal services expenses incurred by CONSULTANT. 24. ATTORNEY'S FEES In the event suit is brought by either party to construe, interpret and/or enforce the terms and/or provisions of this Agreement or to secure the performance hereof, each party shall bear its own attorney's fees, such that the prevailing party shall not be entitled to recover its attorney's fees from the nonprevailing party. agree/surfnet/professional svcs mayor 9 12/07 25. SURVIVAL Terms and conditions of this Agreement, which by their sense and context survive the expiration or termination of this Agreement, shall so survive. 26. GOVERNING LAW This Agreement shall be governed and construed in accordance with the laws of the State of California. 27. SIGNATORIES Each undersigned represents and warrants that its signature hereinbelow has the power, authority and right to bind their respective parties to each of the terms of this Agreement, and shall indemnify CITY fully for any injuries or damages to CITY in the event that such authority or power is not, in fact, held by the signatory or is withdrawn. CONSU LTANT's initials 28. ENTIRETY The parties acknowledge and agree that they are entering into this Agreement freely and voluntarily following extensive arm's length negotiation, and that each has had the opportunity to consult with legal counsel prior to executing this Agreement. The parties also acknowledge and agree that no representations, inducements, promises, agreements or warranties, oral or otherwise, have been made by that parry or anyone acting on that party's behalf, which are not embodied in this Agreement, and that that parry has not executed this Agreement in reliance on any representation, inducement, promise, agreement, warranty, fact or circumstance not expressly set forth in this Agreement. This Agreement, and the attached exhibits, contain the entire agreement between the parties respecting the subject matter of this Agreement, and supersede all prior understandings and agreements whether oral or in writing between the parties respecting the subject matter hereof. agree/surfnet/professional svcs mayor 10 12/07 29. EFFECTIVE DATE IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by and through their authorized officers. This Agreement shall be effective on the date of its approval by the City Council. This Agreement shall expire when terminated as provided herein. CONSULTANT, CITY OF HUNTINGTON BEACH, a municipal corporation of the State of COMPANY NAME California Mayor By: print name City Cleric ITS: (circle one)Chairman/President/Vice President AND INITIATED AND APPROVED: By: Director/Chief print name ITS: (circle one)Secretary/Chief Financial Officer/Asst. Secretary-Treasurer REVIEWED AND APPROVED: City Administrator APPROVED AS TO FORM: City Attorney agree/surfnet/professional svcs mayor l l 12/07 EXHIBIT "A" A. STATEMENT OF WORK: (Narrative of work to be performed) B. CONSULTANT'S DUTIES AND RESPONSIBILITIES: 1. 2. C. CITY'S DUTIES AND RESPONSIBILITIES: 1. 2. D. WORK PROGRAM/PROJECT SCHEDULE: EXHIBIT A EXHIBIT "B" Payment Schedule (Fixed Fee Payment) 1. CONSULTANT shall be entitled to monthly progress payments toward the fixed fee set forth herein in accordance with the following progress and payment schedules. 2. Delivery of work product: A copy of every memorandum, letter, report, calculation and other documentation prepared by CONSULTANT shall be submitted to CITY to demonstrate progress toward completion of tasks. In the event CITY rejects or has comments on any such product, CITY shall identify specific requirements for satisfactory completion. 3. CONSULTANT shall submit to CITY an invoice for each monthly progress payment due. Such invoice shall: A) Reference this Agreement; B) Describe the services performed; C) Show the total amount of the payment due; D) Include a certification by a principal member of CONSULTANT's firm that the work has been performed in accordance with the provisions of this Agreement; and E) For all payments include an estimate of the percentage of work completed. Upon submission of any such invoice, if CITY is satisfied that CONSULTANT is making satisfactory progress toward completion of tasks in accordance with this Agreement, CITY shall approve the invoice, in which event payment shall be made within thirty (30) days of receipt of the invoice by CITY. Such approval shall not be unreasonably withheld. If CITY does not approve an invoice, CITY shall notify CONSULTANT in writing of the reasons for non-approval and the schedule of performance set forth in Exhibit "A" may at the option of CITY be suspended until the parties agree that past performance by CONSULTANT is in, or has been brought into compliance, or until this Agreement has expired or is terminated as provided herein. 4. Any billings for extra work or additional services authorized in advance and in writing by CITY shall be invoiced separately to CITY. Such invoice shall contain all of the information required above, and in addition shall list the hours expended and hourly rate charged for such time. Such invoices shall be approved by CITY if the work performed is in accordance with the extra work or additional services requested, and if CITY is satisfied that the statement of hours worked and costs incurred is accurate. Such approval shall not be unreasonably withheld. Any dispute between the parties concerning payment of such an invoice shall be treated as separate and apart from the ongoing performance of the remainder of this Agreement. Exhibit B PROFESSIONAL SERVICES CONTRACT BETWEEN THE CITY OF HUNTINGTON BEACH AND FOR Table of Contents 1 Scope of Services.....................................................................................................1 2 City Staff Assistance................................................................................................2 3 Term; Time of Performance.....................................................................................2 4 Compensation ..........................................................................................................2 5 Extra Work...............................................................................................................2 6 Method of Payment..................................................................................................3 7 Disposition of Plans, Estimates and Other Documents ...........................................3 8 Hold Harmless .........................................................................................................3 9 Professional Liability Insurance.............................................................................4 10 Certificate of Insurance............................................................................................5 11 Independent Contractor............................................................................................6 12 Termination of Agreement.......................................................................................6 13 Assignment and Delegation......................................................................................6 14 Copyrights/Patents...................................................................................................7 15 City Employees and Officials..................................................................................7 16 Notices.........................................................................................7 17 Consent....................................................................................................................8 18 Modification.............................................................................................................8 19 Section Headings .....................................................................................................8 20 Interpretation of this Agreement..............................................................................8 21 Duplicate Original....................................................................................................9 22 Immigration...............................................................................................................9 23 Legal Services Subcontracting Prohibited................................................................9 24 Attorney's Fees..........................................................................................................10 25 Survival.....................................................................................................................10 26 Governing Law .........................................................................................................10 27 Signatories.................................................................................................................10 28 Entirety......................................................................................................................10 29 Effective Date.................................................................................I I �_ APPENDIX D INSURANCE REQUIREMENTS FOR PROFESSIONAL SERVICE CONTRACTORS PLEASE GIVE THESE INSURANCE REQUIREMENTS TO YOUR INSURANCE AGENT Huntington Beach City Council Resolution No. 2007-3 requires submittal of certificates of insurance evidencing the following minimum limits with a California admitted carrier with a current A.M. Best's Rating of no less than A:VII Minimum Limits of Insurance Errors and Omissions (Professional) liability: Minimum of $10,000,000 per occurrence and in the aggregate. Claims made policies are acceptable if the policy further provides that: 1. The policy retroactive date coincides with or precedes the professional services contractor's start of work (including subsequent policies purchased as renewals or replacements). 2. The professional services contractor will make every effort to maintain similar insurance during the required extended period of coverage following project completion, including the requirement of adding all additional insureds. 3. If insurance is terminated for any reason, professional services contractor agrees to purchase an extended reporting provision of at least two (2) years to report claims arising from work performed in connection with this agreement or permit. 4. The reporting of circumstances or incidents that might give rise to future claims. Deductibles, Self-Insured Retentions, or Similar Forms of Coverage Limitations or Modifications Any deductibles, self-insured retentions or similar forms of coverage limitations or modifications, must be approved by the Risk Manager and City Attorney of the City of Huntington Beach. Description of Work to be Performed The staff contact and purpose of the evidence of coverage must be identified. g/attymisc/insurance requirements ATTACHMENT #4 'bank. "� FiSx Star Savior GuzranrYd C� ULY 22,2008 U .S . BANK RESPONSE TRUST INVESTMENT MANAGEMENT SERVICES PROPOSAL PREPARED FOR: CITY OF HUNTINGTON BEACH Janet Lockhart j Financing Department-Purchasing 2000 Main Street Huntington Beach,CA 92648-2702 PROPOSAL PREPARED BY: RODNEY SKIDMORE VICE PRESIDENT INSTITUTIONAL TRUST&CUSTODY 633 WEST 5T"STREET LOS ANGELES,CA 90071 .,� RODNEY,SKIDMORE@USBANK.COM ' i I - - Fbe5—S—GuaranteedC 1 TABLE OF CONTENTS B. ORGANIZATION'S BACKGROUND AND PROJECT SUMMARY SECTION ............................................... 1 C. METHODOLOGY SECTION...................................... 7 D. STAFFING...............................................................14 E. QUALIFICATIONS ..................................................16 F. FEE PROPOSAL......................................................19 i } ATTACHMENTS i ' 1. U.S. BANK HIGHLIGHTS 2. SAMPLE CONVERSION TIMELINE 3. SAMPLE PERFORMANCE REPORTS 4. PERFORMANCE HISTORY ASSET ALLOCATION REPORT 5. U.S. BANK DISCLOSURES. ; f TRUST & INVESTMENT MANAGEMENT SERVICES REQUEST FOR PROPOSAL VENDOR APPLICATION FORM TYPE OF APPLICANT: ❑ NEW P<CURRENIT VENDOR Legal Contractual.Name of Corporation: Contact Person for Agreement: ��� Corporate Mailing Address:. City,State and Zip Code: U � � ( )R E-Mail Address: Phone: t�t��. <<'1 _ j�� Pax: A1 Contact Person for Proposals: ��(�. Title:NNg N&dQ t- E-Mail Address: Business Telephone: �Z� �151� J��� Business Fax: Is your business:(check one) ❑ NONPROFIT CORPORATION [ ] FOR PROFIT CORPORATION Is your business: (check one) / CORPORATION - ❑ .LIMITED LIABILITY PARTNERSHIP ❑ INDIVIDUAL ❑ SOLE PROPRIETORSHIP ❑(_PARTNERSHIP ❑. STATE/LOCAL.GOVERNMENT AGENCY Names&Titles of Corporate Board Members i (Also list Names&Titles of persons with written authorization/resolution to sign contracts) Names' Title Phone . 1 of 2 Federal Tax Identification Number: City of Huntington Beach Business License Number: i (If none,you must obtain a Huntington Beach Business License upon award of contract.) Note: Governmental Agencies are exempt from ibis requirement: City of Huntington Beach Business License Expiration Date: i I ; j 2 of 2 . f U .S . BANK RESPONSE: CITY OF HUNTINGTON BEACH { A. VENDOR APPLICATION FORM AND COVER LETTER Janet Lockhart July 21, 2008 Senior Administrative Analyst City of Huntington Beach 200 Main Street Huntington Beach,CA 92648-2702 j Dear Ms. Lockhart, On behalf of U.S.Bank, thank you for the opportunity to provide a response to the City of Huntington Beach's(the City)trust and investment management request for proposal. We consider this J opportunity with the City to be an excellent fit for our services and the City would be considered an important client serviced out of our Southern California office. We understand the key elements necessary to successfully implement a trust and investment management plan for the City of Huntington Beach. U.S. Bank stands ready to exceed the City's requirements and meet each of the objectives as part of this assignment. This includes: F Working with your counsel to implement an irrevocable trust and faithfully executing our duties as investment manager and fiduciary to the trust. € Use our multi billion dollar investment management infrastructure to develop comprehensive Investment Objectives and Asset Allocation Guidelines along with Performance Standards Guidelines. We will assist with the development of an Investment Policy Statement. Performing discretionary portfolio management, investing according to regulations and taking complete responsibility for investing trust assets. This includes determining asset allocation, portfolio structure, engaging appropriate investment managers,developing performance standards, monitoring investment performance against investment objectives and fees,and separately accounting for the assets in the trust. At no additional cost we will meet with City Treasurer or designated City board on a quarterly basis or at a frequency that best suits the City. We will not only keep full and complete records of all transactions and monitor performance on monthly reports along with details requested by the City, we audit the monthly statement. The City's statements,portfolio analysis and performance comparisons are available quarterly and in many cases monthly. We even provide the ability to create ad hoc reports on any given day. e 1 Receive ongoing contributions into the trust and process requests for distribution from the trust. This includes benefit payments and any administrative expenses attributable to the plan. i - Provide ongoing consultative services regarding performance reporting along with adjustments to the Investment Objectives and Guidelines, in addition to training on particular aspects of the investment function. U.S. Bank stands apart from our competitors for several reasons. We are not a Third-Party Administrator,an insurance broker or an affiliated patch work of service providers.U.S. Bank offers the City the resources of the sixth-largest bank in the country. U.S. Bank was among the first trustees in the country to implement trust and investment administration and offer it to our more than 5,200 governmental clients. ......'. .......-a\: \ ....a.4-. ........ ... ....�.. a.,a..... •... ,n ',.,.. .,a. a. .a.... ..\ ...La:..... .a.\ a.a\ \ ,a ..........a....�a �..a....L.....\.... .. ..a ..a., a.\.t...a. a a 7 Jidy 22,2008 Page 1 U . S . BANK RESPONSE : CITY OF HUNTINGTON BEACH U.S. Bank currently has an excellent relationship with the City of Huntington Beach through your corporate trust business. The U.S. Bank solution is a comprehensive proposal from a single defined benefit trust administrator and investment manager. We do not outsource any part of the custody, trust administration or investment management oversight. U.S.Bank can exceed the City's requirement and make this proposal valid for 270 days from the date of issue. The U.S. Bank office nearest to the City of Huntington Beach is located at: 9042 Garfield Ave Huntington Beach,CA 92646 The office that will service the Huntington Beach OPEB trust account is the same office that currently services the City of Huntington Beach corporate trust business. This office is located at: l 633 West 5th Street Los Angeles, CA 90071 j Please call me at(213)615-6671 if you need more information or if you have any questions. SincereI Rodney Smore Vice President U.S. Bank Institutional Trust& Custody 633 West 5th Street Los Angeles, CA 90071 (213) 615-6671 rodney.skidmore@usbank.com B . ORGANIZATION ' S BACKGROUND AND PROJECT SUMMARY SECTION f 1) Description of your organization's background. U.S. Bank has been providing trust and investment management services to local agencies and governmental entities since the early 1900s. In the past five years alone, our trust and custody business has tripled in size. To keep pace with technology and regulatory compliance,we have jexpanded our product by offering a variety of master trust and custody allocation methods, enhanced reporting and always providing prudent investment oversight. In addition to the enhancements we have made for online viewing and electronic download of statement information, we continue to conduct a SAS 70 Type II audit each year on of all our processes and practices. And the City is already familiar with our sister division, Corporate Trust,that currently serves as trustee of bond issues for the City of Huntington Beach. The following is a brief history of the development of U.S. Bank Institutional Trust& Custody July 22,2008 Page 2 U. S. BANK RESPONSE: CITY OF HUNTINGTON BEACH M • Began providing trust services Began providing investment management services Began providing defined contribution and recordkeeping services Began praviding pension payments services • SEI relationship established • Trust accounting enhancements made (quarterly) Introduced our Global Custody services • Be an to offer master trust unitized accounting Began providing domestic securities lending a Introduced online access to information 0 Began providing performance measurement analytics a Developed interfaces with accounting software vendors 0 Expanded number of master trust and custody accounting methods offered 0 so 0 Enhanced our Web-based client applications a Established trade interfaces & Introduced straight-through processing Expanded money market options • U graded pension payment system Benefit Payment Services With more than 25 years experience providing benefit payment services,and processing over one million benefit checks each year, U.S. Bank has the service team, experience and technology to provide a benefit payments solution that is robust, cost effective($1.75 per payment) and uses City staff time efficiently. Our system recognizes the need to support both the City staff and the retirees who expect their checks each month. We keep benefit payments in full compliance with reporting requirements. Our services have been designed to meet the complex regulatory environment,the evolving needs of plan participants, and to provide the controls, functionality and value that plan sponsors require. Features of the U.S. Bank benefit payment service include- 0 Fully-staffed call center to handle common and easily resolvable questions from retirees(such as bank account changes for ACH transfers). This keeps City staff focused on more important tasks and eliminates a middle step for the retiree getting questions answered about their check or year end tax reporting. J Q The City staff will have online access to comprehensive reporting, quarterly participant status and tax reporting.All data is searchable making it easy to find information. 0 Plan participants receive timely, accurate distributions, electronic payments U.S. Bank can also print custom messages on retiree checks. M In addition to tax withholding,we can also withhold for items such as retiree medical. M U.S. Bank eliminates waste by performing quarterly processes related to encashed checks and Social Security Administration death audits. This helps meet your fiduciary responsibilities and reduce expenses. These quarterly services are performed free of charge. Our online benefit payment system delivers the following features to streamline the process used by City staff for benefit payment plan management: ® Lump sum and recurring distribution requests M Plan information inquiry and update capability Online reporting: view,print or download 24/7 Internet access to disbursement and tax information July 22,2008 Page 3 U . S . BANK RESPONSE : CITY OF HUNTINGTON BEACH U.S. Bank produces several comprehensive reports for our clients.No special hardware or software is required to use the site and its tools. The intuitive,point-and-click design of the Web site simplifies tasks and helps maintain data quality. Following are available reports: ® Mailing Labels ® Gross to Net ® Check Register ® Gross Exceeding Net Report The City's U.S. Bank Relationship Manager, Steven Webb,will coordinate production of a comprehensive trust reporting package for the City that contains financial and other information for year end reporting and to assist with audit requests. GASS Reporting and'Trustee Services J Because U.S. Bank has been working as a trustee for over 100 years, we have learned how to provide needed information to the City and all your service providers like actuaries and auditors. And because we are proposing to act as a discretionary trustee the City knows they are gaining the fiduciary oversight of not just the sixth-largest bank in the country,but one of the highest rated and most respected. That is probably why the City currently uses U.S. Bank as trustee for its bond issues. U.S. Bank has trust relationships with over 5,200 public sector clients with assets totaling more than $800 billion. And as mentioned above, U.S. Bank also currently has a trustee relationship with the City of Huntington Beach for the corporate trust business. U.S. Bank offers a bundled trustee solution that includes: ■ Trust Service—U.S. Bank offers the flexibility to service whichever trust form that the City legal counsel determines,whether that is a Section 409 or other form of trust.. Investment Management Services—Open architecture allows choice among internal and external investment managers,with oversight and coordination from a U.S. Bank Portfolio Manager with an understanding of managing in accordance with California Government Code section 53620. e Benefit Payments—An economical,robust and very efficient system built around minimizing staff time and maximizing retiree service. 2) Description of your understanding of the City, the work to be done and the objectives to be accomplished. Refer to Scope of Work of this RFP. U.S.Bank stands ready to exceed the City's requirements and meet each of the objectives as part of this assignment. This includes: Working with your counsel to implement an irrevocable trust and faithfully executing our duties as investment manager and fiduciary to the trust. • Use our multi billion dollar investment management resources to develop comprehensive Investment Objectives and Asset Allocation Guidelines along with Performance Standards Guidelines. We will assist with the development of an Investment Policy Statement. ® Performing discretionary portfolio management,investing according to regulations and taking complete responsibility for investing trust assets. ■ At no cost we will meet with City Treasurer or designated City board on a quarterly basis i July 22,2008 Page 4 U . S, BANK RESPONSE : CITY OF HUNTINGTON BEACH We keep full and complete records of all transactions and monitor performance on monthly reports along with details requested by the City. The City's statements,portfolio analysis and performance comparisons are available quarterly and in many cases monthly., 0 Receive ongoing contributions into the trust and process requests for distribution from the trust, including benefit payments and any administrative expenses applicable to the plan. 0 Provide ongoing consultative services regarding performance reporting along with adjustments to the Investment Objectives and Guidelines, in addition to training on particular aspects of the investment function. sp In addition, this Section should include the following: Provide information about your organization, date founded, organization chart including all J professionals, company ownership and other business affiliations and the number of years your organization has provided investment management services and trustee services.. U.S.Bank Institutional Trust&Custody is a business unit of U.S. Bancorp, a diversified,NYSE- listed,Fortune 500 financial services company founded in 1863 and headquartered in Minneapolis, Minnesota. i. Top Ranked Bank—U.S. Bank is currently the sixth-largest bank in the United States, with$242 billion in assets and 2,522 banking offices in 24 states. U.S. Bank is a company with a distinguished tradition, having provided trust services since the early 1900s and investment management services since 1914. And in a market full of negative news about sub-prime mortgages, liquidity problems, falling bank stock prices and revised ratings, U.S. Bank is 'Open for Business'. We have had financial ratings re-affirmed, a relatively stable stock price, a stable loan portfolio and a 140 year track record paying a dividend. Please see Attachment I for more detailed information on the recognition that U.S. Bank has recently received. Leading Division—Wealth Management and Securities Services provides a comprehensive array of institutional trust, custodial,retirement, financial advisory, mutual fund processing,private banking and asset management services. The division includes FAF Advisors,investment advisor to First American Funds. The Wealth Management division of U.S. Bank has a total of approximately$4 trillion in assets under administration. Dedicated Unit—U.S. Bank Institutional Trust& Custody was formed to exclusively serve the unique needs of institutional entities. We provide comprehensive services,including trust and Custody,securities lending, investment management and benefit payments to government and public entities, corporations,endowments and foundations. U.S. Bank Institutional Trust& Custody has 3,000 clients with assets of$1 trillion. Service Oriented Mission—U.S. Bank has a long-held internal focus on client satisfaction which means the City receives a dedicated Relationship Manager and Portfolio Manager both located in the Los Angeles office. In addition,we use a recurring and disciplined account review process to evaluate how each person assigned to the City's relationship is performing and how, as a whole, we are meeting the City's expectations. July 22,2008 Page 5 U , S . BANK RESPONSE : CITY OF HUNTINGTON BEACH Trusted Advisor—U.S.Bank Asset Management is organized and functions to provide unbiased, fee-based investment management advice. Using locally based advisors ensures that the City will receive personal attention and private meetings to discuss market conditions and well as the performance of the investments in your portfolio. Richard Davis - Pms(dent&CEO =l Lee Mims Mike Doyle Dick Payne Andrew Cecerc Bill Chenevlch --i Genaral Counsel Chief Credit Officer Corporate Banldrg Chief Fnanaal Officer Technology&Operations Somices Diane Tho adsgard Jennie Carlson Richard Hartnack Joseph Ohing Pamela Joseph Rich Hildy Weahh Management& Human Resources Consumer BaZrg Commercial BanFang Merd,ant Services Corporate Risk Seauities services !I Jeff Kett Tim Leach President President Institutional Trust&Custody Pdvaie Asset Managmerd -'� Karl WRsar Derek Hansen Control Region Manager Sertiorpadfalio Manager Steve n webb ,:.