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CONTRACT NO SECRETARY. I �-
AMENDMENT NO. 7
TERMS AND RENEWAL AGREEMENT
AMENDMENT AGREEMENT (the "Agreement"), dated November 30, 2004,
among Morgan Stanley& Co. Incorporated ("Morgan Stanley"), the City of Fort Worth,
Texas (the "Customer"), and The Bank of New York (the "Custodian").
WHEREAS, Morgan Stanley and the Customer entered into a Master Repurchase
Agreement, dated October 30, 1989 (the "Master Repurchase Agreement"), as amended
on November 9, 1989 (the "Amendment Agreement") for the purpose of engaging in
Paired Transactions (as defined in the Amendment Agreement), and such Amendment
Agreement was amended on November 9, 1990 and November 12, 1991 for the purpose
of setting the Price Differential for each Repurchase Transaction thereunder and to extend
the termination date of the Amendment Agreement to November 9, 1991 and November
12, 1992, respectively;
WHEREAS, Morgan Stanley, the Customer and the Custodian entered into a
Paired Repurchase Transactions Custody Agreement dated November 9, 1989 (the
"Custody Agreement") as amended by the amendments dated November 9, 1990, and
November 12, 1991 for the sole purpose of extending the termination date of the Custody
Agreement to November 9, 1991 and November 12, 1992, respectively;
WHEREAS, Morgan Stanley, the Customer and the Custodian entered into a
Terms and Renewal Agreement (the `Renewal Agreement") governing a Current Paired
Transaction (as defined in the Renewal Agreement)which commenced on November 12,
1993 and will end on November 1994 and extending the termination date of the
Amendment Agreement and the Custody Agreement to November 14, 1994.
WHEREAS, Morgan Stanley, the Customer, and the Custodian entered into an
Amendment No. 1 to the Renewal Agreement governing a Current Paired Transaction (as
defined in the Renewal Agreement) which commenced on November 14, 1994 and will
end on November 14, 1995 and extending the termination date of the Amendment
Agreement and the Custody Agreement to November 14, 1995;
WHEREAS, Morgan Stanley, the Customer, and the Custodian entered into an
Amendment No. 2 to the Renewal Agreement governing a Current Paired Transaction (as
defined in the Renewal Agreement)which commenced on November 16, 1995 and will
end on November 30, 1996 and extending the termination date of the Amendment
Agreement and the Custody Agreement to November 30, 1996;
WHEREAS, Morgan Stanley,the Customer, and the Custodian entered into an
Amendment No. 3 to the Renewal Agreement governing a Current Paired Transaction (as
defined in the Renewal Agreement)which commenced on November 30, 1996 and will
end on November 30, 1997 and extending the termination date of the Amendment
Agreement and the Custody Agreement to November 30, 1997;
WHEREAS, Morgan Stanley,the Customer, and the Custodian entered into an
Amendment No. 4 to the Renewal Agreement governing a Current Paired Transaction (as
defined in the Renewal Agreement)which commenced on November 30, 1997 and will
end on November 30, 2000 and extending the termination date of the Amendment
Agreement and the Custody Agreement to November 30, 2000;
WHEREAS, Morgan Stanley,the Customer, and the Custodian entered into an
Amendment No. 5 to the Renewal Agreement governing a Current Paired Transaction (as
defined in the Renewal Agreement) which commenced on November 30, 2000 and will
end on November 30, 2002 and extending the termination date of the Amendment
Agreement and the Custody Agreement to November 30, 2002;
WHEREAS, Morgan Stanley, the Customer, and the Custodian entered into an
Amendment No. 6 to the Renewal Agreement governing a Current Paired Transaction(as
defined in the Renewal Agreement)which commenced on November 30, 2002 and will
end on November 30, 2004 and extending the termination date of the Amendment
Agreement and the Custody Agreement to November 30,2004;
WHEREAS, Morgan Stanley, the Customer, and the Custodian intend to extend
the termination date of the Current Paired Transaction, the Amendment Agreement, and
the Custody Agreement to November 30, 2005, to set the Price Differential for each
Repurchase Transaction hereunder;
NOW, THEREFORE, in consideration of the mutual promises set forth hereafter,
the parties agree as follows:
1. Any term used in this Agreement and not defined shall have the meaning
set forth in the Renewal Agreement.