� Relatlo0.sltlp Manager Indicate whether there have been significant changes in your organization or if significant changes are expected. , In a time of difficult and turbulent financial markets, and because of the state of many of our competitors, we believe it is significant to confirm to the City what has not changed. ® We have not laid off employees B We have not closed any offices Rating agencies have affirmed both our ratings and financial stability ■ We are not suffering from a liquidity crunch, Our shareholder dividend continues as it has consistently for the last 140 years We have added new client relationships and continue to invest in systems and people No other significant changes are currently planned;however our leadership has stated that we are always looking for opportunities to expand our business which could include acquisitions. We { think it is significant,given current market conditions,to confirm that we do not have any significant changes planned. Our President & CEO Richard Davis was recently quoted as saying, "U.S. Bank is `Open For Business"'. ;1 Identify the type of accounts and returns currently being managed by your organization (e.g. government, pension, self insurance pools, and foundations). l Across the country,U.S. Bank manages a variety of accounts,including government,pension, self insurance pools and foundations. The returns we provide our clients is commensurate with the chosen bench marks for those assets.And since we manage all asset classes,we take every effort to provide superior risk adjusted returns. i The Wealth Management and Securities Services division of U.S. Bank administers $4 trillion dollars in client assets. This includes clients in the following sectors: Public Agencies o Foundation/Endowment/Non Profit 111 Taft-Hartley Financial Institutions ■ Global Advisor/Broker July 22,2008 Page 6 U . S . BANK RESPONSE : CITY OF HUNTINGTON BEACH a Identify any pending administrative proceedings, investigations and civil suits against your organization relating to your organization's performance of its professional duties. To the best of our knowledge, there are no pending administrative proceedings, investigations or civil suits against U.S. Bank and our performance of professional duties. ® List all litigation or proceedings to which your organization is a party and which would either(a) materially impair your ability to perform the services enumerated herein and for which this RFP was issued, or(b) if decided in an adverse manner, materially affect the financial condition of your organization. No significant litigation currently exists with respect to services provided by U.S. Bank Institutional Trust& Custody that would(a)materially impair our ability to perform the services + enumerated herein and for which this RFP was issued or(b)if decided in an adverse manner, materially affect the financial condition of U.S. Bank. 71 ® Describe any known or perceived actual or potential conflicts of interest with the City, its directors, officers, agents or employees. Please refer to Section 15, City Employees and Officials, of the Professional Services Agreement (Appendix C). Because U.S. Bank currently acts as trustee to the City, we do not foresee any potential conflicts of f interest in continuing work with the City. C. METHODOLOGY SECTION Provide a detailed description of the approach and methodology to be used to accomplish the Scope of Work of this RFP. The Methodology Section may be broadly stated if the City has transferred the fiduciary responsibility to the contractor and generally should include: 1) An implementation plan that describes in detail(i) the methods, including controls by which your firm manages projects of the type sought by this RFP; (#) methodology for soliciting and documenting views of internal and external stakeholders; (iii) and any other project management or implementation strategies or techniques that the respondent intends to employ in carrying out the work. These should include the following: >'1 Below is a description of the implementation plan that relies on internal methods and techniques. This discusses i)controls used to manage this project ii)methodology for soliciting and documenting views and iii)any other project management implementation strategies or techniques J we intend to employ. Please refer to Attachment 2 for a sample timeline as well. Under the coordination of the Relationship Manager, Steven Webb, a transition team is established for the conversion of each new plan.The transition team develops a detailed schedule, assigns responsibilities and completion dates and monitors progress so as to minimize the involvement of City staff. The conversion process is a phased approach that typically requires eight weeks to complete to ensure a smooth transition. For the assignment described in this RFP,the conversion process is greatly simplified because the initial assets will transfer in cash. The most involved i aspect will be the retiree payments. f July 22,2008 Page 7 U . S . BANK RESPONSE : CITY OF HUNTINGTON BEACH `j i The U.S.Bank Payment Services conversion department prefers 60 days upon receipt of accurate and complete information prior to the conversion date. In each transition situation, we prepare, present and implement a mutually acceptable plan that details the activities,responsible parties and respective timeframes required to accomplish the task. For a sample conversion timeline,please refer to Attachment 2. The benefit payment department will establish communication with the City's prior payment vendor or trustee to review the current payment system's data capabilities. After the all data being extracted has been reviewed, a formalized conversion strategy will be implemented. After U.S. Bank has received approval from the City regarding the conversion process,data will be transferred and converted into the Benefit Payment System. Once the data is transferred into the Benefit Payment System, testing is completed and sample reports are reviewed with the City to ensure accuracy. Conversion specialists will also review all procedures; releasing accurate account(s)to payment services staff for ongoing account administration. a) List by sector distribution the market value of aggregate assets under management and/or under custody for your latest reporting period. as Public $112.0 Foundation/EndowmenWon-profit $21.6 Taft-Hartley $10.5 Financial Institutions $70.1 Global $5.0 Advisor/Broker $35.0 Mutual Funds $629.8 Other $190.2 Total $1,074.2 J b) Provide data on account/asset growth over the past three years including the number of account gained and the number of accounts lost. Gained Clients 760 1519 1495 Lost Clients 80 128 134 *Numbers do not include those clients gained or lost due to merger,acquisition,bankruptcy,plan termination or other reasons beyond our control. c) Describe the procedures you have in place to address the potential or actual credit downgrade of an issue and to disclose and advise a client of the situation. U.S. Bank currently manages$70 billion in fixed income assets and employs its own staff of credit analysts. The City would benefit immensely from U.S. Bank credit research because the primary responsibility of the fixed income research area is to provide specific investment recommendations. July 22,2008 Page 8 U. S . BANK RESPONSE : CITY OF HUNTINGTON BEACH Our fixed income research team is composed of our dedicated six-person credit research team, sector teams (government securities, securitized debt, high-grade credit, and high-yield credit), quantitative and economic research and our fixed income strategy committee. The fixed income research team meets daily to facilitate discussions on current market conditions,and the team produces a weekly update of ideas and comments on a monthly Sector/Issuer Recommendation report. This helps to balance our continuous review of the markets with a longer-term,balanced perspective to investments. We also continuously monitor our investments for performance and changes in information that would affect our fundamental analysis. All of our research effort is conducted internally by utilizing external sources for basic information and overlaying our fundamental research process to gain a better understanding of the security. "Street"research is a relatively minor input to our investment process.U.S.Bank uses a relative value approach to research,driven by quantitative and qualitative analysis of the overall economic ' environment,the various fixed income sectors and specific fixed income securities. } U.S. Bank main external sources of research are: ■ Lehman Brothers Multifactor Risk Model and Performance Attribution Model ■ CMS Bondedge Global Risk Model and Performance Attribution Model ■ FactSet—company financial data, SEC filings(10-Qs, 10-Ks,proxies etc.) and economic information ■ Thomson Analytics—estimates, Street research, company calls,transcripts and analytics ■ BondScore—default estimates ■ Rating agency research(Moody's and S&P) ■ CreditSights and KDP- independent credit research ■ Various industry publications U.S. Bank is independent and our objective sector and credit recommendations are driven by the bottom-up analysis from the research group. This is combined with our model-derived rich/cheap valuation metrics. We have scorecards, which summarize various credit metrics—i.e., financial ratios(current and projected),management,equity volatility, etc.—to arrive at a base score that ranks sectors from Overweight to Underweight. Using the scorecard as a ranking tool,your ? Portfolio Manager, Derek Hansen, can then make the final decision on sector and issuer investments,weightings, etc. The research analysts take special action of e-mailing all portfolio managers of credit downgrades and potential downgrades to lower than an"A"rating and future purchases of that issuer will be suspended. Your Portfolio Manager, Derek Hansen, will communicate the news to the City regarding existing holdings and make specific recommendations as it relates to the portfolio. d Describe our investment process, as you would apply it to the Cit s portfolio including -, ) Y P � Y PP Y Y' P g the primary strategies for adding value to the portfolio. The City will be serviced by a knowledgeable,dedicated Portfolio Manager based in Los Angeles, who will work with you to ensure your portfolio is allocated in accordance with your established investment objectives. Your U.S. Bank Portfolio Manager, Derek Hansen,will provide high-touch service to the City's account. July 22,2009 Page 9 U. S. BANK RESPONSE : CITY OF HUNTINGTON BEACH U.S. Bank currently acts as the investment advisor to many trust clients, and the City will benefit from our familiarity and depth of experience in this area. The City will receive the steady hand of experience that will keep you informed at all times. Our approach is to keep your portfolio strategically positioned for growth and prudently diversified for protection.U.S. Bank offers access to both proprietary and non-proprietary investment advice and products. Your Portfolio Manager oversees and coordinates investment activities for your account. U.S. Bank will provide the City investment management and related services, including: ■ Availability daily,via phone or e-mail and In-person presentations at regular intervals ■ Identification of financial objectives and risk profile Development,implementation,review and monitoring of investment plan or investment policy ° Assistance in developing investment guidelines and regular portfolio review and recommendations to maintain consistency with your objective • Robust risk management, Strategic and tactical asset allocation guidance • Diversified array of investment products (open architecture, including proprietary and non) ° Progress reports/performance updates with Timely, accurate, customized reporting ° -Proactive communication on market,economic and industry trends that impact your portfolio Day-to-day administration, including contributions, disbursements and legal and tax reporting Portfolio Manager-The City's Portfolio Manager, Derek Hansen,is a knowledgeable resource } available for your public fund investing needs. Derek will be a valuable asset to the City as he has extensive experience as a Chartered Financial Analyst. Derek will be your main investment contact and is responsible for the oversight and management of investments in the City's account. Key responsibilities include: Develop comprehensive Investment Objectives and Asset Allocation Guidelines and Performance Standards Guidlelines in the context of this trust and the longevity of the funds. Assume complete responsibility for the investment of trust assets, including determining asset allocation,portfolio structure and engaging appropriate investment managers or personnel. Assist in creating the City's investment policy statement—driven by state statutes Manage the City's portfolio with ongoing review and recommendation for investment changes to remain consistent with your investment policy statement ° Attend meetings with the City regarding investment performance Answer questions the City may have regarding the portfolio, economic or market conditions 1 U.S.Bank is able to access both proprietary and non-proprietary investment management advice and products. U.S. Bank has a multi-discipline,multi-style investment approach providing both separate account management and mutual fund portfolios. U.S. Bank also offers specific objective funds including international,equity income,real estate securities and technology. t a ® o ME E Domestic Equity I Domestic Fixed Income Hedge Fund ■ Large Cap Stocks ■ Short-Term Customized Structured Notes ® Mid Cap Stocks Intermediate ■ Small Cap Stocks ■ Government/Agency ■ REITs ■ Corporate International Equity Core ■ Large Cap Stocks n Total Return July 22,2008 Page 10 U . S. BANK RESPONSE : CITY OF HUNTINGTON BEACH • Multi Ca Stocks • High Yield • Small Cap Stocks International Fixed Income • Emerging Markets • Global Government Fixed Income Includes growth,value and core styles in addition to passive index strategies. *Alternative investments,such as commodities,very often use speculative investment and trading strategies.There is no guarantee that the investment program will be successful. Research has shown that the largest component of a portfolio's return is derived from asset class diversification and strategic management. Portfolios that mix different asset classes may provide better returns with less risk than investments in a single type of asset. By implementing moderate tactical shifts in asset allocation,we believe that consistent,above-benchmark,risk-adjusted performance may be achieved in portfolios. We create broadly diversified portfolios and practice rigorous risk control seeking consistent, above-benchmark,risk-adjusted performance. We monitor y the market benchmark and the volatility of individual securities in the portfolio. e} Describe your process of credit risk management and your decision-making process in terms of structure, committees, membership, meeting frequency, responsibilities, integration of research ideas and portfolio management. Below is a description of the process used to perform credit risk management for our$70 billion of fixed income and equities Lwe manage. FAF Advisors' Asset Allocation Committee reviews strategic and tactical model portfolios in light of current market and economic conditions. While the strategic allocation models are our best advice for making long-term asset allocation decisions, the committee's short-term tactical guidance is provided for those investment portfolios where tactical changes are appropriate. The tactical portfolios represent our best advice in cases where: 1)a tactical approach is preferred or 2)the planning horizon is properly only one year.Where these conditions are not met,the strategic guidance based on the full,long-term planning horizon is appropriate. Implementation of asset allocation decisions is an individual account matter where full consideration should be given to all transaction costs(including tax effects)involved in revising the portfolio, as well as changes in expected risk and reward. The Committee publishes this guidance each quarter. However,the Committee will monitor market action and economic conditions continually and, if necessary, announce revisions to this guidance at any time. t) Describe how you typically report performance and provide performance history for the past five years for current accounts comprised of securities with maturities, quality and sectors similar to those proposed for the City. List by sector distribution the market value of aggregate assets under management andlor under custody for your latest reporting period. For clients looking to analyze their asset returns, ensuring that investments—and investment managers—are meeting their goals and objectives,U.S. Bank provides a sophisticated analytic and reporting system,Performance Monitor, along with a dedicated division of professionals trained to ensure data accuracy. ■ r July 22,2009 Page 11 U . S . BANK RESPONSE: CITY OF HUNTINGTON BEACH Performance Monitor—With a variety of reports to choose from,including many available online,the City can gain a comprehensive edge by analyzing investment portfolios in ways most meaningful to the City. Results can be generated for one or more accounts,or by asset sector. Custom reports can also be generated on a one-time or ongoing basis. Calculations conform to industry standards consistent with CFA Institute GIPS Standards. Our detailed, graphically enriched reports include: ■ Total fund,composite, manager,asset class, sector and security More than 70 sector and 300 index choices Performance over multiple periods o Risk-management statistics Attribution and benchmarking analysis i ® Returns both gross and net of fees Directly integrated with our trust system,the U.S. Bank online reporting system can calculate the performance for any security and then provide an analysis on the impact of that security on the return of the portfolio.Attribution analysis is available for portfolios based on security selection, weighting and interaction. Portfolios can be compared to a model portfolio or a comparative index. Returns can be reported on your portfolio,income only,principal only or using a wide variety of market sectors. Returns can also be reported as both gross and net of fees. i Basic performance results are available online via TrustNow,while more complex performance reports are available electronically, as well in bound hard copy presentations. Please refer to Attachment 3 for a sample performance report. The following is U.S.Bank's recommended long-term investment objective for the City: Growth 7.70% 13.200/o 74%Stocks/26% Bonds e 16.9 off a 1 } •0 1' 0 1' :OIL Conservative Balanced 6.56% 9.17% Stacks/54% Bonds For the performance history of the asset allocation listed above,please refer to Attachment 4. Below is the market value of aggregate assets by sector distribution: 0 itAs ® o Corporate 977 $61.0 Foundation/EndowmentlNon-profit 478 $21.6 Public 371 $112.0 Taft-Hartley 92 $10.5 Financial Institutions 92 $70.1 Global 60 $5.0 Advisor/Broker 140 $35.0 Mutual Funds 338 $629.8 f July 22,2008 Page 12 U. S. BANK RESPONSE - CITY OF HUNTINGTON BEACH Other 478 $190.2 TotalL 3,026 $1,074.2 2) Detailed description of efforts your firm will undertake to achieve client satisfaction and to satisfy the requirements of the "Scope of Work"section. Describe your procedures to ensure that the portfolios comply with client investment objectives and policies. Describe standard reporting available for client's investment transactions and market valuations. Include a project schedule, identifying all tasks and deliverables to be performed, durations for each task, and overall time of completion. U.S. Bank believes that communication is the cornerstone of good investment management. We employ the belief that if our clients are surprised by anything happening in their portfolio,we have not done our job effectively. The City will be considered an important account, and as such, it will be managed locally.The City is then afforded all of the tools and time available to us to communicate and inform regarding your trust and portfolio. Your client service team will: be available by phone,make proactive phone calls to you when major market events occur to explain { any affect on your portfolio and be available to answer your questions. Also, we believe that regular in person meetings are another critical element and core responsibility to ensuring client satisfaction. Additionally, all U.S. Bank Relationship Managers are evaluated—and their compensation is determined—based on their ability to service, satisfy and retain clients. Dedication to client service is built into every level of the corporate culture throughout the organization. To ensure the connection between products and execution,U.S. Bank Institutional Trust& Custody utilizes a formalized approach to client monitoring that includes multiple surveying methods, industry-leading service quality metrics, an accelerated complaint resolution process and locally based Relationship Managers. Our goal is not simply satisfaction, but client loyalty—the result of consistently exceeding expectations. Surveys—Surveys are conducted on an ongoing basis. U.S. Bank surveys are sent out under the direction of senior management. These surveys, coupled with weekly operational meetings, will enable the City to communicate opportunities for product development and enhancement to U.S. Bank. Consultative Relationship Review—Annually,your Relationship Manager, Steven Webb,will meet with the City to present a comprehensive review of the relationship. In addition to a comprehensive analysis of the current program and strategic planning for the coming year,the review includes a series of questions designed to gauge satisfaction levels, as well as areas for improvement. Accelerated Issue Resolution—While it is rare that issues occur that the City's Relationship Manager will not be able to immediately address, should they arise,U.S. Bank compliance and risk management policies require that the complaint be addressed within five business days. The complaint also must be tracked by both our compliance team and by senior management. MW July 22,2008 Page 13 U. S . BANK RESPONSE: CITY OF HUNTINGTON BEACH 3) Detailed description of specific tasks you will require from City staff. Explain what the respective roles of City staff and your staff would be to complete the tasks specified in the Scope of Work. For implementation,we will work with the City to completely transition the 550 retirees from the current pay system onto our pay system. While we have conducted several such conversions and the process is streamlined, involvement of certain staff members will be critical to a successful conversion. For the implementation of the trust and initial funding we will be available for meetings with counsel as directed by the City.And if initial funding is coming in cash we will only need a wire from the City Treasurer. Your U.S. Bank client service team will work hand-in-hand with City staff to complete the necessary tasks. The specific tasks include: ■ Contract review and execution Money movement procedures and instructions ® Identifying and documenting authorized signers ■ Designating point persons for contact at the City for delivery of information Decision making and verification matters With regard to training on our systems,we expect to be able to make the required staff members proficient with a two-hour training session. This would cover both trust accounting and benefit payments. We provide training free of charge and are available to train newly hired City staff on our systems. After implementation,U.S. Bank does not anticipate that involvement from the City staff that would require work outside of daily routines or understanding of investment and banking transactions. D . STAFFING Provide a list of individual(s) who will be working on this project and indicate the functions that each will perform including number of years at the appropriate organization. Include a resume for each designated individual. Identify which professional staff member will be the primary client contact for the City and discuss how often you are willing to meet with the City. Describe the compensation policies for investment professionals. j Client service is a critical differentiator for U.S. Bank Institutional Trust& Custody. We perform dozens of conversion each year and service thousands of accounts.And in every case we use a dedicated client service team The City will benefit from this structure and our experience. The City's Client Service Team The City will be assigned a Portfolio Manager,Derek Hansen, a Relationship Manager, Steven Webb, and an Account Manager,Janice Nelson. We believe that a dedicated administrative service team ensures superior client service, guaranteeing the best possible response to the City's requests. i� Relationship Manager—The City's Relationship Manager, Steven Webb,will serve a strategic role—ensuring an account service structure that is tailored to the City's needs—while also having full,bottom-line accountability for the success of the relationship. Steven will be the City's primary client contact and will meet on an agreed-upon frequency. Key responsibilities include: Design, update and communicate the City's service plan ■ Coordinate and oversee the relationship, staying current on industry and compliance issues and providing input on best practices f, ? July 22,2008 Page 14 U . S. BANK RESPONSE : CITY OF HUNTINGTON BEACH ■ Initiate client meetings for administrative, operational or strategic purposes at a frequency desired by the City ■ Coordinate with key bank personnel and other internal workgroups,keeping all informed of important developments and issues with the relationship ■ Assist in the resolution of complex,time-consuming or non-routine operational issues Steven Webb,APR,Vice President and Relationship Manager Steven is located in Los Angeles, Calif. and is a Relationship Manager for U.S. Bank Institutional Trust& Custody. Steven has a long history providing excellent service to significant trust relationships. As the Relationship Manager for U.S. Bank's trust services, Steve will act in a consultative capacity providing on-site meetings,presentations,training and guidance. Steven began his career in 1996 as a retirement plan consultant for William M. Mercer. Since then, Steven has worked in the Trust& Custody field for a nationally chartered bank with positions including Manager of Client Services and Product Development Manager. Steve has a B.A. degree in Economics from the University of California, San Diego and is an Accredited Pension Representative through NIPA. Portfolio Manager—The City's Portfolio Manager,Derek Hansen,will be a knowledgeable resource for your public fund investing needs. Derek will be your main investment contact and is responsible for the oversight and management of investments in the City's account. Key responsibilities include: ■ Assist in creating the City's investment policy statement—driven by state statutes ■ Manage the City's portfolio with ongoing review and recommendation for investment changes to remain consistent with your investment policy statement ■ Attend meetings with the City regarding investment performance ■ Answer questions the City may have regarding your portfolio Derek Hansen,CFA,CFP®, Senior Portfolio Manager and Managing Director As a Senior Portfolio Manager and Managing Director for U.S. Bank's Private Asset Management group, Derek provides investment management services for institutions of the Institutional Trust& Custody Group and individuals of the Private Client Group. Derek has 15 years of financial services industry experience including 10 years as a portfolio manager.He is a CFA charter holder, a CFP®professional, and received his finance degree from Santa Clara University, graduating Magna Cum Laude. Derek is a member of the CFA Institute and the CFA Society of Los Angeles. Account Manager—Janice Nelson,the City's Account Manager, will be responsible for day-to- day client servicing,working in conjunction with the Relationship Manager. Janice is responsible for overseeing transaction processing, fiduciary administration,reporting information, and issue resolution and prevention. Responsibilities include: ■ Handle the City inquiries outside of routine transactions ■ Complete regularly scheduled account review and update documentation with the City ® Monitor uninvested cash of any amount and resolve overdrafts ■ Coordinate with the City and operations areas for customized or standard reporting ■ Oversee money manager, legal counsel and investment consultant communication Janice L.Nelson, Account Manager ? July 22,2008 Page 15 U. S . BANK RESPONSE ! CITY OF HUNTINGTON BEACH Janice Nelson is an Account Manager located in our Portland, Oregon Institutional Trust& Custody office. Janice has been in the banking industry for 23 years. She is a 1 S-year veteran in the Employee Benefits Trust field working with many facets of retirement plans. Janice is an active member of the Portland chapter of the Western Pension& Benefits conference. Janice manages a diversified clientele of Employee Benefit Plans. She will serve as one of the City's primary contacts with a high level of expertise consistent with governing document requirements, regulatory guidelines and policies and procedures. The City's client service team will also be supported by technical specialists in key departments such as benefit payment systems,operations, investments and legal&compliance,thus guaranteeing the City receives the highest level of technical expertise and responsiveness. i U.S.Bank investment professionals are compensated according to our overall investment philosophy using style-appropriate indexes and the following calculations specifically geared to encourage objectivity and avoid conflicts of interest: ■ Base pay ■ Phantom stock options in FAF Advisors,and stock options of the parent company's stock ■ Bonuses based on performance of investment approach,which is measured over one-and - three-year rolling periods E . QUALIFICATIONS The information requested in this section should describe the qualifications of the organization(s), key staff and sub-contractors performing projects within the past five years that are similar in size and scope to demonstrate competence to perform these services. Information shall include: In addition to the answers to specific question below, a general response to our qualifications can be found in both our history and our day to day operation.U.S. Bank has been providing trust and reporting services to governmental entities just like the City for over 100 years. We are considered a tier-one trustee and a Lipper award-winning asset manager. We offer our clients that choose us, a prudently managed company that employs vigorous compliance oversight,uses the latest security, continual investment in technology and dedicated service personnel on each account. The City of Huntington Beach will have the attention of multiple U.S.Bank employees working to understand objectives and exceed expectations. This has already started with this RFP and will carry on to the implementation and through to the printing of every monthly audited statement and each face to face investment review. 1) Names of key staff that participated on named projects and their specific responsibilities with respect to this scope of work. The City's Relationship Manager, Steven Webb,has had extensive experience working with Governmental clients for similar projects including:the Los Angeles County Metropolitan Transportation Authority, California School Board Association, Sacramento Municipal Utilities District, Western Municipal Water District and Rancho California Water District.As the City's Relationship Manager, Steven will facilitate trust document reviews,will hold frequent review meetings with the City, respond to any service requests, send out monthly printed trust statements to the City,and oversee the general trust administration. July 22,2008 Page 16 U . S . BANK RESPONSE : CITY OF HUNTINGTON BEACH The City's Portfolio Manager,Derek Hansen,has been involved in managing California School Board Association& Western Municipal Water District as well as providing help drafting various agencies IPS'. As the City's Portfolio Manager, Derek will conduct annual reviews,facilitate conference calls,provide quarterly performance updates,and is responsible for day-to-day strategic and tactical allocation of investment portfolios that have a demonstrated ability to out perform their indexes. 2) A summary of your firm's demonstrated capability, including length of time that your firm has provided the services being requested in this Request for Proposal. Our financial size and depth of services to local agencies far surpasses that of any broker, local trust administrator, investment advisory firm or other single service providers. U.S.Bank has trust relationships with over 5,200 public sector clients and processes over one million retiree benefit payment checks each year.U.S. Bank has a diverse and significant commitment to the public sector that includes daily interaction with retirees,the processing of their monthly payments and annual tax reporting. Among our billions of dollars of client assets we are comfortable taking full responsibility for all the important roles that our clients request. This includes conferring with counsel,consulting on guidelines and standards, advising on allocations and investment policies, safekeeping assets,providing timely reporting and making daily decisions on investing a portfolio by assuming the discretionary management role. We believe the best client service comes from knowing our clients, and our clients knowing U.S. Bank. Part of our strategy is to continue to make U.S. Bank resources accessible to the City through in-person interaction and assuming full responsibility of our duties.We do this using a knowledgeable,dedicated team and the right tools to ensure the successful administration of your supplemental retirement trust. 3) Describe your experience with servicing public agency clients, and in particular, for services similar to those described in this RFP. U.S. Bank is a$4 trillion trust company with a large public sector client base and has experience with general assets, OPEB trusts and retirement trusts like the one described in this RFP.Around the country,governmental agencies become U.S. Bank clients and get serviced by one of our 31 ti offices by numerous paths. Some by RFP, some by referral and others come to us because they know our reputation in the market. Our government clients have learned to depend on us, and frequently refer to U.S.Bank and the service team as a'relationship'. Our deep roots in the California market help us deliver consistent support in navigating the complex rules and changes that may affect the City. The services described in this RFP are not unique to us or our service model. The City's retirement trust will receive the attention and support of personnel who are familiar with the day-to-day staff operations of this type of trust.This includes interacting with City and the individual retirees on all aspects of the monthly benefit checks. Timely rendering of statements,performance reporting and usable information related to the trust. Receiving and fully accounting for contributions and processing all expenses related to the trust. Perform discretionary portfolio management developing prudent guidelines,measurement standards and an investment policy. July 22,2008 Page 17 U. S . BANK RESPONSE : CITY OF HUNTINGTON BEACH 4) Describe the make up of your client base in terms of assets under management. Please segment assets as follows: •E R. NuMBERbF NAGEMENT CLIENTS $5+million or less 1,227 $5 million to$25 million 584 $25 million to$100 million 449 $100 million to$500 276 million $500 million or more 122 ` 5) Provide at least five local governmental agencies, preferably in California, that received similar services from your organization(s). The City of Huntington Beach reserves the right to contact any of the organizations or individuals listed. Information provided shall include: • - Sacramento Metropolitan Fire District • • Discretionary trustee of defined benefit plan i • Debbie Kelly • - Private Private • Sacramento Municipal Utilities District ' - • ® • General Operating Funds • Ron Jelicich • Private Private • Goleta West Sanitary District • • Custodian • Mark Nation i • Private Private • Western Municipal Water District ' - • • VEBA Trustee • Kevin Mascaro • Private Private i_._} • Rancho California Water District - • r • Custodian • Jeff Alexander • Private Private Should U.S. Bank become a finalist in this RFP process, we'd be happy to share our references contact information with you. July 22,2008 Page 18 .................. ..._. U .S . BANK RESPONSE: CITY OF HUNTINGTON BEACH F. FEE PROPOSAL, 1) Provide the trustee administration fees and any investment or transactional fees. Annual Trust Administration Fee: ■ 0.03%on the first$50 million ■ 0.02%on amounts over$50 million ■ Transaction Fees: Waived Wire Transfer Fees: Waived ■ Benefit Payments: $1.75 per ACH/$2.00 per paper check 2) Describe the investment management fees and how they are calculated and applied. Annual Investment Management Fee ! 0.15%on the first$50 million ■ 0.12%on amounts over$50 million Fees are calculated on assets under management and billed quarterly. 3) List all other fees, if any, for ongoing consultation and customized reporting. Consulting with the City is a core responsibility of our relationship and critical to the success of this trust. There is no additional charge for consultations. U.S. Bank can create and customize data extracts, files and reports for the City. Depending on the complexity of the request,additional fees may be assessed. Your Relationship Manager, Steven Webb, will work with you to determine what reports you may need. Any potential fees for customized reports will be quoted and only incurred upon the expressed approval of the City. 4) If there is a minimum fee requirement for this plan, describe the basis for the minimum fee. The minimum annual trust account fee is $2,500 to cover account maintenance, relationship time and service costs. The minimum annual investment management fee is$7,500 to cover relationship time and service costs. Pricing for this proposal assumes that U.S. Bank will serve the City as both trustee and investment manager. 5) Describe any revenue sharing agreements you have with investment managers and/or sub-advisors. Include any 12b-1, service, distributor, or platform fees you derive from the I investment managers and/or sub-advisors. U.S. Bank is a multi-trillion dollar full-service trustee and multi-billion dollar discretionary investment manager. We maintain relationships with hundreds of money managers. This includes offering funds from our wholly-owned subsidiary mutual fund family named"First American Funds". Revenue sharing does exist,however,because of the size,a complete listing would not be feasible to provide here and much of the information is proprietary in nature.U.S. Bank maintains a strong reputation for full disclosure of fees and the disclosure of all fund revenue will be integral to our relationship with the City. July 22,2008 Page 19 U .S . BANK RESPONSE: CITY OF HUNTINGTON BEACH Our proposed investment approach for the City is to use either,institutional funds,index funds or ETFs as appropriate. These funds typically do not have 12(b)1 fees embed and therefore simplify the fee discussion.And in our opinion institutional funds provide lowest expenses, best performance and do not muddy the water of a fee discussion. As discretionary investment advisor we prefer to use investment options that provide the best risk adjusted returns at the lowest possible cost.Avoiding 12(b)1 fees in turn avoids conflicts of interest and this method makes it easy for the City to clearly see two important aspects of our relationship 1)our performance S compared to guidelines and 2) our fee and how much the City is paying. Because U.S. Bank has good working relationships with all the major fund companies,the City can take advantage of using 12(b)1 fees if it so chooses. If the City would prefer to pay our billable investment management,trustee or retiree benefit payments using 12(b)l fees, U.S. Bank will i create an investment allocation using funds with 12(b)l fees. We will then disclose all revenue associated with the portfolio and use those fees to reduce or eliminate fees. 6) Describe any surrender, withdrawal or deferred sales charges within your products. Are any additional fees to be netted from fund performance? If yes, please describe. U.S. Bank does not have any surrender, withdrawal or deferred sales charges within our products. We do not expect any additional fees to be charged to the account. U.S. Bank's proposal is all inclusive of the services that we anticipate the City will require for operation of this trust. 7) Is there a termination fee or any other fees relating to the transfer of City's assets? Upon notice of termination within 20 days, the City requires that the Consultant will transfer all of the City's OPEB assets in the manner designated by the City with no hold back. U.S. Bank does not have a termination fee and is able to relinquish assets with a 20-day notice in a manner designated by the City. The City must consider that U.S. Bank cannot control the actions of third parties. U.S. Bank will do everything in our power to satisfy the City's request. 8) Provide an estimate of all costs for the first year using a first year balance of$20 million with monthly payments to 550 retirees with the detail provided for each cost item. Fee Estimate Trust Administration Fee ($20MM x .03%=$6,000) $6,000 annually $1,500 quarterly billing Retiree Benefit Payments(includes year end tax reporting) J (550 x$1.75 per x 12 months=$11,500) $11,550 annually $962.50 per month Discretionary Investment Management ($20MM x .15%_$30,000) $30,000 annually $7,500 quarterly billing Total Annual Fees $47,500 annually $11,887 quarterly l July 22,2008 Page 20 � l U.S. Bank Highlights Market Capitalization Ponemon* Ranks U.S. Bank#1 U.S.Bancorp is the 6,'largest financial holding company •#1 Customer Privacy in the United States. •#1 Data Security March 31,2007 •#1 for the 5th consecutive year "The Ponemon institute is dedicated to responsible information U.S.Rank Company Billions management.It conducts independent research and reports on 1 Citigroup $253.9 privacy and information security issues in business and government. 2 Bank of America 226.5 American Consumer Satisfaction Index 3 J.P.Morgan 1653 (ACSI) 2006 Results 4 Wells Fargo 115.4 5 Wachovia 105.3 U.S.Bank scored very well against key peer competitors-Bank of America,Wells Fargo, 7 SunTrust 29.6 J.P.Morgan Chase and Citi Group. 8 Regions 25.5 75.01 9 PNC 24.9 10 BB&T 22.3 74.0 Source:company reports&FactSet 73.0 o U.S.Bank 72.0 ®BofA U.S. Bank Industry Leading Performance Metrics Mavens 71.0 A Chase t Full Year 2006 Peer USB E Citi Group USB Median Rank 70.0 - 7 . Return on Assets 2.23% 1.38% 1 gg,0 Return on Common Equity 23.6% 15.1% 1 2006 Efficiency Ratio 45.4% 58.6% i U.S. Bancorp Overview Net Interest Margin 3.65% 3.65% 7 Dimensions Q12007 Source:company reports Peer Banks:BAC,BBT CMA,FITB,KEY,NCC,PNC,RF,STI,USB,WB,WFC Asset Size $221 billion and WM PNC excludes BlackRock/MLIM transaction Deposits $118 billion Loans $145 billion Debt Rating Upgrades customers 14.2 million •S80=AA(2/14/07) NYSE Traded USB •Moody's=Aa2(1118105) Market Value $61 billion ®Fitch=AA-(9/27/04) Founded 1863 b",ft n k. Five Star Service Guaranrced U.S. Bank Businesses x, ✓ •Commercial Banking : . �o-t ' ` yes u 'It` r) a 3 her Y ". '- y r i S -...� ! }y �*{ ��.�rxer��r w�ia� ��-vsr �Y� '�1 • Consumer Banking igd a •Commercial Real Estate . 0 mg Corporate Banking 1 • r 3'ro s� p M4 i —'4,.r .. 0 61rs � r; R1666 •Payments ,rod` r"'°•`• Wealth Management DE•@• 7 MD@@@@ :� ®Technology&Operations DC 0"06 v.d s " r3 oK ° •Payment Processing s 1s �Er Nationally and in Europe >> pi •Metropolitan&Community ° Banking,2,472 banking @� offices in 24 state uses y •P1 - _ - - . 1 3 Community Reinvestment Act Full Year 2006 Total Shareholder Return Compared to Our Peer Group Banks U.S. Bank National Association has been awarded an "Outstanding"rating,the highest rating possible, by the National City 13.7% Office of the Comptroller of the Currency(OCC)for its PNC Bank 23.6% Fifth Third 13.0% commitment to the letter and spirit of the Community Bank of America 20.7% Wachovia 12.0% €J Reinvestment Act(CRA). Key Bank 19.9% Washington 9.6% SunTrust 19.8% Mutual VY By awarding this rating,the OCC acknowledged BB&T 8 9% U.S.Bank's leadership role in meeting the credit needs Wells Fargo 19% n Regions 14..9°/D Comerica 7.8/o of all segments of the communities the bank serves. Source:Bloomberg Y b 4a n k Five Star Service Guaranteed s t. usbank.com IMPORTANT INFORMATION U.S.Bank Institutional Trust&Custody is a division of U.S.Bank National Association that focuses on trust,custody,health savings accounts,investments and retirementservices to!nstitufiona]clients.Its product R offerings include institutional trust and institutional custody services,health savings accounts and retirements plans(including 401(k),profit sharing or money purchase pension plans). Copyright©2007 U.S.Bank 07/2007 7039-06 s 4 Sample Conversion 'Timeline Following is a sample timeline detailing the custodial services for successful conversion: e ® Provide notification to prior custodian and money The City mana ers Provide U.S. Bank with contact for prior custodian The City Provide U.S. Bank with contact for Investment Managers The City Contact prior custodians with transfer instructions U.S. Bank Provide trade instructions to money managers U.S. Bank Provide U.S. Bank a list of all asset holdings Prior Custodian Last day for trading at prior custodian Money Managers Pension Payment Review U.S. Bank Send letters to pensioners U.S. Bank Provide U.S. Bank with final list of all asset holdings City Treasurer Transfer all assets via depository to U.S. Bank City Treasurer Wire transfer all assets via depository to U.S. Bank City Treasurer Wire transfer all cash to U.S. Bank City Treasurer Set up all assets in new accounts U.S. Bank Deposit wires in new accounts U.S. Bank Reconcile all cash and assets holdings of prior custodian U.S. Bank First day of trading at U.S. Bank Money Managers Wire transfer any additional cash proceeds to U.S. Bank Prior Custodian Provide U.S. Bank with a statement for date of final Prior Custodian transfer Reconcile final statement received from onor custodian U.S. Bank Trust/custodial agreement The City& U.S. Bank Cash Management Authorization The City & U.S. Bank Develop standards and procedures The City & U.S. Bank { r , j I , k. -Rates and Allocation Graph Account Period Ending; 09/30/2007 Inception Sector %of Total Market Value 3 Months 6 Months YfD 12 Months 24 Months 36 Months 141 Months Total-Gross of Fees 100.00% $3,178,263 3.04 6.73 9.19 15.10 13.14 10.16 8.47 Total-Net of Fees $3,178,263 2.87 6.38 8.66 14.35 12.37 9.40 Total Equity 62.25% $$1,978,549 3.19 9.61 12.64 21.80 18.84 14.60 8.60 .S&P 500 Composite Index 2.03 8.44 9.13 16.44 13.58 13.13 9.84 Total Fixed Income: 37,46c/a $1,190,624 2.76 2.30 3.82 4.64 4,65 3.62 5.40 Lehman Govt/Credit Index 3.01 2.51 4.02 5.10 4.21 &66 5.91 Total Cash Equiv 0.29% $9,090 1,24 2.48 3.72 5.00 4.62 3.83 4.07 16.00% 14.00% 12.00% t: 10,00% 8,00% s N Total Cash o% ®Total Equity quiv s.o 4 00% ■Total Fixed Income 2,00% j 0.00% ' - -3 Months 6 Months 9 Months 12 Months 24 Months 36 Months Inception to Date Total-Net of Fees Not FDIC Insured No Bank Guarantee May Lose Value Past performance does not.guarantee future results. Performance returns may not reflect the deduction of applicable tees,which could reduce returns. Information is deemed reliable but may be subject to change. J /t n' Allocation Historical Index Returns INVESTMENT OBJECTIVE: Mid Small Stocks Foreign The Growth model is a Stocks March 31, 2007 diversified investment 9% 4% Stocks Return Std. Dev. model designed to provide sk, 14% long-term growth of capital. 1 Yr. 11.41% 4.83% s The asset allocation and 3 Yrs. 11.19/0 5,87/0� Real ° ° choice of investments that are best for you will depend Estate ° 8.47/o° 0 5 Yrs. 9.77/0 on your tolerance for risk, 5/o - time horizon and investment objectives. 10 Yrs. 9.1 Q% 10.64% Large Stocks INDEX BENCHMARKS: 42% Performance has been calculated by using *Core Fixed Income: the actual weighted return of the industry- Lehman Bros.Aggregate Core Fixed recognized benchmark identified. The -Commodities: Goldman Income allocation is assumed to be re-balanced Sachs Commodity (GSCIj 22% quarterly and assumes no changes Commodities occurred in the allocation. -Large Domestic Stocks: o S&P 500 4fo -Mid &Small Domestic Stocks: Wilshire 4500 -Foreign Stocks: MSCI Indexes are not available for investment. Index performance is generally viewed as a gauge of how a specific asset EAFE class has performed in any given period. The performance shown is for illustrative purposes only and is not -Commercial Real Estate: representative of any specific investments or holdings. The returns you experience may vary from this illustration to a NAREIT Equity material degree. This material is for use in one-on-one presentations only. See Explanatory Notes pages for index descriptions and important disclosures. 1 Balance-A Allocation Historical Index Returns INVESTMENT OBJECTIVE: Small Foreign March 31, 2007 The Balanced model is a Mid Stocks Stocks Stocks Return Std. Dev. diversified investment model designed to provide 6% 3% 12% 1 Yr. 10.56% 4.03% growth primarily and income secondarily. Real Estate 3 Yrs. 9,66% 4.85% The asset allocation and 4% choice of investments that 6 Yrs. 9.04% 6.80% are best for you will depend Large Stocks on your tolerance for risk, 35% 10 Yrs. 8.72% 8.53% time horizon and investment objectives. Performance has been calculated by using INDEX BENCHMARKS: the actual weighted return of the industry- recognized benchmark identified. The -Core Fixed Income& IPS: ixed allocation is assumed to be re-balanced Lehman Bros.Aggregate Commodities ]PS Income quarterly and assumes no changes and U.S. TIPS 13% 3% 34% occurred in the allocation. -Commodities: Goldman Sachs Commodity (GSCI) -Large Domestic Stocks: S&P500 Indexes are not available for investment. Index performance is generally viewed as a gauge of how a specific asset -Mid &Small Domestic Stocks: Wilshire 4500 class has performed in any given period The performance shown is for illustrative purposes only and is not -Foreign Stocks: IVISCI representative of any specific investments or holdings. The returns you experience may vary from this illustration to a EAFE material degree. -Commercial Real Estate: This material is for use in one-on-one presentations only. See Explanatory Notes pages for index descriptions and NAREIT Equity important disclosures. 