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2. Morgan Stanley, the Customer and the Custodian agree to extend the term
of the Current Paired Transaction to November 30, 2005 and that the obligations of each
party under the Current Paired Transaction shall continue to be governed by the
provisions of the Renewal Agreement.
3. Paragraph 2 under"Amendments to Amendment" of the renewal
Agreement shall be deleted in its entirety and the following provision shall be added in its
place:
"2. Paragraph 7(g) of the Amendment Agreement, Miscellaneous, shall be replaced
in its entirety with the following:
`g. This Amendment Agreement shall terminate on November 30, 2005,
provided, however, the Customer and Morgan Stanley may, upon at least 30 days
prior notice to the other party, request a renegotiation of the Price Differential for
each Repurchase Transaction to be applicable as of November 30, 2005 and, upon
at least 30 days prior notice to the other party, request a renegotiation of the Price
Differential for each Repurchase Transaction to be applicable as of November 30,
2006 and, upon at least 30 days prior notice to the other party, request a
renegotiation of the Price Differential for each Repurchase Transaction to be
applicable as of November 30, 2007 and, upon at least 30 days prior notice to the
other party, request a renegotiation of the Price Differential for each Repurchase
Transaction to be applicable as of November 30, 2008 and, upon at least 30 days
prior notice to the other party, request a renegotiation of the Price Differential for
each Repurchase Transaction to be applicable as of November 30, 2009."
4. Paragraph 1 under"Amendments to Custody Agreement" of the Renewal
Agreement shall be deleted in its entirety and the following provision shall be added in its
place:
"1. The first sentence of paragraph 1 of Article VI of the Custody Agreement,
Termination, shall be replaced in its entirety with the following:
`This agreement shall terminate on November 30, 2005, provided, however, the
Customer and Morgan Stanley may, upon at least 30 days prior notice to the other party,
request a renegotiation of the Price Differential for each Repurchase Transaction to be
applicable as of November 30, 2005 and, upon at least 30 days prior notice to the other
party, request a renegotiation of the Price Differential for each Repurchase Transaction to
be applicable as of November 30, 2006 and, upon at least 30 days prior notice to the other
party, request a renegotiation of the Price Differential for each Repurchase Transaction to
be applicable as of November 30, 2007 and, upon at least 30 days prior notice to the other
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party, request a renegotiation of the Price Differential for each Repurchase Transaction to
be applicable as of November 30, 2008 and, upon at least 30 days prior notice to the other
party, request a renegotiation of the Price Differential for each Repurchase Transaction to
be applicable as of November 30, 2009.'5. Paragraph 6 of the Amendment
Agreement, Price Differentials and Renewals, as amended in the Terms and Renewal
Agreement dated as of November 2, 1993, shall be replaced in its entirety with the
following:
"a. During the term hereof, for all Paired Transactions, the Price Differential
applicable to each repurchase transaction in which Customer is acting as Seller of United
States Treasury Securities shall, in all cases, be nine (9) basis points less than the Price
Differential applicable to the corresponding repurchase transaction in which Morgan
Stanley is acting as Seller. The Price Differential applicable to each repurchase
transaction involving Eligible Securities which represent the most current U.S. Treasury
securities issued with an original maturity of two, three, five and ten years in which
Customer is acting as Seller shall in all cases be thirty five (35)basis points less than the
price Differential applicable to the corresponding repurchase in which Morgan Stanley is
acting as Seller. The Price Differential applicable to each repurchase transaction
involving Eligible Securities which represent Federal National Mortgage Association
Bullet Benchmark Bills,Notes, and Bonds and Federal Home Loan Mortgage
Corporation Reference Bills,Notes and Bonds in which Customer is acting as Seller shall
in all cases be seven (7) basis points less than the Price Differential applicable to the
corresponding repurchase transaction in which Morgan Stanley is acting as Seller. Such
Price Differentials shall be effective from November 30, 2004 until November 30, 2005.
All payments of net Price Differential from Morgan Stanley to Customer shall be paid on
the last Business Day of each month during the term hereof or in the event such day is not
a Business Day, on the next succeeding Business Day.