2 EZ M M Conservative B r Allocation Historical Index Returns INVESTMENT OBJECTIVE: Small Foreign March 31, 2007 The Conservative Balanced Stocks Return Std. Dev. model is a diversified Mid Stocks 2% Stocks Real o investment model designed 5/0 9% to provide income primarily Estate 1 Yr. 9.61% 3.34% and growth secondarily. 3% Large Stocks 3 Yrs. 8.12% 4.02% The asset allocation and 27% choice of investments that 5 Yrs. 8.29% 5.29% are best for you will depend on your tolerance for risk, 10 Yrs. 8.32% 6.60% time horizon and investment objectives. Commodities Performance has been calculated by using 2% the actual weighted return of the industry- INDEX BENCHMARKS: IPS recognized benchmark identified. The -Core Fixed Income& IPS: 6% Care Fixed allocation is assumed to be re-balanced Lehman Bros.Aggregate Income quarterly and assumes no changes and U.S. TIPS 46% occurred in the allocation. -Commodities: Goldman Sachs Commodity(GSCI) -Large Domestic Stocks: S&P 500 -Mid & Small Domestic Indexes are not available for investment. Index performance is generally viewed as a gauge of how a specific asset Stocks: Wilshire 4500 class has performed in any given period. The performance shown is for illustrative purposes only and is not -Foreign Stocks: MSCI representative of any specific investments or holdings. The returns you experience may vary from this illustration to a EAFE material degree. -Commercial Real Estate: This material is for use in one-on-one presentations only. See Explanatory Notes pages for index descriptions and NAREIT Equity important disclosures. 3 Explanatory, , Notes Page ■ Past Performance is no guarantee of future results.Performance data is calculated using Ibbotson Associates' Encorr software system. All performance data,while deemed obtained from reliable sources,are not guaranteed for accuracy. Not for use as a primary basis of investment decisions. Not to be construed to meet.needs of any investor. Not a representation or solicitation or an offer to sell/buy any security. Standard Deviation(Volatility)is a statistical term that provides a good indication of volatility and helps to quantify investment risk.It measures how widely values are dispersed from the average. Limitation of Index Data: Any index for which performance is shown is unmanaged,and its performance does not include any management fees, transaction costs or other charges that may be incurred in connection with a client account,including any fund operating expenses. Any index or other benchmark whose return or risk figures are shown for comparison purposes may include different holdings,a different number of holdings, and a different degree of investment in individual securities,industries or economic sectors,and may have different risk return characteristics,than the fund to which it is compared. ■ Effect of Fees on Returns: Performance results do not reflect the deduction of fees.The performance results would have been lower if such fees were deducted. Contact your Portfolio Manager for information on fees. Accordingly,you should be aware of the impact of compounding of fees on performance over a period of time. For example,if the gross annualized return over a five year period were 8.00%, deducting a fee of 2.75%on the average annual account balance over a five year period would produce a total annualized return of 5.12'%versus a gross return of 8.00%. © Stocks of mid-capitalization companies may be less volatile than those of small-capitalization companies,but still involve substantial risk and they may be subject to more abrupt or erratic movements than large-capitalization companies. Stocks of small-capitalization companies involve substantial risk.These stocks historically have experienced greater price volatility than stocks of larger companies, and they may be expected to do so in the future.Growth stocks are typically more volatile than value stocks;however,value stocks have a lower expected growth rate in earnings and sales.International investing involves risks not typically associated with domestic investment, including risks of adverse currency fluctuations, potential political and economic instability, different accounting standards,foreign government regulations,currency exchange rates, limited liquidity,and volatile prices. The risks of international investing are particularly significant in emerging markets. ■ Fixed-income investments are subject to various risks, including changes in interest rates,credit quality,market valuations,liquidity,prepayments, early redemption, corporate events,tax ramifications,and other factors.Investment in debt securities typically decrease in value when interest rates rise.The risk is usually greater for longer-term debt securities.Alternative investments,such as conunodities, very often use speculative investment and trading strategies.There is no guarantee that the investment program will be successful. ■ An inflation protected security is a special type of note or bond designed to offer protection from inflation.Interest payments vary with the rate of inflation.These securities offer a lower return compared to other similar investments.The principal value may increase or decrease with the rate of inflation.Gains in principal are taxable in that year,even though not paid out until maturity.The original principal of such a security issued by the U.S.Treasury will be repaid at maturity during periods of deflation.Other issuers may not provide such a guarantee,and the principal repaid at maturity may be less than the original principal value. Information continued on next page Explanatory,,, Performance Index Benchmarks — as of 3/31 /07 Index- Performance 1 Yr. 3 Yrs. 6 Yrs. 10 Yrs. • Citigroup 90-Day T-Bill 4.98% 3.33% 2.51% 3.67% • Lehman Brothers Aggregate 6.58% 3.31% 5.35% 6.46% • Lehman Brothers Muni 5.44% 3.96% 5.50% 5.86% • Lehman Brothers U.S. TIPS 5.22% 2.95% 7.39% 6.91% • Goldman Sachs Commodity(GSCI) ( 9.41%) 6.14% 12.82% 5.95% • S&P 500 11.83% 10.05% 6.27% 8.21% • Wilshire 4500 10.39% 14.22% 12.89% 10.67% • NAREIT Equity 21.79% 22.56% 22.08% 14.79% • MSCI EAFE 20.69% 20.31% 16.24% 8.67% 5 -o Expl"..anat ry Notes - Page 3 of 4 Standard Deviations of Index, Benchmarks - as of 3/31/07' Index-Standard Deviation 1 Yr. 3 Yrs. 6 Yrs. 10 Yrs. . Citigroup 90-Day T-Bill 0.06% 0.42% 0.43% 0.50% - Lehman Brothers Aggregate 2.58% 3.29% 3.73% 3.55% - Lehman Brothers Muni 2.37% 3.05% 3.87% 3.73% - Lehman Brothers U.S. TIPS 4.09% 5.12% 6.30% 4.91% - Goldman Sachs Commodity(GSCI) 18.97% 22.96% 21.91% 21.99% - S&P 500 6.22% 6.95% 12.29% 15,20% - Wilshire 4500 8.95% 11.17% 13.67% 20.48% - NAREIT Equity 14.28% 16.84% 14.69% 14.06% - MSCIEAFE 7.93% 9.44% 13.05% 15,01% C3 4 of; Explanatory/ Notes - Page _ Index/ = Definitions Citigroup 90 Day T Bill rate represents the return on short-term U.S. Treasury Bills. The Lehman Brothers Aggregrate Bond Index is an unmanaged index,with income reinvested, representative of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-backed Securities Index and the Asset-Backed Securities Index. The Lehman Brothers Municipal.Bond Index is an unmanaged index comprised of fixed-rate, investment-grade,tax-exempt bonds with remaining maturities of one year or more. The Lehman Brothers U.S.TIPS Index is an unmanaged index comprised of inflation-protected securities issued by the U.S. Treasury. The Goldman Sachs Commodity Index(GSCI)is a composite index of commodity sector returns,representing an unleveraged, long- only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. GSCI measures a fully collateralized commodity futures investment that includes 24 commodity nearby futures contracts. The GSCI Index is significantly different than the return from buying physical commodities. The S&P 500 Index is a broad-based unmanaged index of 500 stocks which are widely recognized as representative of the equity market in general. The Wilshire 4500 is an unmanaged index of stocks of medium-and small-capitalization U.S. companies not in the S&P 500. The NAREIT(North American Real Estate Investment Trust Equity Index)is an unmanaged index which includes REIT's listed on the New York Stock Exchange,NASDAQ and American Stock Exchange. The MSCI)EAFE(Morgan Stanley Capital International-Europe Australasia and Far East)Index is an unmanaged index including approximately 1,000 companies representing the stock markets of 21 countries in Europe, Australasia and the Far East. 7 U.S. BANK DISCLOSURES IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT To help the government fight the funding of terrorism and money laundering activities,federal law requires all financial institutions to obtain,verify and record information that identifies each person who opens an account. What this means for you:When you open an account,we will ask for your name,address,tax identification number, and other information that will allow us to identify you.We may also ask for identifying documents. INVESTMENT RELATED DISCLOSURES For a prospectus containing more complete information on First American Funds,including investment policies, risks,fees and expenses,please contact your investment professional,call First American Funds Investor Services at (800)677-FUND(3863),or visit firstamerican funds.com.Please read the prospectus carefully before you invest or send money. U.S.Bank and other U.S.Bancorp affiliates receive compensation for services rendered to the First American Funds as disclosed in the funds'prospectuses.FAF Advisors,a registered Investment Advisor and subsidiary of U.S.Bank, serves as the Investment Advisor to the First American Funds.The First American Funds are distributed by Quasar Distributors,LLC,a U.S.Bancorp affiliate. IMPORTANT INFORMATION U.S.Bank Institutional Trust&Custody is a division of U.S.Bank National Association that focuses on retirement, investment and custody services to institutional clients.Its product offerings include retirement plans(including 401(k),profit sharing or money purchase pension plans),institutional trust and custody services and health savings accounts. s.a 1 NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE ATTAC H M E N T #5 .. WIMP a>a ¢ \ s. IMM .,;•�., s .• ..r .a v� r IN F \� \ 1111 v� s 111ff1 u� p l i \ 6 y \ d � � Y � a x�. ws� City of Huntington 3 Beach . . d r � Trust & Custody Services Rod Skidmore, Vice President Steve Webb, Vice President February 2009 °I11166f 4fIIIVII N` lili'I,i�' V I Iht°,iAll P 9 IIhQ19PIphISl U.S. Bancorp — A Leader in Financial Services ® 6th largest U.S. commercial bank as of 9/30/08 ■ Top performing large bank in the country* ■ Nationally recognized bank with over 56,000 employees • Regional, national and international services ® $266 billion in assets ® Deposits $159 billion 6 ® $185 billion in loans w 15.8 million bank customers 2,791 banking offices in 24 states r ® Market Capitalization $26 billion** `Bank Director Magazine "Market Value as of 1/30/09 As of January,2009 19 INSTITUTIONAL TRUST & CUSTODY 2 Total Assets and Market Value Assets Market Value U.S. U.S. Rank Company $ Billions Rank Company $ Billions 1 J.P. Morgan $2,175 1 J.P. Morgan $95 2 Citigroup 1 ,945 2 Wells Fargo 79 3 Bank of America 1 ,818 3 Bank of America 34 4 Wells Fargo 17310 5 PNC 291 5 Citigroup 21 6 PNC 12 7 SunTrust 189 7 BB&T 12 8 BB&T 152 8 SunTrust 5 9 Regions 146 9 M&T 4 10 Fifth Third 120 10 KeyCorp 4 Source:company reports&FactSet Assets as of December 31,2008 Market Value as of January 30,2009 IV INSTITUTIONAL TRUST & CUSTODY 3 i1,a +pl°il rr®fitability ROE R®A 28.0% 23.6% 3.00% 21.4% 22.6% 21.3% 2.17% 2.21% 2.23% 0 21.0% 13.9% 2.25% 1.93/o 1.21% 14.0% 1.50% 15.6% 16.0% 13.5% °/0 2.2% 0.75% 1.47% 1.40% 1.38% 7.0% 11.6 1.0600 0.22% 0.0% 0.00% 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 USB +Peer Median USB -6--Peer Median Source:SNL Peer Banks:BAC,BBT,FITB,JPM,KEY,PNC,RF,STI,USB and WFC PNC and WFC have not reported 2008 IV INSTITUTIONAL TRUST & CUSTODY 4 i111 Profitability Efficiency Ratio 70.0% 68.5% 58.9% 57.5% 57.2% 57.7% 60.0% 50.0% 40.0% 45.3% 44.3% 45.4% 49.7% 47.4% 30.0% 2004 2005 2006 2007 2008 USB +Peer N9ediau� Source:S N L Peer Banks:BAC,BBT,FITB,JPM,KEY,PNC,RF,STI,USB and WFC PNC and WFC have not reported 2008 INSTITUTIONAL TRUST & CUSTODY 5 3 1 U.S. Bancorp — Safety and Soundness U.S. Bancorp, with $266 billion in assets, is the parent company of U.S. Bank, the 6th largest commercial bank in the United States as of 9/30/08. The company operates 2,791 banking offices. U.S. Bancorp is on the web at www.usbank.com Diversified Revenue Mix Revenue by business line 4Q08 YTD v�Pa ment Ser ces Wli Y wpaw Wholesale Banking 0 Wealth Management & Securities Services 7 Consumer Banking ul- ; o Revenue by Business Line,4Q08 YTD,Excluding securities gains(losses)net Excludes Treasury and Corporate Support IN INSTITUTIONAL TRUST & CUSTODY 6 �.. ''fir „•yP9991 fl . 3 Debt Ratings Change Since S&P Moody's Bank 12/1/08 Rating Outlook Rating Outlook r41 US,jB AA Stable Aa2 Stable :. a a A Peer 1 AA Negative Aa3 Negative Peer 2 A+ Stable Aa3 Negative Peer 3 A+ Negative Aa3 Stable Peer 4 A+ Negative Al Negative Peer 5 A Stable Al Negative Peer 6 A Negative Al Stable Peer 7 A Negative A3 Negative Peer 8 A- Negative A2 Stable Peer 9 A- Negative A2 Negative As of 2/4/09 dfN)(T/09UTIONAL TRUST & CUSTODY 7 f.7a 3 s ,rs t a _v Trust & Custody Services Profile In U.S. Bank IT&C provides services for: • Corporations • Endowments & Foundations • Insurance Companies • Taft-Hartley • Public Entities • Financial Institutions • Registered Investment Advisors ■ 3,074 client relationships* ■ 39,600 accounts* Is 6th - largest U.S. custodian** In More than $900 billion in Trust & Custody assets under custody* ■ 31 office locations nationally *IT&C Trust System as of 12/31/2008 **FDIC Call Report Data as of 12/31/07 RD INSTITUTIONAL TRUST & CUSTODY 8 WI "n 31 Assets Under Administration Wealth Management Institutional Trust & Custody $397.0 billion Corporate Trust $3.025 trillion Fund Services $512.5 billion Asset Management* 147.9 billion (Assets under Management) Private Client Group $59.6 billion Total $4. 148 Trillion Source:T&C Reporting System-Wealth Management&Securities Services Assets-12/31/2008. *Includes the First American Funds,our proprietary fund family.All figures as of 12/31/08. 10 INSTITUTIONAL TRUST & CUSTODY 9 , A header in Custodial Services Bank of New York $20.5 Trillion State Street $16.4 Trillion JP Morgan Chase $16.2 Trillion Citigroup $7.2 Trillion Northern Trust $1 .7 Trillion U.S. Bancorp $1 .1 Trillion Wells Fargo $618 Billion Union Bank of California $371 Billion Wachovia Bank $164 Billion Fifth Third $155 Billion Source:Federal Deposit Insurance Corporation(FDIC)Call Report data as of 12/31/07 IV INSTITUTIONAL TRUST & CUSTODY 10 A�Vd VIIi,�Y IFpIIYq II 17 - � ��� U.S. ank Service Model ■ Add value through dedicated relationship management teams • Provide local service delivery ® Offer a full range of integrated products ® Leverage technology ® Provide a flexible service approach ® Promise of our Five Star Service Guarantee IV INSTITUTIONAL TRUST & CUSTODY 11 d„ pq pp qq ?% lve Custodial Services • Asset Pricing ® Trade Settlement ® Safekeeping ® Income Collections • Cash Management • Corporate Actions ® Proxy Processing x IV INSTITUTIONAL TRUST & CUSTODY 12 3 i L , 3y? 11 ,yy Asset Pricing ® Internal dedicated pricing team ® Daily pricing provided directly by market leader, FT Interactive Data • Additional providers include Standard & Poor's, J.J. Kenny, FundWeb, Extel Financial Ltd. and Bloomberg (partial list) ® Additional services are used for Municipal Bonds and other hard-to-price securities IV INSTITUTIONAL TRUST & CUSTODY 13 Q4 2008 14 AO reff Safe, solid and open for • .,, a r a ,•: Fourth ar Statistics Now, more than ever, you want your financial Ranking U.S.Bank is6thlargest partner to be strong, prudent and focused U.S.commercial bank Asset size $266 billion on helping you meet your financial goals. At Deposits $159 billion U.S. Bank, we are lending money, safekeeping Loans $185 billion Customers 15.8 million deposits, investing for the future and providing Payment services and merchant processing Global the outstanding customer service we're Wholesale banking and trust services National famous for. See why more than Consumer and business banking Ei and wealth management 24 states bn 15.8 million customers already Bank branches 2,791 have chosen U.S. Bank. ATMs 5,164 NYSE symbol USB At quarter-end,December 31,200B .............._....__.._.._....__._.............................._..............._....................__.......__......._..__..................................___._.____..__..........__.._.._..___....______.........._.....___________.. 0 • • � 0 • r r C• • ', r w- •r o • r a V.S. Bancorp-,had paid a cash dividend since its founding in:1863 and has the third-longest record o f paying a dividend of all stocks listed on'the ® s - S,, &P 506= 146 consecutive years 'I ,... consumer&Business Banking &Wealth Management , :,, U B Capital Position lines of Business "Well- Payment Services U.S.Bancorp is a world 40O8 Capitalized" usB Requirements leader in payment services. Tier 1 Capital Ratio 10.6% 6.0% Wholesale Banking U.S.Bancorp provides ` Total Risk-based expertise,resources,prompt decision making %/ Capital Ratio 14.3% 10.0% and commitment to partnerships that make Leverage Ratio 9.8% 5.0% us a leader in Corporate,Commercial and Real Estate Banking, Wealth Management&Securities Services U.S._Bancorp provides solutions to help,, Individuals,businesses and municipalities Wholesale Banking&Trust Services - Increased FDIC Deposit build,manage,preserve and protect.wealth Insurance Coverage and distribute obligations, FDIC insurance coverage for interest Consumer Banking Gonvenience,customer bearing deposits has been increased to service,accessibility and,a comprehensive" $250,000 per depositor. set of,quality products make U.S. Bank the first,- choice of 13 million-plus consumers. FDIC's Temporary Liquidity Guarantee Program U.S. Bank will also participate ' in the U.S.government's Temporary Diversified Revenue i:Mix Liquidity Guarantee Program which provides Revenue by business line 4008 YTS unlimited deposit insurance coverage through December 31, 2009, for non- .. wrz interest bearing transaction accounts. Payments - iy - Covered accounts include most U.S. Bank y commercial checking accounts. For full 1 \ $ details,see your U.S. Banker or go to * www.fdic.gov. w These increases in FDIC insurance coverage are temporary,through December 31,2009. Paymenx-Servrces= •Wholesale Banking For full information,go to the FDIC web site: O woalth Management& WWW.myFDICinsurance.gov SecuritiesServices or call toll-free 1-877-ASK-FDIC. e Consumer Banking w U.S.Bank is not responsible for and does not guarantee the products, Investment products and services are available through U.S Bancorp services,performance or obligations of its affiliates. Investments,Inc.,member FINRA and SIPC,an investment advisor and a brokerage subsidiary of U.S.Bancorp and affiliate of U S Bank Investment and Insurance products are Insurance products,including annuities,are available through NOT A DEPOSIT NOT FDIC INSURED Five Star Service Cuaranteert U.S.Bancorp Insurance Services,LLC,U.S.Bancorp Investments, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY r { Inc.,in Montana U.S.Bancorp Insurance Services of Montana Inc and in Wyoming U.S.Bancorp Insurance&Investments,Inc All are MAY LOSE VALUE NOT GUARANTEED BY THE BANK Deit licensed insurance agencies and subsidiaries of U.S.Bancorp and Member Prod offered by U.S.BA47NA, affiliates of U.S.Bank.Policies are underwritten by unaffiliated U,&Bancorp,including each,of our subsidiaries is an insurance companies and may not be available in all states Equal Oppo unity Emplayer and a Drug-rfee_Workpaue CA Agency Number OE24641 DER 40371�04 oa usbahkI 'com n x^ .; [Mbancorp- News Release Contacts: Steve Dale Judith T. Murphy Media Investors/Analysts (612) 303-0784 (612) 303-0783 U.S. BANCORP REPORTS NET INCOME FOR THE FOURTH QUARTER OF 2008 MINNEAPOLIS, January 21, 2009 -- U.S. Bancorp (NYSE: USB) today reported net income of $330 million for the fourth quarter of 2008. Diluted earnings per common share of $.15 in the current quarter were lower than the $.53 of diluted earnings per common share reported for the fourth quarter of 2007. Included in fourth quarter of 2008 results were securities and other market valuation losses totaling $.09 per diluted common share and a provision for credit losses in excess of net charge-offs equal to $.25 per diluted common share. Results for the fourth quarter included strong year-over-year growth in net interest income and average loans and deposits, as the Company continued to benefit from the "flight to quality"-by customers seeking banks with strong capital and the ability to provide them with financial products and services during this period of economic uncertainty. Highlights for the fourth quarter of 2008 included: Average loan growth of 17.0 percent(12.7 percent excluding acquisitions) over the fourth quarter of 2007, driven by: • Average total commercial loan growth of 14.7 percent, principally in high quality corporate lending • Average retail loan growth of 17.0 percent, led by credit card balances, home equity lines and student loans Average loan growth of 6.4 percent(3.1 percent excluding acquisitions, 12.4 percent annualized) over the third quarter of 2008, including: • Average total commercial loan growth of 4.3 percent(17.2 percent annualized) • Average total commercial real estate growth of 2.9 percent(11.6 percent annualized) • Average retail loan growth of 3.6 percent(14.4 percent annualized) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 2 Average deposit growth of 15.2 percent(9.6 percent excluding acquisitions) over the fourth quarter of 2007, including: • Average noninterest-bearing deposits growth of 17.8 percent • Average total savings deposits growth of 9.5 percent • Total deposit growth of$19.8 billion, or 14.2 percent(5.8 percent excluding acquisitions), from September 30, 2008, to December 31, 2008 Net interest income growth of 22.6 percent over the fourth quarter of 2007, driven by: • Average earning assets growth of 12.8 percent • Net interest margin expansion to 3.81 percent in the fourth quarter of 2008 compared with 3.51 percent in the fourth quarter of 2007 ➢ Credit costs, as expected, trended higher, but coverage ratios remained strong: • Provision for credit losses exceeded net charge-offs by $635 million,resulting in an increase to the allowance for credit losses equal to 100 percent of net charge-offs for the quarter • Allowance to period-end loans increased to 1.96 percent at December 31, 2008, compared with 1.71 percent at September 30, 2008 The Company acquired the majority of the operations of Downey Savings and Loan and PFF Bank and Trust from the Federal Deposit Insurance Corporation ("FDIC") on November 21, 2008. Combined, these acquisitions: • Added 213 branches, primarily in California, resulting in the Company now having the fourth largest branch network in that state and third largest in the southern California region • Increased loans $12.2 billion at December 31, 2008, and average loans $5.5 billion in fourth quarter of 2008. Approximately $11.5 billion of these loans are covered under loss sharing agreements with the FDIC limiting the Company's credit loss exposure ■ Increased deposits $11.8 billion at December 31, 2008, and average deposit balances $5.2 billion in fourth quarter of 2008 Strong regulatory capital ratios at December 31, 2008, which included the impact of the preferred stock issuance to the Department of the U.S. Treasury in the fourth quarter of 2008: o Tier 1 capital ratio of 10.6 percent 14 Total risk-based capital ratio of 14.3 percent (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 3 EARNINGS SUMMARY Table 1 ($in millions,exceptper-sharedata) Percent Percent Change Change 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year Percent 2008 2008 2007 3Q08 4Q07 2008 2007 Change Net income $330 $576 $942 (42.7) (65.0) $2,946 $4,324 (31.9) Diluted earnings per common share .15 .32 .53 (53.1) (71.7) 1.61 2.43 (33.7) Return on average assets(%) .51 .94 1.63 1.21 1.93 Return on average common equity(%) 5.3 10.8 18.3 13.9 21.3 Net interest margin(%) 3.81 3.65 3.51 3.66 3.47 Efficiency ratio(%) 50.6 48.1 55.1 47.4 49.7 Tangible efficiency ratio(%)(a) 48.2 45.8 52.5 45.1 47.1 Dividends declared per common share $.425 $.425 $.425 $1.700 $1.625 4.6 Bookvalue per common share(period-end) 10.47 11.50 11.60 (9.0) (9.7) (a)computed as noninterest expense di vided by the sum of net interest income on a taxable-equiva ie or bags and noninterest income excluding securities gains(losses),netand intangible amortization. U.S. Bancorp reported net income of $330 million for the fourth quarter of 2008, compared with $942 million for the fourth quarter of 2007. Diluted earnings per common share of$.15 in the fourth quarter of 2008 were lower than fourth quarter of 2007 by 71.7 percent, or $.38 per diluted common share. Return on average assets and return on average common equity were .51 percent and 5.3 percent, respectively, for the fourth quarter of 2008, compared with 1.63 percent and 18.3 percent, respectively, for the fourth quarter of 2007. Challenging market conditions continued and had an impact on the fourth quarter of 2008 results. Significant items in the fourth quarter of 2008 results included $253 million of securities losses, primarily impairment charges on securities related to structured investment vehicles. In addition, the Company increased the allowance for credit losses by recording$635 million of provision for credit losses in excess of net charge-offs. In total, significant items reduced earnings per diluted common share by approximately $.34. In the third quarter of 2008, the Company's results were affected by similar items, including net securities impairments of$411 million, market valuation losses related to the bankruptcy of an investment banking firm and a $250 million provision for credit losses in excess of net charge-offs. In total, those items reduced third quarter of 2008 earnings per diluted common share by approximately $.28. U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, ,Once again, the Company's results for the quarter reflected both the strength of our banking franchise and business mix and the challenges facing our industry today, including rising credit costs and market valuation risk. The results were marked by outstanding growth in loans and deposits and an expanded net interest margin, but (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 4 tempered by the unfavorable impact of higher credit losses and securities impairments. Fourth quarter's earnings