6. This Agreement may be executed in any number of counterparts and all
such counterparts taken together shall be deemed to constitute but one and the same
instrument.
7. This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer or official, as of the date and year first written above.
CITY OF FORT WORTH, TEXAS MORGAN STANLEY &CO.
INCORPORATED
By: By:
Name: Richard Zavala Name: Diane Pearl Managing Directui
Title: Interim A s s i s t a n t Title:
City Manager
THE BA OF NEW Y , as Custodian
7
B y: '
Name:—Clatrie
Title: Vice
AP OVED AS TO FORM AND LEGALITY (SEAL'
David Yett , Zy Attorney
Mart It Hendrix,. City Secretary
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City of Fort Worth, Texas
Mayor and Council Communication
COUNCIL ACTION: Approved on 11/9/2004
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DATE: Tuesday, November 09, 2004
LOG NAME: 13SECURELEND REFERENCE NO.: **C-20390
SUBJECT:
Amendment to Securities Lending Program between the City of Fort Worth, Morgan Stanley and
Bank of New York
RECOMMENDATION:
It is recommended that the City Council authorize the City Manager to negotiate and execute the necessary
documents to amend the City's securities lending program with Morgan Stanley and Bank of New York for
one year with four optional one-year renewals.
DISCUSSION:
Securities lending is a cash management strategy involving the lending of the City's securities to a primary
dealer with the substitution of securities of greater market value being safe-kept by a third party custodial
bank in an account in the City's name. The program is designed so that the City earns supplemental
income on the portfolio without losing ownership or interest payments on the loaned securities. The safety
of the City's securities is guaranteed. All revenues are deposited in the General Fund.
The primary dealer will use the borrowed securities in several ways. With these high quality securities, the
dealer can borrow money at a lower interest rate. The dealer can use the funds to finance its own
investment positions or to invest in short-term, higher yielding investments. The borrowed bond can also be
used to correct "fails." When any investor buys a bond from a primary dealer, the primary dealer often is
buying it from another institution, which is also buying it from someone, etc. Any breakdown in this chain
causes "fails" down the line. If a primary dealer has access to bonds through security lending, it can avoid
"fails" and any associated costs.
The City Council first approved the contract for a securities lending program with Morgan Stanley and with
the Bank of New York as custodian on October 17, 1989. Those agreements were last amended on
January 29, 2002, (M&C C-18940). During the past two years, Morgan Stanley has used the City's portfolio
of U.S. Treasury securities and benchmark securities of the Federal National Mortgage Association and of
the Federal Home Loan Mortgage Corporation. The City has been compensated'at a rate of 9 basis points
(0.09%) times the market value and accrued interest earnings of the portfolio for Treasuries and 7 basis
points (0.07%) for the agency securities. The City receives this fee monthly regardless of lending
activity. Recently issued Treasuries, referred to as "on-the-run," are compensated at a rate of 35 basis
points. There are no costs to the City. Morgan Stanley pays all custodial fees related to the program.
The current amendment expires on November 30, 2004. The new amendment will run for one year with
four annual options to renew and re-negotiate the fee structure to reflect prevailing market conditions. No
other investment firm expressed interest in the program. Assuming an average portfolio of $157 million in
Treasuries and $190 million in agency securities, Morgan Stanley's proposal will generate $275,000 in fees
for this fiscal year.
Morgan Stanley paid $306,000 in fees to the City in the previous fiscal year. Since its inception, the
Logname: 13SECURELEND Page 1 of 2
program has generated $2,600,000 for the General Fund.
FISCAL INFORMATION/CERTIFICATION:
The Finance Director certifies that the Finance Department, Revenue Office, will be responsible for the
collection of fees due the City under the program. All fees will be deposited in the General Fund.
TO Fund/Account/Centers FROM Fund/Account/Centers
GG01 441123 0134010 $275,000.00
Submitted for City Manager's Office by: Richard Zavala (Acting) (8511)
Originating Department Head: Jim Keyes (8517)
Additional Information Contact: Robert Shook (8519)
Logname: 13SECURELEND Page 2 of 2