per diluted common share of$.15 were below both the same quarter of 2007 and the prior quarter of 2008. Although we were able to absorb the increased cost of credit and market-related write-downs, I am disappointed with the overall decline in this quarter's earnings. I am, however, very proud of the fact that our Company has profitably navigated through this difficult environment, while continuing to build momentum for the future. For the full year 2008 our Company earned $2.9 billion, or $1.61 per diluted common share. "As I have said many times over the past year, U.S. Bancorp is "open for business". The Company's total average loans outstanding, excluding acquisitions, grew year-over-year by $19.2 billion (12.7 percent) and $5.2 billion (12.4 percent annualized) on a linked quarter basis. Importantly, during the fourth quarter, our business lines originated over $16 billion in new loans to businesses and consumers. This double-digit growth in average loans, as well as new loan originations, clearly demonstrates that we are "open" and continue to provide our current and newly acquired customers with access to the credit they need. The growth in loans, and an outstanding increase in total average deposits, excluding acquisitions, of $12.0 billion (9.6 percent) year-over-year and $5.8 billion (17.2 percent annualized) over the third quarter of 2008, also demonstrated that our Company is benefiting from the "flight-to-quality". Coupled with an increase in the net interest margin during the fourth quarter, this balance sheet growth led to a 22.6 percent increase in net interest income year-over-year and a 9.9 percent increase in net interest income over the prior quarter. This growth helped to cushion the impact of higher credit costs, market-related write-downs and the deceleration of growth in some of the fee income categories tied to the economy and equity markets, once more proving the advantage of our diversified business mix. "Higher credit costs were a major contributor to the decline in net income this quarter, and the costs were in the middle of the range we communicated last December. Fourth quarter provision for credit losses of$1,267 million, exceeded net charge-offs by $635 million, or 100%. This incremental provision served to strengthen the ratio of allowance to period-end loans (excluding assets covered by the loss agreement with the FDIC) to 2.09 percent at December 31, 2008, from 1.71 percent at September 30, 2008. As expected, nonperforming assets were also higher, ending the quarter at $2,624 million, compared with $1,492 million at September 30, 2008. Included in this increase, however, were $643 million of assets covered by the loss agreements with the FDIC. Without the addition of the covered assets, nonperforming assets grew by $489 million, or 32.8 percent, quarter-over-quarter. Nonperforming assets to loans plus other real estate owned, (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 5 excluding covered assets, was 1.14 percent at December 31, 2008, moderately higher than the .88 percent the Company recorded at September 30, 2008. We intend to maintain the strength of our balance sheet throughout this credit cycle and beyond, and will rely on our solid, core operating earnings to absorb the higher, but manageable, credit-related costs that we expect in 2009. "On November 3, 2008, we announced our participation in the U.S. Treasury's Capital Purchase Program, and, subsequently, issued $6.6 billion of preferred stock and related warrants to the U.S. Treasury. As our results and actions this quarter illustrated, we are actively lending to credit-worthy borrowers, we are investing in our businesses, we are supporting our communities and we are backing the efforts of the U.S. Treasury to stabilize the financial markets and increase the flow of credit to both consumers and businesses, all while creating long-term value for our shareholders. "Finally, I want to take this opportunity to thank all of our 56,000 employees, which includes our 3,000 new employees in California and Arizona. On January 15th, we held our second annual "all employee meeting". Over 34,000 employees across our franchise, including Europe, gathered in 70 locations and on conference calls to celebrate their collective hard work, adept decision-making, dedication to our customers and communities, and loyalty to our Company. Our future is brighter because of our employees' extraordinary efforts, and I look forward to the coming year knowing that our employees are engaged and committed to maintaining and enhancing our position as one of the leaders in the financial services industry." The Company's net income for the fourth quarter of 2008 decreased by $612 million (65.0 percent) from the same period of 2007 and$246 million (42.7 percent) on a linked quarter basis. The reduction in net income on both a year-over-year and linked quarter basis was principally the result of an increase in the provision for credit losses. Total revenue grew during these periods driven by strong growth in net interest income, offset by securities impairments and lower fee based revenue as consumers and businesses reduced spending. Total net revenue on a taxable-equivalent basis for the fourth quarter of 2008 was $3,624 million; $50 million (1.4 percent) higher than the fourth quarter of 2007, reflecting a 22.6 percent increase in net interest income and a 19.2 percent decrease in noninterest income. The increase in net interest income year-over- year (22.6 percent) and on a linked quarter basis (9.9 percent, 39.6 percent annualized) was a result of growth in average earning assets and an increase in net interest margin. Noninterest income declined from a year ago as payment services, trust and investment management fees and deposit service charges were (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 6 affected by the impact of the slowing economy on equity valuations and customer behavior. In addition, noninterest income was adversely impacted by securities impairments, market-related valuation losses and retail lease residual losses. Noninterest income on a linked quarter basis increased modestly, as the reduction in securities impairments was offset by lower fee income. Total noninterest expense in the fourth quarter of 2008 was $1,960 million; $8 million (A percent) lower than the fourth quarter of 2007, and $137 million (7.5 percent) higher than the third quarter of 2008. Total noninterest expense was relatively flat year-over-year because higher costs associated with business initiatives designed to expand the Company's geographic presence and strengthen customer relationships, including the Mellon 1 st Business Bank, Downey Savings and Loan and PFF Bank and Trust acquisitions and investments in relationship managers, branch initiatives, and Payment Services' businesses, were offset by the favorable variance associated with a $215 million charge recognized in the fourth quarter of 2007 related to the Company's proportionate share of contingent obligations to indemnify Visa Inc. for certain litigation matters ("Visa Charge"). Operating expense also included higher credit collection costs and incremental costs associated with investments in tax-advantaged projects. The increase on a linked quarter basis was principally the result of acquisitions, seasonally higher expenses for marketing and business development campaigns, higher professional service fees and investments in tax-advantaged projects, as well as increased costs related to foreclosed real estate. On November 21, 2008, the Company acquired substantially all of the assets and assumed all of the deposits and most of the liabilities of Downey Savings and Loan and PFF Bank and Trust ("Downey and PFF acquisitions") from the FDIC. In connection with these acquisitions, the Company entered into loss sharing agreements with the FDIC ("Loss Sharing Agreements") providing for specified credit loss and asset yield protection for all single family residential mortgages and a significant portion of commercial and commercial real estate loans and foreclosed real estate ("covered assets"). The Company estimated that the covered assets would incur approximately $4.7 billion of cumulative credit losses. These losses will be offset by an estimated $2.4 billion benefit to be received by the Company under the Loss Sharing Agreements. Under the terms of the Loss Sharing Agreements, the Company will incur the first $1.6 billion of specified contractual losses ("First Loss Position") on covered assets, which was approximately the amount of the predecessors' net assets. The Company acquired these net assets for a nominal amount of consideration. After the First Loss Position, the Company will incur 20 percent of the next $3.1 billion of specified contractual losses and only 5 percent of specified losses beyond that limit. The Company estimates (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 7 its share of those losses will be approximately $.7 billion. The impact of estimated credit losses on future cash flows from the acquired loan portfolios was included in the determination of the estimated value of the loans at the date of the acquisition. As required by existing accounting standards, the Company identified the acquired non-revolving loans experiencing credit deterioration, representing the majority of the assets acquired, and recorded these assets in the financial statements at their estimated fair market value to reflect expected credit losses and the estimated impact of the Loss Sharing Agreements. As a result, the Company will not record additional provision for credit losses or report charge-offs on these loans unless further credit deterioration occurs after the date of acquisition. The Company recorded all other loans at the predecessors' book value, net of fair value adjustments for any interest-rate related discount or premium, and an allowance for credit losses. In an effort to enhance information related to the Company's credit quality, the Company's financial disclosures segregate acquired covered assets from assets not subject to Loss Sharing Agreements. The Company's provision for credit losses considers changes in credit quality of the recorded value for the entire portfolio of loans net of the credit loss protection available under the Loss Sharing Agreements with the FDIC. The provision for credit losses for the fourth quarter of 2008 was $1,267 million, an increase of $519 million over the third quarter of 2008 and S1,042 million over the fourth quarter of 2007. The provision for credit losses exceeded net charge-offs by $635 million in the fourth quarter of 2008 and $250 million in the third quarter of 2008. The increase in the provision for credit losses from a year ago reflects continuing stress in residential real estate markets, driven by declining home prices in most geographic regions. It also reflects deteriorating economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the fourth quarter of 2008 were $632 million, compared with net charge-offs of$498 million in the third quarter of 2008 and $225 million in the fourth quarter of 2007. Given current economic conditions and the continuing decline in home and other collateral values,the Company expects net charge-offs to increase during 2009. Nonperforming assets were $2,624 million at December 31, 2008, compared with $1,492 million at September 30, 2008, and $690 million at December 31, 2007. This increase included $643 million of covered assets related to the Downey and PFF acquisitions. The majority of these nonperforming assets were subject to the Loss Sharing Agreements with the FDIC and were recorded at their estimated fair value at the date of acquisition. The remaining increase was driven by continuing stress in residential home construction and related industries, as well as the residential mortgage portfolio, an increase in foreclosed (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 8 properties, and the impact of the economic slowdown on other commercial customers. The ratio of the allowance for credit losses to total loans not subject to loss sharing was 2.09 percent at December 31, 2008, compared with 1.71 percent at September 30, 2008, and 1.47 percent at December 31, 2007. The ratio of the allowance for credit losses to total loans, including loans subject to the FDIC Loss Sharing Agreements, was 1.96 percent at December 31, 2008. The Company anticipates that nonperforming assets will continue to increase during 2009 as deteriorating economic conditions begin to impact most commercial and consumer loan categories. INCOME STATEMENT HIGHLIGHTS Table (Taxable-equivalentbasis,$in millions, Percent Percent except per-share data) Change Change 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year Percent 2008 2008 2007 3Q08 4Q07 2008 2007 Change Net interest income $2,161 $1,967 $1,763 9.9 22.6 $7,866 $6,764 16.3 Noninte rest income 1,463 1,412 1,811 3.6 (19.2) 6,811 7,296 (6.6) Total net revenue 3,624 3,379 3,574 7.3 1.4 14,677 14,060 4.4 Noninterest expense 1,960 11823 1,968 7.5 (4) 7,414 6,986 6.1 Income before provision and taxes 1,664 1,556 1,606 6.9 3.6 7,263 7,074 2.7 Pmvi sion for credit losses 1,267 748 225 69.4 nm 3,096 792 nm Income before taxes 397 808 1,381 (50.9) (71.3) 4,167 6,282 (33.7) Taxable-equival ent adjustment 40 34 22 17.6 81.8 134 75 78.7 Applicable income taxes 27 198 417 (86.4) (93.5) 1,087 1,883 (42.3) Net income $330 $576 $942 (42.7) (65.0) $2,946 $4,324 (31.9) Net income applicable to common equity $260 $557 $927 (53.3) (72.0) $2,823 $4,264 (33.8) Diluted earnings per common share $.15 $.32 $.53 (53.1) (71.7) $1.61 $2.43 (33.7) Net Interest Income Fourth quarter net interest income on a taxable-equivalent basis was $2,161 million, compared with $1,763 million in the fourth quarter of 2007, an increase of$398 million (22.6 percent). The increase was a result of growth in average earning assets, as well as a higher net interest margin than a year ago. Average earning assets for the period increased compared with the fourth quarter of 2007 by $25.7 billion (12.8 percent, 9.4 percent excluding acquisitions), primarily driven by an increase of$25.8 billion (17.0 percent) in average loans. During the fourth quarter of 2008, the net interest margin increased to 3.81 percent compared with 3.51 percent in the fourth quarter of 2007. The net interest margin increased because of growth in average loans at higher credit spreads, asset/liability re-pricing in a declining rate environment, (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 9 wholesale funding mix during a period of significant volatility in short-term funding markets and the benefit of net free funds. Net interest income increased $194 million (9.9 percent) over the prior quarter of 2008. This increase was a result of growth in average earning assets of$11.0 billion (5.1 percent, 2.5 percent without the impact of acquisitions) and an increase in the net interest margin from 3.65 percent in the third quarter of 2008 to 3.81 percent in the current quarter. NET INTEREST INCOME Table 3 (Taxable-equivalent basis;$in mil lions) Change Change 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year 2008 2008 2007 3Q08 4Q07 2008 2007 Change Components of net interest income Income on earning assets $3,195 $3,110 $3,431 $85 $(236) $12,630 $13,309 $(679) Expense on interest-bearing liabilities 1,034 1,143 1,668 (109) (634) 4.764 6,545 (1,781) Net inte re st in c ome $2,161 $1,967 $1,763 $194 $398 $7,866 $6,764 $1,102 Average yields and rates paid Earning assets yield 5.63% 5.77% 6.81% (.14)% (1.18)% 5.87% 6.84% (.97)% Rate paid on interest-bearing liabilities 2.16 2.45 3.83 (.29) (1.67) 2.58 3.91 (1.33) Gross interest margin 3.47% 3.32% 2.98% .15% .49% 3.29% 2.93% .36% Net interestmatgin 3.81% 3.65% 3.51% .16% .30% 3.66% 3.47% .19% Average balances Investment securities $41,974 $42,548 $42,525 $(574) $(551) $42,850 $41,313 $1,537 Loans 177,205 166,560 151,451 10,645 25,754 165,552 147,348 18,204 Earning assets 225,986 214,973 200,307 I L013 25,679 215,046 194,683 20,363 Interest-bearingliabilities 190,856 185,494 172,999 5,362 17,857 184,932 167,196 17,736 Net free funds(a) 35,130 29,479 27,308 5,651 7,822 30,114 27,487 2,627 (a)Represents noninterest-bearing deposits,allowance for loan losses,unrealized gain(loss)on available-for-sale securities,non-earning assets,other noninterest-bearing liabilities and equity. (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 10 AVERAGE LOANS Table 4 ($in millions) Percent Percent Change Change 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year Percent 2008 2008 2007 3Q08 4Q07 2008 2007 Change Commercial $50,328 $48,137 $43,649 4.6 15.3 $47,903 $42,087 13.8 Lease financing 6,608 6,436 5,978 2.7 10.5 6,404 5,725 11.9 Total commercial 56,936 54,573 49,627 4.3 14.7 54,307 47,812 13.6 Commercial mortgages 22,967 22,302 19,775 3.0 16.1 21,705 19,650 10.5 Construction and development 9,691 9,446 8,983 2.6 7.9 9,405 8,942 5.2 Total commercial real estate 32,658 31,748 28,758 2.9 13.6 31,110 28,592 8.8 Residential mortgages 23,430 23,309 22,670 .5 3.4 23,257 22,085 5.3 Credit card 12,976 12,217 10,621 6.2 22.2 11,954 9,574 24.9 Retail leasing 5,062 5,200 6,123 (2.7) (17.3) 5,395 6,512 (17.2) Home equity and second mortgages 18,691 17,858 16.343 4.7 14.4 17,550 15,923 10.2 Otherretail 22,247 21,655 17,309 2.7 28.5 20,671 16,850 22.7 Total retail 58,976 56,930 50.396 3.6 17.0 55,570 48,859 13.7 Total loans,excluding covered assets 172,000 166,560 151,451 3.3 13.6 164,244 147,348 11.5 Covered assets 5,205 - - nm nm 1,308 - nm Total loans $177,205 $166,560 $151,451 6.4 17.0 $165,552 $147,348 12.4 Total average loans, excluding covered assets, for the fourth quarter of 2008 were $172.0 billion; 13.6 percent higher than the fourth quarter of 2007, driven by growth in the majority of loan categories. The increase in total average loans included growth in average total retail loans of$8.6 billion (17.0 percent), total commercial loans of$7.3 billion (14.7 percent), total commercial real estate loans of$3.9 billion (13.6 percent) and residential mortgages of$760 million (3.4 percent). Retail loan growth for the fourth quarter of 2008 over the same quarter of 2007 included a $4.0 billion increase in federally guaranteed student Loan balances resulting from a portfolio purchase, from the transfer of loans held for sale to held for investment and from growth in the portfolio. Total average loans, excluding covered assets, for the fourth quarter of 2008 were higher than the third quarter of 2008 by $5.4 billion (3.3 percent). Total commercial loans grew by $2.4 billion (4.3 percent) on a linked quarter basis, driven primarily by increases in corporate banking balances due to both customer account growth and increased line utilization. Total commercial real estate loans increased by $910 million (2.9 percent). Consumer lending continues to experience strong growth in installment products and home equity lines. In addition, credit card balances continue to show solid growth. (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page I Average covered assets of $5.2 billion consisted of loans and foreclosed real estate acquired in the Downey and PFF acquisitions that were covered under the Loss Sharing Agreements. Approximately 70 percent of covered assets are single family residential mortgages. Average investment securities in the fourth quarter of 2008 were $.6 billion (1.3 percent) lower than both the fourth quarter of 2007 and the third quarter of 2008. AVERAGE DEPOSITS Tables ($in millions) Percent Percent Change Change 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year Percent 2008 2008 2007 3Q08 4Q07 2008 2007 Change Noninterest-bearing deposits $31,639 $28,322 $26,869 11.7 17.8 $28,739 $27,364 5.0 Interest-bearingsavings deposits Interest checking 29,467 32,304 27,458 (8.8) 7.3 31,137 26,117 19.2 Money market savings 27,009 26,167 25,996 3.2 3.9 26,300 25,332 3.8 Savings accounts 7,657 5,531 5,100 38.4 50.1 5,929 5,306 11.7 Total of savings deposits 64,133 64,002 5.8,554 .2 9.5 63,366 56,755 11.6 Time certificates of deposit less than$100,000 15,414 12,669 14,539 21.7 6.0 13,583 14,654 (7.3) Time deposits greater than$100,000 33,283 28,546 25,461 16.6 30.7 30,496 22,302 36.7 Total interest-bearing deposits 112,830 105,217 98,554 7.2 14.5 107,445 93,711 14.7 Total deposits $144,469 $133,539 $125,423 8.2 15.2 $136,184 $121,075 12.5 Average total deposits for the fourth quarter of 2008 increased $19.0 billion (15.2 percent) over the fourth quarter of 2007. Without the impact of acquisitions (Mellon 1st Business Bank, Downey and PFF), average total deposits increased $12.0 billion (9.6 percent). Noninterest-bearing deposits increased $4.8 billion (17.8 percent) year-over-year primarily related to Wealth Management & Securities Services, Corporate Banking and the impact of acquisitions. Average total savings deposits increased year-over-year by $5.6 billion (9.5 percent) due to an increase in average savings accounts of$2.6 billion (50.1 percent), primarily in Consumer Banking, a $2.0 billion increase (7.3 percent) in average interest checking balances, primarily the result of higher Consumer Banking balances, broker-dealer and institutional trust balances, and a $1.0 billion increase (3.9 percent) in average money market savings balances driven by higher balances from broker-dealers, Consumer Banking and the impact of acquisitions. Average time certificates of deposit less than $100,000 were higher in the fourth quarter of 2008 than in the fourth quarter of 2007 by $.9 billion (6.0 percent), primarily due to acquisitions. Average time deposits greater than $100,000 increased by $7.8 billion (30.7 percent) over the same period of 2007 as a result of the business lines' ability to attract larger (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 12 customer deposits given current market conditions and the impact of acquisitions, as well as the Company's wholesale funding decisions. Average total deposits increased $10.9 billion (8.2 percent) over the third quarter of 2008. Without the impact of the Downey and PFF acquisitions, average total deposits increased $5.8 billion (4.3 percent, 17.2 percent annualized). Average noninterest-bearing deposits for the fourth quarter of 2008 increased $3.3 billion (11.7 percent) over the prior quarter of 2008 due primarily to increases in broker-dealer and corporate trust deposits. Total average savings deposits increased modestly by $131 million (.2 percent) from the third quarter of 2008, as a strong increase in average savings accounts balances and an increase in average money market accounts were offset by a decline in average interest checking deposits. The 38.4 percent increase in average savings account balances on a linked quarter basis, and the 50.1 percent increase year-over-year, was principally the result of strong participation in a new savings product offered by Consumer Banking. The increase in average money market savings over the third quarter of 2008 was due primarily to higher broker-dealer and institutional trust balances. The decline in average interest checking deposits was primarily due to lower broker-dealer and institutional trust balances. Average time certificates less than $100,000 increased $2.7 billion (21.7 percent) over the prior quarter due to acquisitions, and average time deposits greater than $100,000 increased by $4.7 billion (16.6 percent) from the prior quarter, reflecting acquisitions and wholesale funding decisions. (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 13 NONINTERES T INCOME Table 6 ($in millions) Percent Percent Change Change 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year Percent 2008 2008 2007 3Q08 4Q07 2008 2007 Change Credit and debit card revenue $256 $269 $285 (4.8) (10.2) $1,039 $958 9.5 Corporate payment products revenue 154 179 166 (14.0) (7.2) 671 638 5.2 ATM processing services 95 94 84 1.1 13.1 366 327 11.9 Merchant processing services 271 300 281 (9.7) (3.6) 1,151 1,108 3.9 Trust and investment management fees 300 329 344 (8.8) (12.8) 1,314 1,339 (1.9) Deposit service charges 260 286 277 (9.1) (6.1) 1,081 1,077 .4 Treasury management fees 128 128 117 9.4 517 472 9.5 Commercial products revenue 131 132 121 (.8) 8.3 492 433 13.6 Mortgage banking revenue 23 61 48 (62.3) (52.1) 270 259 4.2 Investment products fees and commissions 37 37 38 (2.6) 147 146 .7 Securities gains(losses),net (253) (41 1) 4 38.4 nm (978) 15 nm Other 61 8 46 nm 32.6 741 524 41.4 Total noninterest income $1,463 $1,412 $1,811 3.6 (19.2) $6,811 $7,296 (6.6) Noninterest Income Fourth quarter noninterest income was $1,463 million; $348 million (19.2 percent) lower than the same quarter of 2007 and $51 million (3.6 percent) higher than the third quarter of 2008. Noninterest income declined from the fourth quarter of 2007, as fee-based revenue in a number of revenue categories was lower as deteriorating economic conditions adversely impacted consumer and business behavior. In addition, total noninterest income was unfavorably impacted by impairment charges related to structured investment securities and other market valuation losses and higher retail lease residual losses from a year ago, partially offset by a $59 million gain related to the Company's ownership interests in Visa Inc ("Visa Gain"). Credit and debit card revenue, corporate payment products revenue and merchant processing services revenue were lower in the fourth quarter of 2008 than the same period of 2007 by $29 million (10.2 percent), $12 million (7.2 percent) and $10 million (3.6 percent), respectively. All categories were impacted by lower transaction volumes compared with the prior year's quarter. Trust and investment management fees declined $44 million (12.8 percent) primarily due to the adverse impact of equity market conditions. Deposit service charges decreased $17 million (6.1 percent) year-over-year, primarily due to lower overdraft fees as customer spending declined. Mortgage banking revenue decreased $25 million (52.1 percent) due to an unfavorable net change in the valuation of mortgage servicing rights ("MSRs") and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Net (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 14 securities gains (losses) were lower than a year ago by $257 million due to the impact of impairment charges primarily related to structured investment securities. ATM processing services increased by $11 million (13.1 percent), due to growth in transaction volumes and business expansion. Treasury management fees increased $11 million (9.4 percent), due primarily to the favorable impact of declining rates on customer earnings credits and account growth. Commercial products revenue increased $10 million (8.3 percent) year-over-year due to higher foreign exchange revenue, letters of credit and other commercial loan fees. Other income increased by $15 million year-over-year, as the Visa Gain and the net change in market valuation losses were partially offset by the adverse impact of higher retail lease residual losses and lower equity investment revenue. Noninterest income was higher by $51 million (3.6 percent) in the fourth quarter of 2008 than the third quarter of 2008, reflecting the Visa Gain and the favorable impact of lower securities impairments, partially offset by a decline in fee-based revenue due principally to the ongoing economic slowdown. Other income increased $53 million primarily due to the Visa Gain. Credit and debit card revenue decreased $13 million (4.8 percent), corporate payment products revenue decreased $25 million (14.0 percent), and merchant processing services revenue was lower by $29 million (9.7 percent) all due to lower transaction volumes. Trust and investment management fees were lower by $29 million (8.8 percent) on a linked quarter basis primarily due to the impact of market conditions. Deposit service charges decreased $26 million (9.1 percent) due to a decline in overdraft transactions. Mortgage banking revenue decreased $38 million (62.3 percent) from the third quarter of 2008, due to a decline in the fair value of MSRs net of economic hedging activity and lower production income, partially offset by an increase in servicing revenue. (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21,2009 Page 15 NONINTEREST EXPENSE Table 7 ($in millions) Percent Percent Change Change 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year Percent 2008 2008 2007 3Q08 4Q07 2008 2007 Change Compensation $770 $763 $690 .9 11.6 $3,039 $2,640 15.1 Employee benefits 124 125 119 (.8) 4.2 515 494 4.3 Net occupancy and equipment 202 199 188 1.5 7.4 781 738 5.8 Professional services 73 6 t 71 19.7 2.9 240 233 3.0 Marketing and business development 90 75 69 20.0 30.4 310 260 19.2 Technology and communications 156 153 148 2.0 5.4 598 561 6.6 Postage,printing and supplies 77 73 73 5.5 5.5 294 283 3.9 Other intangibles 93 88 93 5.7 - 355 376 (5.6) Other 375 286 517 31.1 (27.5) 1,282 1,401 (8.5) Total noninterestexpense $1,960 $1,823 $1,968 7.5 (4) $7,414 $6,986 6.1 Noninterest Expense Fourth quarter noninterest expense totaled $1,960 million, a decrease of$8 million (A percent) from the same quarter of 2007 and an increase of $137 million (7.5 percent) over the third quarter of 2008. Compensation expense increased $80 million (11.6 percent) over the same period of 2007 due to costs for acquired businesses, growth in ongoing bank operations and other initiatives and the adoption of a new accounting standard in 2008. Under this new accounting standard, compensation expense is no longer deferred for the origination of mortgage loans held for sale. Net occupancy and equipment expense increased $14 million (7.4 percent) over the fourth quarter of 2007, primarily due to acquisitions, as well as branch-based and other business expansion initiatives. Marketing and business development expense increased $21 million (30.4 percent) year-over-year due to the timing of Consumer Banking and retail payment product marketing programs and a national advertising campaign. Technology and communications expense increased $8 million (5.4 percent) year-over-year, primarily due to increased processing volumes and business expansion. These increases were offset by a decrease in other expense of $142 million (27.5 percent), due primarily to the $215 million Visa Charge recognized in the fourth quarter of 2007, partially offset by increased costs for other real estate owned, tax-advantaged projects, acquisitions and litigation. Noninterest expense in the fourth quarter of 2008 increased $137 million (7.5 percent) compared with the third quarter of 2008. This increase included costs for acquired businesses. In addition, professional services expense was seasonally higher; $12 million (19.7 percent) on a linked quarter basis. (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 16 Marketing and business development expense increased $15 million (20.0 percent) due primarily to the Company's national advertising campaign and the timing of other product promotional campaigns. Other intangibles expense was higher compared with the third quarter of 2008 due to the Downey and PFF acquisitions. Other expense increased $89 million (31.1 percent) on a linked quarter basis due to increased litigation and other real estate owned-related costs, and the timing of costs related to tax-advantaged projects. Provision for Income Taxes The provision for income taxes for the fourth quarter of 2008 resulted in a tax rate on a taxable- equivalent basis of 16.9 percent (effective tax rate of 7.6 percent) compared with 31.8 percent (effective tax rate of 30.7 percent) in the fourth quarter of 2007 and 28.7 percent (effective tax rate of 25.6 percent) in the third quarter of 2008. The decline in the effective tax rate reflects the marginal impact of the decline in pretax earnings. The Company expects the taxable-equivalent tax rate to be approximately 30 percent in 2009. Acquired Loans and Other Assets Assets acquired in the Downey and PFF acquisitions are substantially covered under Loss Sharing Agreements with the FDIC. In accordance with current accounting standards, the Company identified non- revolving loans with credit deterioration and recorded these assets in the financial statements at their estimated fair market value to reflect expected credit losses and the estimated impact of the Loss Sharing Agreements. For all other acquired loans, the Company recorded the assets at the predecessors' book value, net of fair value adjustments for any interest-rate related discount or premium, and an allowance for credit losses. The Company recorded foreclosed real estate at estimated fair value. The following table provides an overview of the predecessors' net asset values of the loans and other real estate acquired from the FDIC ("contract value"), the book value recorded as of December 31, 2008, and the impact on average balances for the fourth quarter of 2008. (MORE) U.S.Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 17 DOWNEYANDPFFACQUISMONS a Table8 ($in millions) 12/31/08 12/31/08 4Q08 Average Contract Value Book Value Book Value Covered assets Loans $13,347 $8,794 $3,947 Otherreal estate 465 274 150 Subtotal 13,812 9,068 4,097 Benefit of loss sharing agreement 2,382 1,108 Total covered assets 13,812 11,450 5,205 Other loans 825 715 250 Total loans and otherreal estate acquired $14,637 $12,165 $5,455 (a)preliminary data (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 18 ALLOWANCE FOR CREDITLO SSE S Table9 ($in millions) 4 Q 3Q 2Q I 4Q 2008 2008 2008 2008 2007 Balance,beginning of period $2.898 $2,648 $2,435 $2,260 $2,260 Net charge-offs Commercial 108 57 51 39 23 Lease financing 31 22 18 16 13 Total commercial 139 79 69 55 36 Commercial mortgages 14 9 6 4 3 Construction and development 63 56 12 8 7 Total commercial real estate 77 65 18 12 10 Residential mortgages 84 71 53 26 17 Credit card 169 149 139 108 88 Retail leasing 11 9 8 7 6 Home equity and second mortgages 52 48 48 30 22 Otherretail 95 77 61 55 46 Total retail 327 283 256 200 162 Total net charge-offs,excluding covered assets 627 498 396 293 225 Covered assets 5 — — Total net charge-offs 632 498 396 293 225 Provision for credit losses 1,267 748 596 485 225 Acquisitions and other changes 106 — 13 (17) — Balance,end of period $3,639 $2,898 $2,648 $2,435 $2,260 Components Allowance for I can losses $3,514 $1767 $2,518 $2,251 $2,058 Liability forunfunded credit commitments 125 131 130 184 202 Total allowance for credit losses $3,639 $2,898 $2,648 $2,435 $2,260 Gross charge-oft $678 $544 $439 $348 $287 Gross recoveries $46 $46 $43 $55 $62 Allowanceforcredit losses as apercentage of Period-end loans,excluding covered assets 2.09 1.71 1.60 1.54 1.47 Nonperforming loans,excluding covered assets 206 222 273 358 406 Nonperforming assets,excluding covered assets 184 194 233 288 328 Period-end loans 1.96 1.71 1.60 1.54 1.47 Nonperforming loans 151 222 273 358 406 Nonperforming assets 139 194 233 288 328 Credit Quality During the fourth quarter of 2008, credit losses and nonperforming assets continued to trend higher. The allowance for credit losses was $3,639 million at December 31, 2008, compared with $2,898 million at September 30, 2008, and $2,260 million at December 31, 2007. As a result of the continued stress in the residential housing markets, homebuilding and related industry sectors, and growth of the loan portfolios, the (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 19 Company has increased the allowance for credit losses by $1,379 million during 2008. The credit stress is reflected in higher delinquencies, nonperforming asset levels and net charge-offs relative to a year ago and the third quarter of 2008. Total net charge-offs in the fourth quarter of 2008 were $632 million, compared with the third quarter of 2008 net charge-offs of$498 million and the fourth quarter of 2007 net charge-offs of$225 million. The increase in total net charge-offs from a year ago was driven by factors affecting the residential housing markets as well as homebuilding and related industries, and credit costs associated with credit card and other consumer loan growth over the past several quarters. Commercial and commercial real estate loan net charge-offs increased to $216 million in the fourth quarter of 2008 (.96 percent of average loans outstanding) compared with $144 million (.66 percent of average loans outstanding) in the third quarter of 2008 and $46 million (.23 percent of average loans outstanding) in the fourth quarter of 2007. This increasing trend in commercial and commercial real estate losses reflected continuing stress within the portfolios, especially residential homebuilding and related industry sectors. Residential mortgage loan net charge-offs increased to $84 million in the fourth quarter of 2008 (1.43 percent of average loans outstanding) compared with $71 million (1.21 percent of average loans outstanding) in the third quarter of 2008 and $17 million (.30 percent of average loans outstanding) in the fourth quarter of 2007. The increased residential mortgage losses were primarily related to loans originated within the consumer finance division and reflected the impact of rising foreclosures on sub-prime mortgages and current economic conditions. Total retail loan net charge-offs were $327 million (2.21 percent of average loans outstanding) in the fourth quarter of 2008 compared with $283 million (1.98 percent of average loans outstanding) in the third quarter of 2008 and $162 million (1.28 percent of average loans outstanding) in the fourth quarter of 2007. The increased retail loan credit losses reflected the Company's growth in credit card and consumer loan balances, as well as the adverse impact of current economic conditions on consumers. In addition, there were $5 million of net-charge-offs on loans under the Loss Sharing Agreements with the FDIC. The ratio of the allowance for credit losses to period-end loans not subject to Loss Sharing Agreements was 2.09 percent (1.96 percent of total period end loans) at December 31, 2008, compared with 1.71 percent at September 30, 2008, and 1.47 percent at December 31, 2007. The ratio of the allowance for credit losses to nonperforming loans was 151 percent (206 percent excluding covered assets) at December 31, 2008, compared with 222 percent at September 30, 2008, and 406 percent at December 31, 2007. (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 20 CREDIT RATIOS Table 10 (Percent) 4Q 3Q 2Q 1Q 4Q 2008 2008 2008 2008 2007 Net charge-offs ratios(a) Commercial .85 .47 .43 .34 .21 Lease financing 1.87 1.36 1.14 1.03 .86 Total commercial .97 .58 .51 .43 .29 Commercial mortgages .24 .16 .11 .08 .06 Construction and development 2.59 2.36 .52 .35 .31 Total commercial real estate .94 .81 .24 .16 .14 Residential mortgages 1.43 1.21 .91 .46 .30 Credit card 5.18 4.85 4.84 3.93 3.29 Retail leasing .86 .69 .58 .49 .39 Home equity and second mortgages 1.11 1.07 1.13 .73 .53 Othe r ret ail 1.70 1.41 1.16 1.25 1.05 Total retail 2.21 1.98 1.86 1.58 1.28 Total net charge-offs,excluding covered assets 1.45 1.19 .98 .76 .59 Covered assets .38 - -- - -- Total net charge-offs 1.42 1.19 .98 .76 .59 Delinquent loan ratios-90 days or more past due excluding nonperforming loans(b) Commercial .13 .11 .09 .09 .07 Commercial real estate .11 .05 .09 .13 .02 Residential mortgages 1.55 1.34 1.09 .98 .86 Retail .82 .68 .63 .69 .68 Total loans,excluding covered assets .56 .46 .41 .43 .38 Covered assets 5.13 - - Total loans .94 .46 .41 .43 .38 Delinquent loan ratios-90 days or more past due including nonperforming loans(b) Commercial .82 .76 .71 .60 .43 Commercial real estate 3.34 2.25 1.57 1.18 1.02 Residential mortgages 2.44 2.00 1.55 1.24 1.10 Retail .97 .81 .74 .77 .73 Total loans,excluding covered assets 1.57 1.23 1.00 .86 .74 Covered assets 10.74 - - -- Total loans 2.14 1.23 1.00 .86 .74 (a)annualized and calculated on average loan balances (b)ratios are expressed as a percent of ending loan balances (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 21 ASSET QUALITY Table Il ($in mill ions) Dec31 Sep 30 Jun 30 Mar31 Dee 31 2008 2008 2008 2008 2007 Nonperforming loans Commercial $290 $280 $265 $201 $128 Lease financing 102 85 75 64 53 Total commercial 392 365 340 265 181 Commercial mortgages 294 164 139 102 84 Construction and development 780 545 326 212 209 Total commercial real estate 1,074 709 465 314 293 Residential mortgages 210 155 108 59 54 Retail 92 74 58 42 29 Total nonperforming loans,excluding covered assets 1,768 1,303 971 680 557 Covered assets 643 -- - -- -- Total nonperforming loans 2,411 1,303 971 680 557 Other real estate 190 164 142 141 111 Other nonperforming assets 23 25 22 24 22 Total nonperforming assets(a) $2,624 $1,492 $1,135 $845 $690 AccmingIoans 90 days or more past due,excluding covered assets $967 $787 $687 $676 $584 Accmingloans 90 days ormorepast due $1,554 $787 $687 $676 $584 Restructured loans that continue to accrue interest $1,509 $1,180 $1,029 $695 $551 Nonperforming assets to loans plus ORE,excluding covered assets(%) 1.14 .88 .68 .53 .45 Nonperforming assets to loans plus ORE(%) 1.42 .88 .68 .53 .45 (a)does not include accruing loans 90 days or more past due or restructured loans that continueto accrue interest Nonperforming assets at December 31, 2008, totaled $2,624 million, compared with $1,492 million at September 30, 2008, and$690 million at December 31, 2007. The current period included $643 million of nonperforming covered assets from the Downey and PFF acquisitions. Nonperforming covered assets were primarily related to foreclosed real estate and construction loans. The ratio of nonperforming assets to loans and other real estate was 1.42 percent (1.14 percent excluding covered assets) at December 31, 2008, compared with .88 percent at September 30, 2008, and .45 percent at December 31, 2007. The increase in nonperforming assets from a year ago including the Downey and PFF acquisitions was driven primarily by the residential construction portfolio and related industries, as well as the residential mortgage portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers. The Company expects nonperforming assets to continue to increase due to general economic (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 22 conditions and continuing stress in the residential mortgage portfolio and residential construction industry. Accruing loans 90 days or more past due increased to $1,554 million ($967 million excluding covered assets) at December 31, 2008, compared with $787 million at September 30, 2008, and $584 million at December 31, 2007. The year-over-year increase in delinquent loans that continue to accrue interest was primarily related to residential mortgages, credit cards and home equity loans. Restructured loans that continue to accrue interest have also increased from the fourth quarter of 2007 and the third quarter of 2008, reflecting the impact of restructurings for certain residential mortgage customers in light of current economic conditions. The Company expects this trend to continue in the near term as residential home valuations decline and certain borrowers take advantage of the Company's mortgage loan restructuring programs. CAPITAL POSITION Table 12 ($in mill ions) Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 2008 2008 2008 2008 2007 TotaIshareholders'equity $26,300 $21,675 $21,828 $21,572 $21,046 Tier 1 capital 24,426 18,877 18,624 18,543 17,539 Total risk-based capital 32,894 27,403 27,502 27,207 25,925 Tier 1 capital ratio 10.6 % 8.5 % 8.5 % 8.6 % 8.3 % Total risk-based capital ratio 14.3 12.3 12.5 12.6 12.2 t-everageratio 9.8 8.0 7.9 8.1 7.9 Common equity to assets 6.9 8.2 8.2 8.3 8.4 Tangible common equity to assets 4.5 5.3 5.2 5.3 5.1 On November 14, 2008, the Company issued to the U.S. Department of the Treasury, 6.6 million shares of cumulative perpetual preferred stock and warrants to purchase 32.7 million shares of the Company's common stock at a price of$30.29 per common share for an aggregate purchase price of$6.6 billion in cash. As a result of this transaction, the Company's total shareholders' equity and capital ratios increased during the fourth quarter of 2008. Total shareholders' equity was $26.3 billion at December 31, 2008, compared with $21.7 billion at September 30, 2008, and $21.0 billion at December 31, 2007. The Tier 1 capital ratio was 10.6 percent at December 31, 2008, compared with 8.5 percent at September 30, 2008, and 8.3 percent at December 31, 2007. The total risk-based capital ratio was 14.3 percent at December 31, 2008, compared with 12.3 percent at September 30, 2008, and 12.2 percent at December 31, 2007. The leverage ratio was 9.8 percent at December 31, 2008, compared with 8.0 percent at September 30, 2008, and 7.9 percent at December 31, 2007. Tangible common equity to assets was 4.5 percent at December 31, 2008, (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 23 compared with 5.3 percent at September 30, 2008, and 5.1 percent at December 31, 2007. The decline in this ratio was principally due to the Downey and PFF acquisitions. All regulatory ratios continue to be in excess of stated "well-capitalized"requirements. COMMON SHARES Table 13 (Millions) 4Q 3Q 2Q 1Q 4Q 2008 2008 2008 2008 2007 Beginning shares outstanding 1,754 1,741 1,738 1,728 1,725 Shares issued forstock option and stock purchase plans,acquisitions and other corporate purposes 1 13 3 12 3 Shares repurchased -- (2) Ending shares outstanding 1,755 1,754 1,741 1,738 1,728 LINE OF BUSINESS FINANCIAL PERFORMANCE(a) Table 14 ($in millions) Net Income Percent Change 4Q 2008 4Q 3Q 4Q 4Q08 vs 4Q08 vs Full Year Full Year Percent Earnings BusinessLine 2008 2008 2007 3Q08 4Q07 2008 2007 Change Composition Wholesale Banking $282 $235 $281 20.0 .4 $1,017 $1,094 (7.0) 86 % Consumer Banking 209 274 431 (23.7) (51.5) 1,203 1,830 (34.3) 63 Wealth Management& Securities Services 134 116 89 15.5 50.6 541 537 .7 41 Payment Services 235 269 314 (12.6) (25.2) 1,068 1,068 — 71 Treasury and Corporate Support (530) (318) (173) (66.7) nm (883) (205) nm (161) Consolidated Company $330 $576 $942 (42.7) (65.0) $2,946 $4,324 (31.9) 100 % (a)preliminary data Lines of Business Within the Company, financial performance is measured by major lines of business, which include Wholesale Banking, Consumer Banking, Wealth Management& Securities Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is available and is evaluated regularly in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line's operations are charged to the applicable business line based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 24 relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company's diverse customer base. During 2008, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis. Wholesale Banking offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, and public sector clients. Wholesale Banking contributed $282 million of the Company's net income in the fourth quarter of 2008, a .4 percent increase from the same period of 2007 and a 20.0 percent increase from the third quarter of 2008. Stronger net interest income year-over-year and an increase in fee-based revenue were offset by a $125 million increase in the provision for credit losses and an increase in total noninterest expense, driven primarily by the Mellon I" Business Bank acquisition and other business initiatives. Net interest income increased $154 million year-over-year due to strong growth in average earning assets and deposits. Total noninterest income increased $7 million (3.2 percent) as growth in treasury management, letter of credit, commercial loan and foreign exchange fees was partially offset by lower earnings from equity investments. Total noninterest expense increased by $33 million (13.6 percent) over a year ago, primarily due to higher compensation and employee benefits expense related to the impact of an acquisition and other business initiatives. In addition, there was an increase in expenses related to other real estate owned and higher other intangibles expense. The provision for credit losses increased $125 million due to continued credit deterioration in the homebuilding, commercial home supplier and other commercial portfolios. Wholesale Banking's contribution to net income in the fourth quarter of 2008 was $47 million (20.0 percent) higher than the third quarter of 2008. Strong growth in total net revenue (19.7 percent) was partially offset by modestly higher total noninterest expense (5.3 percent) and a $54 million increase in the provision for credit losses, reflecting higher net charge-offs. Total net revenue was higher on a linked quarter basis due to an increase in both net interest income (25.8 percent) and total noninterest income (5.1 percent). The increase in net interest income was due primarily to growth in average loan balances and a higher net interest margin. Total noninterest income increased on a linked quarter basis due to higher foreign exchange, letter of credit and capital markets revenue and the impact of net securities impairments recorded in the third quarter, partially offset by lower equity investment income, including an investment in (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 25 a commercial real estate business. Total noninterest expense increased $14 million (5.3 percent) due to increased costs related to other real estate owned and higher processing costs. The provision for credit losses increased due to higher net charge-offs. Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATM processing. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking and 24-hour banking. Consumer Banking contributed $209 million of the Company's net income in the fourth quarter of 2008, a 51.5 percent decrease from the same period of 2007 and a 23.7 percent decrease from the prior quarter. Within Consumer Banking, the retail banking division accounted for $205 million of the total contribution, a 50.4 percent decrease on a year-over-year basis and a 16.0 percent decrease from the prior quarter. The decrease in the retail banking division from the same period of 2007 was due to lower total net revenue, growth in total noninterest expense related to incremental business investments, including acquisitions, and an increase in the provision for credit losses. Net interest income for the retail banking division increased year-over-year as increases in average loan balances, average deposit balances and yield-related loan fees were partially offset by a decline in the margin benefit of deposits in a declining interest rate environment. Total noninterest income for the retail banking division decreased 20.0 percent from a year ago due to lower deposit service charges and retail lease revenue related to higher retail lease residual losses, partially offset by growth in revenue from ATM processing services. Total noninterest expense in the fourth quarter of 2008 increased 11.5 percent for the division over the same quarter of 2007, reflecting acquisitions, branch expansion initiatives, geographical promotional activities and customer service initiatives. In addition, the division experienced higher fraud losses and credit-related costs associated with other real estate owned and foreclosures. The provision for credit losses for the retail banking division was higher due to a $172 million year-over-year increase in net charge-offs, reflecting portfolio growth and credit deterioration in residential mortgages, home equity and other installment and consumer loan portfolios. In the fourth quarter of 2008, the mortgage banking division's contribution was $4 million, a $14 million (77.8 percent) decrease from the same period of 2007. The decrease in the mortgage banking division's contribution was a result of higher total noninterest expense and provision for credit losses, partially offset by higher total net revenue. The division's total net revenue increased by $13 million (15.7 percent) over a year ago, reflecting an increase in net interest income and an increase in mortgage servicing income, and the favorable impact of the adoption of a new accounting (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 26 standard in early 2008, partially offset by an unfavorable net change in the valuation of MSRs and related economic hedging activities. As a result of higher rates and increased loan production and balances, net interest income increased $36 million year-over-year. Total noninterest expense for the mortgage banking division increased $25 million (46.3 percent) over the fourth quarter of 2007, primarily due to the impact on compensation expense of the adoption of a new accounting standard, higher production levels from a year ago and servicing costs associated with other real estate owned and foreclosures. Consumer Banking's contribution in the fourth quarter of 2008 decreased $65 million (23.7 percent) compared with the third quarter of 2008. The retail banking division's contribution decreased 16.0 percent on a linked quarter basis, primarily due to an increase in the provision for credit losses, lower deposit service charges and an increase in total noninterest expense, primarily driven by acquisitions. Total net revenue for the retail banking division increased $40 million (3.0 percent) as higher net interest income was partially offset by lower total noninterest income. Net interest income increased by 8.1 percent on a linked quarter basis due to growth in average loan and deposit balances. The decrease in total noninterest income was driven by lower deposit service charges. Total noninterest expense for the retail banking division increased $48 million (6.5 percent) on a linked quarter basis. This increase was due primarily to the impact of acquisitions on compensation and employee benefits expense, net occupancy and equipment expense and other intangibles expense. The provision for credit losses for the division reflected a $54 million increase in net charge-offs compared with the third quarter of 2008, reflecting higher consumer delinquencies. The contribution of the mortgage banking division decreased $26 million from the third quarter of 2008, driven primarily by lower total net revenue. Total net revenue decreased by 26.7 percent, principally due to an unfavorable net change in the valuation of MSRs and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Total noninterest expense in the mortgage banking division increased modestly by $2 million (2.6 percent) from the third quarter of 2008. In addition, the mortgage banking division's provision for credit losses increased $3 million on a linked quarter basis. Wealth Management & Securities Services provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services. Wealth Management & Securities Services contributed $134 million of the Company's net income in the fourth quarter of 2008, a 50.6 percent increase compared with the same period of 2007 and a 15.5 percent increase from the third quarter of 2008. Total net revenue year-over-year increased $63 million (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 27 (15.7 percent). Net interest income increased by $25 million (19.2 percent) due primarily to the margin benefit of higher deposit balances, while total noninterest income increased by $38 million (14.0 percent) due primarily to the favorable impact of a $107 million market valuation loss recognized in the fourth quarter of 2007, partially offset by current quarter market valuation losses and the impact of unfavorable equity market conditions compared with a year ago. Total noninterest expense was 3.8 percent lower compared with the same quarter of 2007, reflecting lower compensation and employee benefits expense and other intangibles expense. The increase in the business line's contribution in the fourth quarter of 2008 compared with the linked quarter was the result of higher net interest income and lower total noninterest expense, partially offset by the unfavorable impact of equity market conditions on fees. Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services offerings are highly inter-related with banking products and services of the other lines of business and rely on access to the bank subsidiary's settlement network, lower cost funding available to the Company, cross-selling opportunities and operating efficiencies. Payment Services contributed $235 million of the Company's net income in the fourth quarter of 2008, a decrease of 25.2 percent from the same period of 2007 and a 12.6 percent decrease from the third quarter of 2008. The decline year-over-year was due primarily to an increase in the provision for credit losses driven by an increase in net charge-offs of $99 million, reflecting credit card portfolio growth, higher delinquency rates and changing economic conditions from a year ago. In addition, total noninterest expense increased $29 million (7.5 percent) year-over-year, primarily due to business expansion and marketing programs. These unfavorable variances were partially offset by an increase in total net revenue year-over-year due to higher net interest income (25.9 percent), partially offset by lower total noninterest income (7.4 percent). Net interest income increased due to strong growth in credit card balances and the timing of asset repricing. During the current quarter, all payment processing revenue categories were impacted by lower transaction volumes due to the economic climate. Payment Services' contribution in the fourth quarter of 2008 decreased $34 million (12.6 percent) from the third quarter of 2008 primarily due to a decline in total net revenue (1.7 percent), an increase in total noninterest expense (3.5 percent) due to the timing of marketing programs and an increase in the provision for credit losses (12.4 percent) due to portfolio growth and changing economic conditions. Total net revenue declined $17 million (1.7 percent) compared with the third quarter of 2008. Net interest income increased (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 28 $46 million (18.7 percent) on a linked quarter basis due to loan growth and higher credit spreads. Total noninterest income declined 8.2 percent as the slowdown in the economy resulted in lower transaction volumes in all categories. Treasury and Corporate Support includes the Company's investment portfolios, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of$530 million in the fourth quarter of 2008, compared with a net loss of$173 million in the fourth quarter of 2007 and a net loss of $318 million in the third quarter of 2008. Net interest income increased $100 million in the current quarter over the fourth quarter of 2007, reflecting the impact of the current rate environment, wholesale funding decisions and the Company's asset/liability position. Total noninterest income decreased $218 million, primarily reflecting the impairment charges for structured investment securities. Total noninterest expense decreased $166 million primarily due to the Visa Charge recognized in the fourth quarter of 2007. The provision for credit losses increased $634 million reflecting incremental provision related to deterioration in credit quality within the loan portfolios due to stress in the residential real estate markets, including homebuilding and related industries, and the impact of economic conditions on all loan portfolios. Net income in the fourth quarter of 2008 was lower on a linked quarter basis due to the increase in the incremental provision for credit losses and higher acquisition and litigation expenses, partially offset by the net favorable impact of the securities impairments. Additional schedules containing more detailed information about the Company's business line results are available on the web at usbank.com or by calling Investor Relations at 612-303-0781. (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 29 RICHARD K. DAVIS, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND ANDREW CECERE, VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS AT 8:00 AM (CT) ON WEDNESDAY, JANUARY 21, 2009. The conference call will be available by telephone or on the Internet. To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706- 634-9086. The conference ID number for all participants is 78901067. For those unable to participate during the live call, a recording of the call will be available approximately two hours after the conference call ends on Wednesday, January 21st, and will run through Wednesday, January 28th, at 11:00 PM (CT). To access the recorded message within the United States and Canada, dial 800-642- 1687. If calling from outside the United States and Canada, please dial 706-645-9291 to access the recording. The conference ID is 78901067. To access the webcast go to usbank.com and click on "About U.S. Bancorp" and then "Investor/Shareholder Information". The webcast link can be found under"Webcasts and Presentations". Minneapolis-based U.S. Bancorp ("USB"), with $266 billion in assets, is the parent company of U.S. Bank, the 6th largest commercial bank in the United States as of September 30, 2008. The Company operates 2,791 banking offices and 4,897 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at usbank.com. Forward-Looking Statements The following information appears in accordance with the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words "may," "could," "would," "should," "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including continued deterioration in general business and economic conditions and in the financial markets; changes in interest rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in our investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management's ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk. A continuation of the recent turbulence in significant portions of the global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our counterparties and the economy generally. Dramatic declines in the housing market in the past year have resulted in significant write-downs of asset values by financial institutions. Concerns about the stability of the financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction (MORE) U.S. Bancorp Reports Fourth Quarter 2008 Results January 21, 2009 Page 30 of business activity, and increased market volatility. There can be no assurance that the Emergency Economic Stabilization Act of 2008, the actions taken by the U.S. Treasury Department thereunder, or any other governmental program, will help to stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely impact our business. In addition, our business and financial performance could be impacted as the financial industry restructures in the current environment, by changes in the creditworthiness and performance of our counterparties, by changes in the competitive landscape, and by increased regulation or other adverse effects of recently enacted legislation and FDIC actions. For discussion of these and other risks that may cause actual results to differ from expectations,refer to U.S. Bancorp's Annual Report on Form 10-K for the year ended December 31, 2007, on file with the Securities and Exchange Commission, including the sections entitled "Risk Factors" and "Corporate Risk Profile," and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events. (MORE) U.S. Bancorp Consolidated Statement of income Three Months Ended Year Ended (Dollars and Shares in Millions,Except Per Share Data) December 31, December 31, (Unaudited) 2008 2007 2008 2007 Interest Income Loans $2,575 $2,730 $10,051 $10,627 Loans held for sale 53 72 227 277 Investment securities 477 541 1,984 2,095 Other interest income 36 36 156 137 Total interest income 3,141 3,379 12,418 13,136 Interest Expense Deposits 392 722 1,881 2,754 Short-term borrowings 205 352 1,066 1,433 Long-term debt 423 564 1,739 2,260 Total interest expense 1,020 1,638 4,686 6,447 Net interest income 2,121 1,741 7,732 6,689 Provision for credit losses 1,267 225 3,096 792 Net interest income after provision for credit losses 854 1,516 4,636 5,897 Noninterest Income Credit and debit card revenue 256 285 1,039 958 Corporate payment products revenue 154 166 671 638 ATM processing services 95 84 366 327 Merchant processing services 271 281 1,151 1,108 Trust and investment management fees 300 344 1,314 1,339 Deposit service charges 260 277 1,081 1,077 Treasury management fees 128 117 517 472 Commercial products revenue 131 121 492 433 Mortgage banking revenue 23 48 270 259 Investment products fees and commissions 37 38 147 146 Securities gains(losses),net (253) 4 (978) 15 Other 61 46 741 524 Total noninterest income 1,463 1,811 6,811 7,296 Noninterest Expense Compensation 770 690 3,039 2,640 Employee benefits 124 119 515 494 Net occupancy and equipment 202 188 781 738 Professional services 73 71 240 233 Marketing and business development 90 69 310 260 Technology and communications 156 148 598 561 Postage,printing and supplies 77 73 294 283 Other intangibles 93 93 355 376 Other 375 517 1,282 1,401 Total noninterest expense 1,960 1,968 7,414 6,986 Income before income taxes 357 1,359 4,033 6,207 Applicable income taxes 27 417 1,087 1,883 Net income $330 $942 $2,946 $4,324 Net income applicable to common equity $260 $927 $2,823 $4,264 Earnings per common share $.15 $.54 $1.62 $2.46 Diluted earnings per common share $.15 $.53 $1.61 $2.43 Dividends declared per common share $.425 $.425 $1.700 $1.625 Average common shares outstanding 1,754 1,726 1,742 1,735 Average diluted common shares outstanding 1,764 1,746 1,757 1,758 Page 31 U.S. Bancorp Consolidated Ending Balance Sheet December 31, December 31, (Dollars in Millions) 2008 2007 Assets Cash and due from banks $6,859 $8,884 Investment securities Held-to-maturity 53 74 Available-for-sale 39,468 43,042 Loans held for sale 3,210 4,819 Loans Commercial 56,618 51,074 Commercial real estate 33,213 29,207 Residential mortgages 23,580 22,782 Retail 60,368 50,764 Total loans,excluding covered assets 173,779 153,827 Covered assets 11,450 -- Total loans 185,229 153,827 Less allowance for loan losses (3,514) (2,058) Net loans 181,715 151,769 Premises and equipment 1,790 1,779 Goodwill 8,571 7,647 Other intangible assets 2,834 3,043 Other assets 21,412 16,558 Total assets $265,912 $237,615 Liabilities and Shareholders' Equity Deposits Noninterest-bearing $37,494 $33,334 Interest-bearing 85,886 72,458 Time deposits greater than$100,000 35,970 25,653 Total deposits 159,350 131,445 Short-term borrowings 33,983 32,370 Long-term debt 38,359 43,440 Other liabilities 7,920 9,314 Total liabilities 239,612 216,569 Shareholders'equity Preferred stock 7,931 1,000 Common stock 20 20 Capital surplus 5,830 5,749 Retained earnings 22,541 22,693 Less treasury stock (6,659) (7,480) Other comprehensive income (3,363) (936) Total shareholders'equity 26,300 21,046 Total liabilities and shareholders'equity $265,912 $237,615 Page 32 Supplemental Analyst Schedules 4Q 2008 U.S. Bancorp Income Statement Highlights Percent Change Three Months Ended v.December 31,2008 (Dollars and Shares in Millions,Except Per Share Data) December 31, September 30, December 31, September 30, December 31, (Unaudited) 2008 2008 2007 2008 2007 Net interest income(taxable-equivalent basis) $2,161 $1,967 $1,763 9.9 % 22.6 % Noninterest income 1,463 1,412 1.811 3.6 (19.2) Total net revenue 3,624 3,379 3,574 7.3 1.4 Nonnrterest expense 1,960 1,823 1,968 7.5 (A) Income before provision and income taxes 1,664 1,556 1,606 6.9 3.6 Provision for credit losses 1,267 748 225 69.4 Income before income taxes 397 808 1,381 (50.9) (71.3) Taxable-equivalent adjustment 40 34 22 17.6 81.8 Applicable income taxes 27 198 417 (86.4) (93.5) Net income $330 $576 $942 (42.7) (65.0) Net income applicable to common equity $260 $557 $927 (53.3) (72.0) Diluted earnings per common share $.15 $.32 $.53 (53.1) (71.7) Revenue per diluted common share(a) $2.20 $2.16 $2.04 1.9 7.8 Financial Ratios Net interest margin(b) 3.81 '% 3.65 % 3.51 % Interest yield on average loans(b) 5.81 5.97 7.18 Rate paid on interest-bearing liabilities(b) 2.16 2.45 3.83 Return on average assets .51 .94 1.63 Return on average common equity 5.3 10.8 18.3 Efficiency ratio(c) 50.6 48.1 55.1 Tangible efficiency ratio(d) 48.2 45.8 52.5 Not meaningful (a) Computed as the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses),net divided by average diluted common shares outstanding (b) On a taxable-equivalent basis (c) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains(losses),net (d) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains(losses),net and intangible amortization Page 34 U.S. Bancorp Income Statement highlights Year Ended (Dollars and Shares in Millions,Except Per Share Data) December 31. December 31, Percent (Unaudited) 2008 2007 Change Net interest income(taxable-equivalent basis) $7,866 $6,764 16.3 % Noninterest income 6,811 7,296 (6.6) Total net revenue 14,677 14,060 4.4 Noninterest expense 7,414 6,986 6.1 Income before provision and income taxes 7,263 7,074 2.7 Provision for credit losses 3,096 792 Income before income taxes 4,167 6,282 (33.7) Taxable-equivalent adjustment 134 75 78.7 Applicable income taxes 1,087 1,883 (42.3) Net income $2,946 $4,324 (31.9) Net income applicable to common equity $2,823 $4,264 (33.8) Diluted earnings per common share $1.61 $2.43 (33.7) Revenue per diluted common share(a) $8.91 $7.99 11.5 Financial Ratios Net interest margin(b) 3.66 % 3.47 % Interest yield on average loans(b) 6.09 7.23 Rate paid on interest-bearing liabilities(b) 2.58 3.91 Return on average assets 1.21 1.93 Return on average common equity 13.9 21.3 Efficiency ratio(c) 47.4 49.7 Tangible efficiency ratio(d) 45.1 47.1 Not meaningful (a) Computed as the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses),net divided by average diluted common shares outstanding (b) On a taxable-equivalent basis (c) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains(losses),net (d) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains(losses),net and intangible amortization Page 35 U.S. Bancorp Quarterly Consolidated Statement of Income Three Months Ended (Dollars and Shares in Millions,Except Per Share Data) December 31, September 30, June 30, March 31, December 31, (Unaudited) 2008 2008 2008 2008 2007 Interest Income Loans $2,575 $2,487 $2,429 $2,560 $2,730 Loans held for sale 53 52 49 73 72 Investment securities 477 478 494 535 541 Other interest income 36 40 43 37 36 Total interest income 3,141 3,057 3,015 3,205 3,379 Interest Expense Deposits 392 425 458 606 722 Short-term borrowings 205 276 263 322 352 Long-term debt 423 423 419 474 564 Total interest expense 1,020 1,124 1,140 1,402 1,638 Net interest income 2,121 1,933 1,875 1,803 1,741 Provision for credit losses 1,267 748 596 485 225 Net interest income after provision for credit losses 854 1,185 1,279 1,318 1,516 Noninterest Income Credit and debit card revenue 256 269 266 248 285 Corporate payment products revenue 154 179 174 164 166 ATM processing services 95 94 93 84 84 Merchant processing services 271 300 309 271 281 Trust and investment management fees 300 329 350 335 344 Deposit service charges 260 286 278 257 277 Treasury management fees 128 128 137 124 117 Commercial products revenue 131 132 117 112 121 Mortgage banking revenue 23 61 81 105 48 Investment products fees and commissions 37 37 37 36 38 Securities gains(losses),net (253) (411) (63) (251) 4 Other 61 8 113 559 46 Total noninterest income 1,463 1,412 1,892 2,044 1,811 Noninterest Expense Compensation 770 763 761 745 690 Employee benefits 124 125 129 137 119 Net occupancy and equipment 202 199 190 190 188 Professional services 73 61 59 47 71 Marketing and business development 90 75 66 79 69 Technology and communications 156 153 149 140 148 Postage,printing and supplies 77 73 73 71 73 Other intangibles 93 88 87 87 93 Other 375 286 321 300 517 Total noninterest expense 1,960 1,823 1,835 1,796 1,968 Income before income taxes 357 774 1,336 1,566 1,359 Applicable income taxes 27 198 386 476 417 Net income $330 $576 $950 $1,090 $942 Net income applicable to common equity $260 $557 $928 $1,078 $927 Earnings per common share $.15 $.32 $.53 $.62 $.54 Diluted earnings per common share $.15 $.32 $.53 $.62 $.53 Dividends declared per common share $.425 $.425 $.425 $.425 $.425 Average common shares outstanding 1,754 1,743 1,740 1,731 1,726 Average diluted common shares outstanding 1,764 1,757 1,756 1,749 1,746 Financial Ratios Net interest margin(a) 3.81 % 3.65 % 3.61 % 3.55 % 3.51 % Interest yield on average loans(a) 5.81 5.97 6.01 6.65 7.18 Rate paid on interest-bearing liabilities(a) 2.16 2.45 2.53 3.20 3.83 Return on average assets .51 .94 1.58 1.85 1.63 Return on average common equity 5.3 10.9 17.9 21.3 18.3 Efficiency ratio(b) 50.6 48.1 47.5 43.5 55.1 Tangible efficiency ratio(c) 48.2 45.8 45.2 41.4 52.5 (a)On a taxable-equivalent basis (b)Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains(losses),net (c)Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains(losses),net and intangible amortization Page 36 U.S. Bancorp Consolidated Ending Balance Sheet December 31, September 30, June 30, March 31, December 31, (Dollars in Millions) 2008 2008 2008 2008 2007 Assets (Unaudited) (Unaudited) (Unaudited) Cash and due from banks $6,859 $7,118 $7,956 $7,323 $8,884 Investment securities Held-to-maturity 53 64 64 72 74 Available-for-sale 39,468 39,285 41,058 41,624 43,042 Loans held for sale 3,210 3,116 3,788 5,241 4,819 Loans Commercial 56,618 56,454 55,138 52,744 5L074 Commercial real estate 33,213 32,177 31,247 29,969 29,207 Residential mortgages 23,580 23,341 23,301 23,218 22,782 Retail 60,368 57,891 56,204 52,369 50,764 Total loans,excluding covered assets 173,779 16%863 165,890 158,300 153,827 Covered assets 11,450 - - - - Total loans 185,229 169,863 165,890 158,300 153,827 Less allowance for loan losses (3,514) (2,767) (2,518) (2,251) (2,058) Net loans 181,715 167,096 163,372 156,049 151,769 Premises and equipment 1,790 1,775 1,811 1,805 1,779 Goodwill 8,571 7,816 7,851 7,685 7,647 Other intangible assets 2,834 3,242 3,313 2,962 3,043 Other assets 21,412 17,543 17,325 19,020 16,558 Total assets $265,912 $247,055 $246,538 $241,781 $237,615 Liabilities and Shareholders'Equity Deposits N oninterest-bearing $37,494 $35,476 $33,970 $32,870 $33,334 Interest-bearing 85,886 76,697 76,300 76,895 72,458 Time deposits greater than$100,000 35,970 27,331 24.861 28,505 25,653 Total deposits 159,350 139,504 135,131 138,270 131,445 Short-term borrowings 33,983 37,423 41,107 36,392 32,370 Long-term debt 38,359 40,110 39,943 36,229 43,440 Other liabilities 7,920 8,343 8,529 9,318 9,314 Total liabilities 239,612 225,380 224,710 220,209 216,569 Shareholders'equity Preferred stock 7,931 1,500 1,500 1,500 1,000 Common stock 20 20 20 20 20 Capital surplus 5,830 5,646 5,682 5,677 5,749 Retained earnings 22,541 23,032 23,220 23,033 22,693 Less treasury stock (6,659) (6,695) (7,075) (7,178) (7,480) Other comprehensive income (3,363) (1,828) (1,519) (1,480) (936) Total shareholders'equity 26,300 21,675 21,828 21,572 21,046 Total liabilities and shareholders'equity $265,912 $247,055 $246,538 $241,781 $237,615 Page 37 U.S. Bancorp Consolidated Quarterly Average Balance Sheet December 31, September 30, June 30, March 31, December 31, (Dollars in Millions, Unaudited) 2008 2008 2008 2008 2007 Assets Investment securities $41,974 $42,548 $42,999 $43,891 $42,525 Loans held for sale 3,634 3,495 3,417 5,118 4,459 Loans Commercial Commercial 50,328 48,137 47,648 45,471 43,649 Lease financing 6,608 6,436 6,331 6,238 5,978 Total commercial 56,936 54,573 53,979 51,709 49,627 Commercial real estate Commercial mortgages 22,967 22,302 21,192 20,337 19,775 Construction and development 9,691 9,446 9,281 9,199 8,983 Total commercial real estate 32,658 31,748 30,473 29,536 28,758 Residential mortgages 23,430 23,309 23,307 22,978 22,670 Retail Credit card 12,976 12,217 11,559 11,049 10,621 Retail leasing 5,062 5,200 5,523 5,802 6,123 Home equity and second mortgages 18,691 17,858 17,106 16,527 16,343 Other retail 22,247 21,655 21,123 17,631 17,309 Total retail 58,976 56,930 55,311 51,009 50,396 Total loans,excluding covered assets 172,000 166,560 163,070 155,232 151,451 Covered assets 5,205 -- - - -- Total loans 177,205 166,560 163,070 155,232 151,451 Other earning assets 3,173 2,370 2.603 2,773 1,872 Total earning assets 225,986 214,973 212,089 207,014 200,307 Allowance for loan losses (3,048) (2,686) (2,292) (2,075) (2,054) Unrealized gain(loss)on available-for-sale securities (3,233) (2,368) (1,548) (1,105) (892) Other assets 35,269 33,704 33,972 32,841 31,976 Total assets $254,974 $243,623 $242,221 $236,675 $229,337 Liabilities and Shareholders'Equity Non interest-bearing deposits $31,639 $28,322 $27,851 $27,119 $26,869 Interest-bearing deposits Interest checking 29,467 32,304 32,479 30,303 27,458 Money market savings 27,009 26,167 26,426 25,590 25,996 Savings accounts 7,657 5,531 5,377 5,134 5,100 Time certificates of deposit less than$100,000 15,414 12,669 12,635 13,607 14,539 Time deposits greater than$100,000 33,283 28,546 31,041 29,105 25,461 Total interest-bearing deposits 112,830 105,217 107,958 103,739 98,554 Short-term borrowings 38,737 40,277 38,018 35,890 30,289 Long-term debt 39,289 40,000 37,879 39,822 44,156 Total interest-bearing liabilities 190,856 185,494 183.855 17%451 172,999 Other liabilities 7,994 7,824 8,195 8,626 8,325 Shareholders'equity Preferred equity 4,881 1,500 1,500 1,083 1,000 Common equity 19,604 20,483 20,820 20,396 20,144 Total shareholders'equity 24,485 21,983 22,320 21,479 21,144 Total liabilities and shareholders'equity $254,974 $243,623 $242,221 $236,675 $229,337 Page 38 U.S. Bancorp Consolidated Daily Average Balance Sheet and Related Fields and Rates (a) For the Three Months Ended December 31, 2008 2007 Yields Yields %Change (Dollars in Millions) Average and Average and Average (Unaudited) Balances Interest Rates Balances Interest Rates Balances Assets Investment securities $41,974 $521 4.97 % $42,525 $586 5.51 % (1.3) % Loans held for sale 3,634 53 5.80 4,459 72 6.44 (18.5) Loans(b) Commercial 56,936 675 4.72 49,627 796 6.37 14.7 Commercial real estate 32,658 439 5.35 28,758 510 7.03 13.6 Residential mortgages 23,430 353 6.01 22,670 355 6.27 3.4 Retail 58,976 1,058 7.13 50,396 11076 8.47 17.0 Total loans,excluding covered assets 172,000 2,525 5.84 151,451 2,737 7.18 13.6 Covered assets 5,205 61 4.68 - --Total loans 177,205 2,586 5.81 151,451 2,737 7.18 17.0 Other earning assets 3,173 35 4.46 1,872 36 7.57 69.5 Total earning assets 225,986 3,195 5.63 200,307 3,431 6.81 12.8 Allowance for loan losses (3,048) (2,054) (48.4) Unrealized gain(loss)on available-for-sale securities (3,233) (892) Other assets 35,269 31,976 10.3 Total assets $254,974 $229,337 11.2 Liabilities and Shareholders'Equity Non i merest-bearing deposits $31,639 $26,869 17.8 Interest-bearing deposits Interest checking 29,467 30 .40 27,458 98 1.41 7.3 Money market savings 27,009 58 .85 25,996 161 2.46 3.9 Savings accounts 7,657 11 .61 5,100 4 .27 50.1 Time certificates of deposit less than$100,000 15,414 122 3.13 14,539 161 4.42 6.0 Time deposits greater than$100,000 33,283 171 2.05 25,461 298 4.64 30.7 Total interest-bearing deposits 112,830 392 1.38 98,554 722 2.91 14.5 Short-term borrowings 38,737 219 2.25 30,289 382 4.99 27.9 Long-term debt 39,289 423 4.28 44,156 564 5.08 (11.0) Total interest-bearing liabilities 190,856 1,034 2.16 172,999 1,668 3.83 10.3 Other liabilities 7,994 8,325 (4.0) Shareholders'equity Preferred equity 4,881 1,000 Common equity 19,604 20,144 (2.7) Total shareholders'equity 24,485 21,144 15.8 Total liabilities and shareholders'equity $254,974 $229,337 11.2 Net interest income $2,161 $1,763 Gross interest margin 3.47 % 2.98 % Gross interest margin without taxable-equivalent increments 3.40 2.94 Percent of Earning Assets Interest income 5.63 % 6.81 % Interest expense 1.82 3.30 Net interest margin 3.81 % 3.51 % Net interest margin without taxable-equivalent increments 3.74 % 3.47 % x Not meaningful (a)Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent. (b)Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances. Page 39 U.S. Bancorp Consolidated Daily Average Balance Sheet and Related Yields and Mates (a) For the Three Months Ended December 31,2008 September 30,2008 Yields Yields %Change (Dollars in Millions) Average and Average and Average (Unaudited) Balances Interest Rates Balances Interest Rates Balances Assets Investment securities $41,974 $521 4.97 % $42,548 $521 4.90 % (1.3) % Loans held for sale 3,634 53 5.80 3,495 52 6.03 4.0 Loans(b) Commercial 56,936 675 4.72 54,573 661 4.83 4.3 Commercial real estate 32,658 439 5.35 31,748 440 5.50 2.9 Residential mortgages 23,430 353 6.01 23,309 354 6.08 .5 Retail 58,976 1,058 7.13 56,930 11041 7.27 3.6 Total loans,excluding covered assets 172,000 2,525 5.84 166,560 2,496 5.97 3.3 Covered assets 5,205 61 4.68 -Total loans 177,205 2,586 5.81 166,560 2,496 5.97 6.4 Other earning assets 3,173 35 4.46 2,370 41 6.83 33.9 Total earning assets 225,986 3,195 5.63 214,973 3,110 5.77 5.1 Allowance for loan losses (3,048) (2,686) (13.5) Unrealized gain(loss)on available-for-sale securities (3,233) (2,368) (36.5) Other assets 35,269 33,704 4.6 Total assets $254,974 $243,623 4.7 Liabilities and Shareholders'Equity Noninterest-bearing deposits $31,639 $28,322 11.7 Interest-bearing deposits Interest checking 29,467 30 .40 32,304 66 .81 (8.8) Money market savings 27,009 58 .85 26,167 79 1.20 3.2 Savings accounts 7,657 11 .61 5,531 4 .24 38.4 Time certificates of deposit less than$100,000 15,414 122 3.13 12,669 102 3.21 21.7 Time deposits greater than$100,000 33,283 171 2.05 28,546 174 2.43 16.6 Total interest-bearing deposits 112,830 392 1.38 105,217 425 1.61 7.2 Short-term borrowings 38,737 219 2.25 40,277 295 2.91 (3.8) Long-term debt 39,289 423 4.28 40,000 423 4.22 (1.8) Total interest-bearing liabilities 190,856 1,034 2.16 185,494 1,143 2.45 2.9 Other liabilities 7,994 7,824 2.2 Shareholders'equity Preferred equity 4,881 1,500 Common equity 19,604 20,483 (4.3) Total shareholders'equity 24,485 21,983 11.4 Total liabilities and shareholders'equity $254,974 $243,623 4.7 Net interest income $2,161 $1,967 Gross interest margin 3.47 % 3.32 % Gross interest margin without taxable-equivalent increments 3.40 3.26 Percent of Earning Assets Interest income 5.63 % 5.77 % Interest expense 1.82 2.12 Net interest margin 3.81 % 3.65 % Net interest margin without taxable-equivalent increments 3.74 % 3.59 % x Not meaningful (a)Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent. (b)Interest income and rates on loans include loan fees. Nonacerual loans are included in average loan balances. Page 40 U.S. Bancorp Consolidated Daily Average Balance Sheet and Related Yields and Rates (a) For the Year Ended December 31, 2008 2007 Yields Yields %Change (Dollars in Millions) Average and Average and Average (Unaudited) Balances Interest Rates Balances Interest Rates Balances Assets Investment securities $42,850 $2,160 5.04 % $41313 $2,239 5.42 % 3.7 % Loans held for sale 3,914 227 5.80 4,298 277 6.44 (8.9) Loans(b) Commercial 54,307 2,702 4.98 47,812 3,143 6.57 13.6 Commercial real estate 31,110 1,771 5.69 28,592 2,079 7.27 8.8 Residential mortgages 23,257 1,419 6.10 22,085 1,354 6.13 5.3 Retail 55,570 4,134 7.44 48,859 4,080 8.35 13.7 Total loans,excluding covered assets 164,244 10,026 6.10 147,348 10,656 7.23 11.5 Covered assets 1.308 61 4.68 -- --Total loans 165,552 10,087 6.09 147,348 10,656 7.23 12.4 Other earning assets 2,730 156 5.71 1,724 137 7.95 58.4 Total earning assets 215,046 12,630 5.87 194,683 13,309 6.84 10.5 Allowance for loan losses (27527) (2,042) (23.8) Unrealized gain(loss)on available-for-sale securities (2,068) (874) Other assets 33,949 31.854 6.6 Total assets $244,400 $223,621 9.3 Liabilities and Shareholders'Equity Noninterest-bearing deposits $28,739 $27,364 5.0 Interest-bearing deposits Interest checking 31,137 251 .81 26,117 351 1.34 19.2 Money market savings 26,300 330 1.25 25,332 651 2.57 3.8 Savings accounts 5,929 20 .34 5,306 19 .35 11.7 Time certificates of deposit less than$100,000 13,583 472 3.47 14,654 644 4.40 (7.3) Time deposits greater than$100,000 30,496 808 2.65 22,302 1,089 4.88 36.7 Total interest-bearing deposits 107,445 1,881 1.75 93,711 2,754 2.94 14.7 Short-term borrowings 38,237 1,144 2.99 28,925 1,531 5.29 32.2 Long-term debt 39,250 1,739 4.43 44,560 2,260 5.07 (11.9) Total interest-bearing liabilities 184,932 4,764 2.58 167,196 6,545 3.91 10.6 Other liabilities 87159 8,064 1.2 Shareholders'equity Preferred equity 2,246 1,000 Common equity 20,324 19,997 1.6 Total shareholders'equity 22,570 20,997 7.5 Total liabilities and shareholders'equity $244,400 $223,621 9.3 Net interest income $7,866 $6,764 Gross interest margin 3.29 % 2.93 % Gross interest margin without taxable-equivalent increments 3.23 2.89 Percent of Earning Assets Interest income 5.87 % 6.84 % Interest expense 2.21 3.37 Net interest margin 3.66 % 3.47 % Net interest margin without taxable-equivalent increments 3.60 % 3.43 % *Not meaningful (a)Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent. (b)Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances. Page 41 U.S. Bancorp Loan Portfolio December 31,2008 September 30,2008 June 30,2008 March 31,2008 December 31,2007 Percent Percent Percent Percent Percent (Dollars in Millions,Unaudited) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total Commercial Commercial $49,759 26.9 % $49,938 29.4 % $48,714 29.4 % $46,438 29.3 % $44,832 29.1 % Lease financing 6,859 3.7 6,516 3.8 6,424 3.9 6,306 4.0 6,242 4.1 Total commercial 56,618 30.6 56,454 33.2 551,138 33.3 52,744 33.3 51,074 33.2 Commercial real estate Commercial mortgages 23,434 12.6 22,671 13.4 21,948 13.2 20,751 13.1 20,146 13.1 Construction and development 9,779 5.3 9,506 5.6 9,299 5.6 9,218 5.8 9,061 5.9 Total commercial real estate 33,213 17.9 32.177 19.0 31,247 18.8 29,969 18.9 29,207 19.0 Residential mortgages Residential mortgages 18,232 9.8 17,899 10.5 17,745 10.7 _ 17,582 11.1 17,099 11.1 Home equity loans, first liens 5,348 2.9 51442 3.2 5,556 3.3 5,636 3.6 5,683 3.7 Total residential mortgages 23,580 12.7 23,341 13.7 23,301 14.0 23,218 14.7 22,792 14.8 Retail Credit card 13,520 7.3 12,501 7.4 11,930 7.2 11,346 7.2 10,956 7.1 Retail leasing 5,126 2.8 5,065 3.0 5,367 3.2 5,675 3.6 5,969 3.9 Home equity and second mortgages 19,177 10.3 18,207 10.7 17,536 10.6 16,648 10.5 16,441 10.7 Other retail Revolving credit 3,205 1.7 3,041 1.8 2,835 1.7 2,719 1.7 2,731 1.8 Installment 5,525 3.0 5,587 3.3 5,518 3.4 5,321 3.4 5,246 3.4 Automobile 9,212 5.0 9,235 5.4 9,487 5.7 9,342 5.9 8,970 5.8 Student 4,603 2.5 4,255 2.5 3,531 2.1 1,318 .8 451 .3 Total other retail 22,545 12.2 22,118 13.0 21,371 12.9 18,700 11.8 17,398 11.3 Total retail 60,368 32.6 57,891 34.1 56,204 33.9 52,369 33.1 50,764 33.0 Total loans,excluding covered assets 173,779 93.8 169,863 100.0 165,890 100.0 158,300 100.0 153,827 100.0 Covered assets 11,450 6.2 -- -- -- -- -- -- -- .Total loans $185,229 100.0 % $169,863 100.0 % $165,890 100.0 % $158,300 100.0 % $153,827 100.0 Page 42 U.S. Bancorp Supplemental Financial Data December 31, September 30, June 30, March 31, December 31, (Dollars in Millions,Unaudited) 2008 2008 2008 2008 2007 Book value of intangibles Goodwill $8,571 $7,816 $7,851 $7,685 $7,647 Merchant processing contracts 564 607 649 677 704 Core deposit benefits 376 182 199 140 154 Mortgage servicing rights 1,194 1,750 1,731 1,390 1,462 Trust relationships 277 294 311 328 346 Other identified intangibles 423 409 424 427 377 Total $11,405 $11,058 $11,164 $10,647 $10,690 Three Months Ended December 31, September 30, June 30, March 31, December 31, 2008 2008 2008 2008 2007 Amortization of intangibles Merchant processing contracts $34 $34 $34 $34 $38 Core deposit benefits 21 17 15 14 17 Trust relationships 17 17 17 17 19 Other identified intangibles 21 20 21 22 19 Total $93 $88 $87 $87 $93 Mortgage banking revenue Origination and sales $43 $50 $73 $77 $31 Loan servicing 109 101 99 95 93 Mortgage servicing rights fair value adjustment (129) (90) (91) (67) (76) Total mortgage banking revenue S23 $61 $81 $105 $48 Mortgage production volume $8,117 $7,564 $9,061 $9,325 $7,738 Mortgages serviced for others $120,339 $112,877 $107,334 $102,010 $97,014 A summary of the Company's mortgage servicing rights and related characteristics by portfolio as of December 31,2008,was as follows: (Dollars in Millions) MRBP(a) Government Conventional Total Servicing portfolio $12,561 $14,746 $93,032 $120,339 Fair market value $223 $166 $805 $1,194 Value(bps)(b) 178 113 87 99 Weighted-average servicing fees(bps) 40 40 32 34 Multiple(value/servicing fees) 4.45 2.83 2.72 2.91 Weighted-average note rate 5.94 % 6.23 % 6.01 % 6.03 % Age(in years) 3.2 2.6 2.8 2.8 Expected life(in years) 7.3 3.6 3.5 3.9 Discount rate 11.5 % 11.3 % 10.3 % 10.5 % (a)MRBP represents mortgage revenue bond programs. (b)Value is calculated as fair market value divided by the servicing portfolio. Page 43 U.S. Bancorp Line of Business Financial Performance* Wholesale Consumer Wealth Management& Banking Banking Securities Services Three Months Ended Dec 31, Dec 31, Percent Dec 31, Dec 31, Percent Dec 31, Dec 31, Percent (Dollars in Millions,Unaudited) 2008 2007 Change 2008 2007 Change 2008 2007 Change Condensed Income Statement Net interest income(taxable-equivalent basis) $638 $484 31.8 % $1,050 $991 6.0 % $155 $130 19.2 % Noninterest income 226 220 2.7 415 532 (22.0) 310 272 14.0 Securities gains(losses),net -- (1) ** 2 Total net revenue 964 703 22.9 1,465 1,525 (3.9) 465 402 15.7 Noninterest expense 268 239 12.1 844 741 13.9 232 238 (2.5) Other intangibles 8 4 ** 18 15 20.0 19 23 (17.4) Total noninterest expense 276 243 13.6 862 756 14.0 251 261 (3.8) Income before provision and income taxes 588 460 27.8 603 769 (21.6) 214 141 51.8 Provision for credit losses 144 19 ** 274 92 ** 3 1 ** Income before income taxes 444 441 .7 329 677 (51.4) 211 140 50.7 Income taxes and taxable-equivalent adjustment 162 160 1.3 120 246 (51.2) 77 51 51.0 Net income $282 $281 .4 $209 $431 (51.5) $134 $89 50.6 Average Balance Sheet Data Loans $63,668 $53,701 18.6 % $88,654 $76,309 16.2 % $4,898 $5,113 (4.2)% Other earning assets 170 218 (22.0) 4,101 4,625 (11.3) 78 107 (27.1) Goodwill 1,489 1,329 12.0 2,678 2,420 10.7 1,562 1,561 .1 Other intangible assets 88 32 ** 1,793 1,617 10.9 299 378 (20.9) Assets 69,086 58,646 1T8 100,016 87,706 14.0 7,573 7,619 (.6) Noninterest-bearing deposits 12,670 10,105 25.4 12,528 11,903 5.3 5,509 4,324 27.4 Interest-bearing deposits 32,964 25,673 28.4 62,309 56,746 9.8 14,667 13,545 8.3 Total deposits 45,634 35,778 27.5 74,837 68,649 9.0 20,176 17,869 12.9 Shareholders'equity 6,870 5,920 16.0 9,124 6,704 36.1 1 2,419 2,412 .3 Payment Treasury and Consolidated Services Corporate Support Company Three Months Ended Dec 31, Dec 31, Percent Dec 31, Dec 31, Percent Dec 31 Dec 31, Percent (Dollars in Millions,Unaudited) 2008 2007 Change 2008 2007 Change 2008 2007 Change Condensed Income Statement Net interest income(taxable-equivalent basis) $292 $232 25.9 % $26 $(74) ** % $2,161 $1,763 22.6 % Noninterest income 702 758 (7.4) 63 25 ** 1,716 1,807 (5.0) Securities gains(losses),net (253) 3 ** (253) 4 Total net revenue 994 990 .4 (164) (46) ** 3,624 3,574 1.4 Noninterest expense 368 336 9.5 155 321 (51.7) 17867 1,875 (A) Other intangibles 48 51 (5.9) 93 93 Total noninterest expense 416 387 7.5 155 321 (51.7) 1,960 1,968 (A) Income before provision and income taxes 578 603 (4.1) (319) (367) 13.1 1,664 1,606 3.6 Provision for credit losses 209 110 90.0 637 3 ** 1,267 225 ** Income before income taxes 369 493 (25.2) (956) (370) ** 397 1,381 (71.3) Income taxes and taxable-equivalent adjustment 134 179 (25.1) (426) (197) ** 67 439 (84.7) Net income $235 $314 (25.2) $(530) $(173) ** $330 $942 (65.0) Average Balance Sheet Data Loans $18,814 $16,123 16.7 % $1,171 $205 ** % $177,205 $151,451 17.0 % Other earning assets 176 162 8.6 44,256 43,744 1.2 48,781 48,856 (.2) Goodwill 2,320 2,329 (A) 6 ** 8,049 7,645 5.3 Other intangible assets 945 1,028 (8.1) 8 ** 3,125 3,063 2.0 Assets 23,502 21,119 11.3 54,797 54,247 1.0 254,974 229,337 11.2 Noninterest-bearing deposits 540 412 31.1 392 125 ** 31,639 26,869 17.8 Interest-bearing deposits 67 41 63.4 2,823 2,549 10.7 112,830 98,554 14.5 Total deposits 607 453 34.0 F 3,215 2,674 20.2 144,469 125,423 15.2 Shareholders'equity 5,252 4,696 11.8 820 1,412 (41.9) 24,485 21,144 15.8 *Preliminary data **Not meaningful Page 44 U.S. Bancorp Line of Business Financial Performance* ' Wholesale Consumer Wealth Management& Banking Banking Securities Services Three Months Ended Dec 31, Sep 30, Percent Dec 31, Sep 30, Percent Dec 31, Sep 30, Percent (Dollars in Millions,Unaudited) 2008 2008 Change 2008 2008 Change 2008 2008 Change Condensed Income Statement Net interest income(taxable-equivalent basis) $638 $507 25.8 % $1,050 $976 7.6 % $155 $113 37.2 % Noninterest income 226 226 415 484 (14.3) 310 334 (7.2) Securities gains(losses),net (11) -- Total net revenue 964 722 19.7 1,465 1,460 .3 465 447 4.0 Noninterest expense 268 256 4.7 844 798 5.8 232 243 (4.5) Other intangibles 8 6 33.3 18 14 28.6 19 19 Total noninterest expense 276 262 5.3 862 812 6.2 251 262 (4.2) Income before provision and income taxes 588 460 27.8 603 648 (6.9) 214 185 15.7 Provision for credit losses 144 90 60 0 274 217 26.3 3 2 50.0 Income before income taxes 444 370 20.0 329 431 (23.7) 211 183 15.3 Income taxes and taxable-equivalent adjustment 162 135 20.0 120 157 (23.6) 77 67 14.9 Net income $282 $235 20.0 $209 $274 (23.7) $134 $116 15.5 Average Balance Sheet Data Loans $63,668 $59,980 6.1 % $88,654 $82,365 7.6 % $4,898 $4,871 .6 % Other earning assets 170 322 (47.2) 4,101 3,711 10.5 78 72 9.3 Goodwill 1,489 1,494 (.3) 2,678 2,420 10.7 1,562 1,562 -- Other intangible assets 88 94 (6.4) 1,793 1,854 (3.3) 299 318 (6.0) Assets 69,086 65,340 5.7 100,016 92,769 7.8 7,573 7,235 4.7 Noninterest-bearing deposits 12,670 10,838 16.9 12,528 12,105 3.5 5,509 4,644 18.6 Interest-bearing deposits 32,964 29,597 11.4 62,309 55,735 I L8 14,667 13,760 6.6 Total deposits 45,634 40,435 12.9 74,837 67,840 10.3 20,176 18,404 9.6 Shareholders'equity 6,870 6,795 1.1 1 9,124 7,159 27.4 2,419 2,354 2.8 Payment Treasury and Consolidated Services Corporate Support Company Three Months Ended Dec 31, Sep 30, Percent Dec 31, Sep 30, Percent Dec 31, Sep 30, Percent (Dollars in Millions,Unaudited) 2008 2008 Change 2008 2008 Change 2008 2008 Change Condensed Income Statement Net interest income(taxable-equivalent basis) $292 $246 18.7 % $26 $125 (79.2)% $2,161 $1,967 9.9 % Noninterest income 702 765 (8.2) 63 14 * 1,716 1,823 (5.9) Securities gains(losses),net (253) (400) 36.8 (253) (411) 38.4 Total net revenue 994 1,011 (1.7) (164) (261) 37.2 3,624 3,379 7.3 Noninterest expense 368 353 4.2 155 85 82.4 1,867 1,735 T6 Other intangibles 48 49 (2.0) 93 88 5.7 Total noninterest expense 416 402 3.5 155 85 82.4 1,960 1,823 7.5 Income before provision and income taxes 578 609 (5.1) (319) (346) 7.8 1,664 1,556 6.9 Provision for credit losses 209 186 12.4 637 253 ** 1,267 748 69.4 Income before income taxes 369 423 (12.8) (956) (599) (59.6) 397 808 (50.9) Income taxes and taxable-equivalent adjustment 134 154 (13.0) (426) (281) (51.6) 67 232 (71.1) Net income $235 $269 (12.6) $(530) $(318) (66.7) $330 $576 (42.7) Average Balance Sheet Data Loans $18,814 $18,097 4.0 % $1,171 $1,247 (6.1)% $177,205 $166,560 6.4 % Other earning assets 176 167 5.4 44,256 44,141 .3 48,781 48,413 .8 Goodwill 2,320 2,364 (1.9) - 8,049 7,840 2.7 Other intangible assets 945 993 (4.8) 3,125 3,259 (4.1) Assets 23,502 23,204 L3 54,797 55,075 (.5) 254,974 243,623 4.7 Noninterest-bearing deposits 540 495 9.1 392 240 63.3 31,639 28,322 11.7 Interest-bearing deposits 67 62 8.1 2,823 6,063 (53.4) 112,830 105,217 7.2 Total deposits 607 557 9.0 3,215 6,303 (49.0) 144,469 133,539 8.2 Shareholders'equity 5,252 4,861 8.0 820 814 .7 24,485 21,983 11.4 Preliminary data **Not meaningful Page 45 U.S. Bancorp Line of Business Financial Performance" Wholesale Consumer Wealth Management& Banking Banking Securities Services Year Ended Dec 31, Dec 31, Percent Dec 31, Dec 31, Percent Dec 31, Dec 31, Percent (Dollars in Millions,Unaudited) 2008 2007 Change 2008 2007 Change 2008 2007 Change Condensed Income Statement Net interest income(taxable-equivalent basis) $2,114 $1,846 14.5 % $3,918 $3,912 .2 % $497 $485 2.5 % Noninterest income 885 882 .3 2,007 2,196 (8.6) 1,398 1,369 2.1 Securities gains(losses),net (22) 1 2 Total net revenue 2,977 2,729 9.1 5,925 6,110 (3.0) 1,895 1,854 2.2 Noninterest expense 1,038 942 10.2 3,181 2,836 12.2 955 914 4.5 Other intangibles 21 15 40.0 63 68 (7.4) 77 92 (16.3) Total noninterest expense 1,059 957 10.7 3,244 2,904 11.7 1,032 1,006 2.6 Income before provision and income taxes 1,918 1,772 8.2 2,681 3,206 (16.4) 863 848 1.8 Provision for credit losses 317 51 ** 790 327 *" 9 4 ** Income before income taxes 1,601 1,721 (7.0) 1,891 2,879 (34.3) 854 844 1.2 Income taxes and taxable-equivalent adjustment 584 627 (6.9) 688 1,049 (34.4) 313 307 2.0 Net income $1,017 $1,094 (7.0) $1,203 $1,830 (34.3) $541 $537 .7 Average Balance Sheet Data Loans $59,653 $51,928 14.9 % $82,373 75,315 9A % $4,928 $5,082 (3.0)% Other earning assets 278 222 25.2 4,241 4,421 (4.1) 73 124 (41.1) Goodwill 1,425 1,329 7.2 2,485 2,416 2.9 1,563 1,554 .6 Other intangible assets 66 38 73.7 1,718 1,688 1.8 327 414 (21.0) Assets 65,049 57,074 14.0 93,400 86,565 7.9 7,390 7,619 (3.0) Noninterest-bearing deposits 11,138 10,561 5.5 12,025 12,070 (A) 4,770 4,264 11.9 Interest-bearing deposits 30,394 22,216 36.8 57,395 57,380 -- 14,153 12,208 15.9 Total deposits 41,532 32,777 26.7 69,420 69,450 18,923 16,472 14.9 Shareholders'equity 6,616 5,790 14.3 1 7,563 6,714 12.6 2,386 2,445 (2.4) Payment Treasury and Consolidated Services Corporate Support Company Year Ended Dec 31, Dec 31, Percent Dec 31, Dec 31, Percent Dec 31, Dec 31, Percent (Dollars in Millions,Unaudited) 2008 2007 Change 2008 2007 Change 2008 2007 Change Condensed Income Statement Net interest income(taxable-equivalent basis) $1,034 $764 35.3 % $303 $(243) ** % $7,866 $6,764 16.3 % Noninterest income 2,931 2,774 5.7 568 60 7,789 7,281 7.0 Securities gains(losses),net (956) 12 (978) 15 ** Total net revenue 3,965 3,538 12.1 (85) (171) 50.3 14,677 14,060 4.4 Noninterest expense 1,399 1,255 11.5 486 663 (26.7) 7,059 6,610 6.8 Other intangibles 194 201 (3.5) 355 376 (5.6) Total noninterest expense 1,593 1,456 9A 486 663 (26.7) 7,414 6,986 6.1 Income before provision and income taxes 2,372 2,082 13.9 (571) (834) 31.5 7,263 7,074 2.7 Provision for credit losses 696 404 72.3 1,284 6 3,096 792 "* Income before income taxes 1,676 1,678 (.1) (1,855) (840) * 4,167 6,282 (33.7) Income taxes and taxable-equivalent adjustment 608 610 (.3) (972) (635) (53.1) 1,221 1,958 (37.6) Net income $1,068 $1,068 $(883) $(205) $2,946 $4,324 (31.9) Average Balance Sheet Data Loans $17,589 $14,795 18.9 % $1,009 $228 % $165,552 $147,348 12.4 % Other earning assets 169 172 (1.7) 44,733 42,396 5.5 49,494 47,335 4.6 Goodwill 2,351 2,293 2.5 8 * 7,824 7,600 2.9 Other intangible assets 997 1,041 (4.2) 1 12 (91.7) 3,109 3,193 (2.6) Assets 22,452 19,833 13.2 56,109 52,530 6.8 244,400 223,621 9.3 Noninterest-bearing deposits 498 378 31.7 308 91 28,739 27,364 5.0 Interest-bearing deposits 59 37 59.5 5,444 1,870 ** 107,445 93,711 14.7 Total deposits 557 415 34.2 5,752 1,961 136,184 121,075 12.5 Shareholders'equity 4,923 4,592 7.2 1,082 1,456 (25.7) 22,570 20,997 7.5 x Preliminary data **Not meaningful Page 46 Supplemental Credit Schedules 4Q 2008 U.S. Bancorp Residential Mortgages December 31, September 30, June 30, March 31, December 31, (Dollars in Millions,Unaudited) 2008 2008 2008 2008 2007 CONSUMER FINANCE DIVISION Sub-prime Borrowers Loans outstanding $2,923 $3,042 $3,128 $3,204 $3,270 Nonperforming loans 87 66 46 24 22 Delinquency Ratios 30-89 days past due 8.14 % 6.15 % 4.54 % 3.59 % 3.39 % 90 days or more past due 4.86 4.21 3.45 3.15 2.87 Nonperforming loans 2.98 2.17 1.47 .75 .67 Other Borrowers Loans outstanding $6,944 $6,865 $6,845 $6,772 $6,477 Nonperforming loans 71 47 26 11 8 Delinquency Ratios 30-89 days past due 2.20 % 1.65 % 1.11 % .89 % .66 % 90 days or more past due 1.66 1.24 .98 .80 .56 Nonperforming loans 1.02 .68 .38 .16 .12 OTHER RETAIL DIVISIONS Loans outstanding $13,713 $13,434 $13,328 $13,242 $13,035 Nonperforming loans 52 42 36 24 24 Delinquency Ratios 30-89 days past due 1.06 % .88 % .82 % .61 % .61 % 90 days or more past due .80 .74 .59 .55 .51 Nonperforming loans .38 .31 .27 .18 .18 Three Months Ended December 31, September 30, June 30, March 31, December 31, 2008 2008 2008 2008 2007 CONSUMER FINANCE DIVISION Sub-prime Borrowers Net charge-offs $38 $33 $25 $13 $10 Net charge-off ratio 5.10 % 4.28 % 3.19 % 1.62 % 1.21 % Other Borrowers Net charge-offs $33 $27 $17 $8 $4 Net charge-off ratio 1.90 % 1.56 % 1.00 % .48 % .25 % OTHER RETAIL DIVISIONS Net charge-offs $13 $11 $11 $5 $3 Net charge-off ratio .38 % .33 % .33 % .15 % .09 % Page 48 U.S. Bancorp Residential Mortgages (Dollars in Millions,Unaudited) As a Percent Weighted Weighted Loans of Total Loan Average Average December 31,2008 Outstanding Balances FICO Score Loan-to-Value PORTFOLIO PROFILE Consumer Finance Division Sub-prime borrowers $2,923 12 % 625 84 % Other borrowers 6,944 30 729 84 Other Retail Divisions 13,713 58 733 68 Total $23,580 100 % 719 75 % Weighted Weighted Loans Average Average Three Months Ended December 31,2008 Originated FICO Score Loan-to-Value LOAN ORIGINATIONS Consumer Finance Division Sub-prime borrowers $19 653 82 % Other borrowers 299 751 71 Other Retail Divisions 313 731 73 Total $631 738 72 % As a Percent As a Percent Loans of Total Loan Nonperforming of Loan December 31,2008 Outstanding Balances Loans Balances LOAN PORTFOLIO BY GEOGRAPHY-TOP STATES Consumer Finance Division Sub-prime Borrowers Ohio $223 7.6 % $8 3.6 % Florida 198 6.7 13 6.6 Pennsylvania 163 5.6 4 2.5 Tennessee 158 5.4 1 .6 Michigan 139 4.8 3 2.2 Other 2,042 699 58 2.8 Total $2,923 100.0 % $87 3.0 % Other Borrowers Minnesota $698 10.1 % $6 .9 % California 683 9.8 11 1.6 Colorado 526 7.6 4 .8 Missouri 462 6.7 2 .4 Washington 420 6.0 2 .5 Other 4,155 59.8 46 1.1 Total $6,944 100.0 % $71 1.0 % Other Retail Divisions Minnesota $1,329 9.7 % $5 .4 % California 1,116 8.1 8 .7 Colorado 957 7.0 2 .2 Illinois 940 6.9 4 .4 Ohio 895 6.5 8 .9 Other 8,476 61.8 25 .3 Total $13,713 100.0 % $52 .4 % Page 49 U.S. Bancorp Home Equity and Second Mortgages December 31, September 30, June 30, March 31, December 31, (Dollars in Millions,Unaudited) 2008 2008 2008 2008 2007 CONSUMER FINANCE DIVISION Sub-prime Borrowers Loans outstanding $739 $783 $793 $841 $881 Nonperforming loans 1 - 1 2 1 Delinquency Ratios 30-89 days past due 6.22 % 4.85 % 4.04 % 3.57 % 3.52 % 90 days or more past due 3.92 3.45 3.03 3.45 2.61 Nonperforming loans .14 -- .13 .24 .11 Other Borrowers Loans outstanding $1,423 $1,361 $1,305 $1,058 $973 Nonperforming loans 2 3 2 1 1 Delinquency Ratios 30-89 days past due 1.69 % 1.40 % 1.23 % 1.32 % 1.64 % 90 days or more past due 1.55 .96 1.07 1.32 1.03 Nonperforming loans .14 .22 .15 .09 .10 OTHER RETAIL DIVISIONS Loans outstanding $17,015 $16,063 $15,438 $14,749 $14,587 Nonperforming loans 11 10 8 8 9 Delinquency Ratios 30-89 days past due .59 % .44 % .41 % .39 % .41 % 90 days or more past due .32 .28 .23 .20 .21 Nonperforming loans .06 .06 .05 .05 .06 Three Months Ended December 31, September 30, June 30, March 31, December 31, 2008 2008 2008 2008 2007 CONSUMER FINANCE DIVISION Sub-prime Borrowers Net charge-offs $21 $20 $25 $14 $9 Net charge-off ratio 11.05 % 10.23 % 12.44 % 6.59 % 4.00 % Other Borrowers Net charge-offs $10 $11 $10 $6 $5 Net charge-off ratio 2.84 % 3.22 % 3.29 % 2.37 % 2.06 % OTHER RETAIL DIVISIONS Net charge-offs $21 $17 $13 $10 $8 Net charge-off ratio .51 % .43 % .35 % .27 % .22 % Page 50 U.S. Bancorp Home Equity and Second Mortgages (Dollars in Millions,Unaudited) As a Percent Weighted Weighted Loans of Total Loan Average Average December 31,2008 Outstanding Balances FICO Score Loan-to-Value PORTFOLIO PROFILE Consumer Finance Division Sub-prime borrowers $739 4 % 653 92 % Other borrowers 1.423 7 730 87 Other Retail Divisions t7,015 89 747 72 Total $l 9.177 100 % 743 74 % Weighted Weighted Loans Average Average Three Months Ended December 31,2008 Originated FICO Score Loan-to-Value LOAN ORIGINATIONS Consumer Finance Division Sub-prime borrowers $20 667 79 % Other borrowers 92 749 73 Other Retail Divisions 1,226 767 66 Total $1,338 765 67 % As a Percent As a Percent Loans of Total Loan Nonperforming of Loan December 31,2008 Outstanding Balances Loans Balances LOAN PORTFOLIO BY GEOGRAPHY-TOP STATES Consumer Finance Division Sub-prime Borrowers Ohio $65 8.8 % $-- -- % Colorado 55 7.4 -- -- Minnesota 54 7.3 -- -- California 42 5.7 --Washington 42 5.7 -- -- Other 481 65.1 1 .2 Total $739 100.0 % $1 .1 % Other Borrowers California $192 13.5 % $-- -- % Colorado 156 10.9 - -- Minnesota 139 9.8 -- -- Washington 112 7.9 -- -- Ohio 75 5.3 1 1.3 Other 749 52.6 I .1 Total $1,423 100.0 % $2 .1 % Other Retail Divisions Minnesota $2,962 17.4 % $3 l % California 2,518 14.8 2 .1 Colorado 1,334 7.9 1 .1 Oregon 1,297 7.6 1 .1 Washington 1,241 7.3 -- -- Other 7,663 45.0 4 .1 Total $17,015 100.0 % $11 .1 % Page 51 RMA ROUTINGSHEET INITIATING DEPARTMENT: ADMINISTRATION SUBJECT: Supplemental Employee Retirement Plan and Trust COUNCIL MEETING DATE: March 16, 2009 RCA ATTACHMENTS STATUS Ordinance (w/exhibits & legislative draft if applicable) Attached ❑ Not Applicable ❑ Resolution (w/exhibits & legislative draft if applicable) Attached ❑ Not Applicable ❑ Tract Map, Location Map and/or other Exhibits Attached ❑ Not Applicable ❑ Contract/Agreement (w/exhibits if applicable) Attached ❑ (Signed in full by the City Attorney) Not Applicable ❑ Subleases, Third Party Agreements, etc. Attached ❑ (Approved as to form by City Attorney) Not Applicable ❑ Certificates of Insurance (Approved by the City Attorney) Attached ❑ Not Applicable ❑ Fiscal Impact Statement (Unbudgeted, over $5,000) Attached ❑ Not Applicable ❑ Bonds (If applicable) Attached ❑ Not Applicable ❑ Staff Report (If applicable) Attached ❑ Not Applicable ❑ Commission, Board or Committee Report (If applicable) Attached ❑ Not Applicable ❑ Findings/Conditions for Approval and/or Denial Attached ❑ Not Applicable ❑ EXPLANATION ! 1 ATTACHMENTS REVIEWED RETURNED FOR, RDED Administrative Staff ( ) ) Deputy City Administrator (Initial) ( ) ( ) City Administrator (Initial) ( ) ( ) City Clerk ( ) EXPLANATION FOR RETURN OF ITEM: POW QAJ RCA Author: Emery