Exhibit I

 

 INVESTMENT POLICY

 

 CITY OF PORTLAND, OREGON

 

PURPOSE

 

This Policy sets forth current criteria for the operation of the investment portfolio. As economic conditions change, the Policy may need to be amended to reflect new trends and opportunities within the framework of this Policy. It will be recognized that the primary objective of the Investment Policy is to establish a conservative set of investment criteria that will prudently protect the City’s principal sums and enable the City to generate a fair rate of return from its investment activities.

 

This Policy applies to the investment of all funds on deposit at the City of Portland Treasurer’s Office, as well as all trust funds for which the City has investment responsibility. Funds held by Trustee or Fiscal Agents are excluded, if the City does not have explicit investment authority. Deferred Compensation funds have separate rules and are not covered within this Policy. The estimated investments covered herein range from $400 million to $800 million.

 

RESPONSIBILITY

 

The City Treasurer will be responsible for the implementation of this Policy. In the absence of the City Treasurer, the Chief Financial Officer (or designee) shall perform the investment duties. Any amendments to this Policy must be approved by the City Council after seeking the advice of the Chief Financial Officer, the City Treasurer, and the City’s Investment Advisory Committee. The City Treasurer and Chief Financial Officer (or designee) in consultation with the Investment Advisory Committee shall establish the maximum investment level with each Oregon financial institution. . The City Council will adopt a City Investment Policy annually.

 

TYPES OF INVESTMENT AND DIVERSIFICATION

 

The following types of investments will be permitted in the City’s investment portfolio:

 

‚  United States Treasury Debt Obligations

 

-  Maximum % of Portfolio      100%

-  Maximum Maturity         7 Years

 (US Treasury Inflation Indexed Securities)  10 Years

-  Securities held for safekeeping at the City's custodian Bank or successor.

 

City of Portland

Investment Policy

May 2006

Page Two

 

 

‚  United States Agency Debt Obligations  

 

-  Maximum % of Portfolio      100%

-  Maximum Maturity        2 Years

-  Maximum % of Portfolio Per Issuer    100%

-  Securities held for safekeeping at the City's custodian Bank or successor.

 

‚  Repurchase Agreements Secured by United States Treasury Debt Obligations

 

-  Maximum % of Portfolio        30%

 

-  Maximum Maturity          30 days

 

-  Repurchase agreements with brokerage firms will only be executed with        dealers from the list of Government Security Dealers reporting to the Market      Reports Division of the Federal Reserve Bank of New York

 

-  Repurchase agreements cannot exceed 2% of brokerage firm’s liabilities.

 

-  A signed repurchase agreement will be obtained in advance of the initial        execution of an investment.

 

-  Securities which serve as collateral for repurchase agreements must be delivered to the City’s Trust Account at the City's custodian bank or successor on a delivery versus payment basis.

 

-  Only United States Treasury Securities shall be used in conjunction with the      repurchase agreement and such securities shall have a maturity of not longer      than three years.

 

-  The price paid by the Treasurer for United States Treasury Securities in the repurchase agreement shall not exceed amounts or percentages prescribed by written policy of the Oregon Investment Council or the Oregon Short-Term Fund Board created by ORS 294.885.

 

 

 

 

City of Portland

Investment Policy

May 2006

Page Three

 

 

‚  Interest -Bearing Deposits in State of Oregon Financial Institutions Collateralized 25% by Securities as Required by Oregon Revised Statutes and in Compliance With the Provisions of ORS 294.035

 

-  Maximum % of Portfolio        50%

-  Maximum Maturity          1 Year

-  Maximum % of Portfolio Per Issuer      25%

-  Securities held in vault at the City’s Treasury  

 

‚  Bankers’ Acceptance Issued by Financial Institutions in Compliance With the Provisions of ORS 294.035

 

-  Maximum Percent of Portfolio        50%

-  Maximum Maturity            6 Months

-  Maximum Percent of Portfolio Per Issuer      25%

-  Securities held for safekeeping at the City's custodian Bank or successor Bank.

 

‚  State of Oregon Local Government Investment Pool

 

The legal maximum as provided under ORS 294.810.

 

‚  Commercial Paper Issued by United States Corporations in Compliance With the Provisions of ORS 294.035

 

-  Investment Rating            A-1, P-1

-  Maximum Percent of Portfolio        25%

-  Maximum Maturity            270 Days

-  Maximum Percent of Portfolio Per Issuer      5%

-  Securities held for safekeeping through the City's custodian Bank or successor Bank.

City of Portland

Investment Policy

May 2006

Page Four

 

 

INVESTMENT DIVERSIFICATION

 

Diversification requirements must be met on the settlement date of an investment transaction. If due to unanticipated cash needs, the investment in any security type or financial issuer later exceeds the limitations in this policy, the Treasurer is responsible for bringing the investment portfolio back into compliance as soon as is practical.

 

DISTRIBUTION OF PORTFOLIO MATURITIES

 

Distribution, by maturity, of the investments is illustrated below:

 

Maturity        Percentage of Funds

 

0-2 Years          50-100%

2-10 Years           0- 50%

 

This maturity structure applies to the Treasury’s best estimate of the lowest cash balance that the portfolio will reach during the next ten years. If, for example, the projected lowest cash balance is $200 million, then up to $100 million may be invested in the two to ten year maturity range. All other funds must be invested in less than two-year maturities and must meet the City’s cash flow requirements. The City’s Investment Advisory Committee will be consulted prior to implementing a strategy of purchasing securities with maturities beyond two years. The portfolio’s weighted average maturity shall not exceed eighteen (18) months.

 

BROKERAGE ALLOCATION

 

The Treasury will maintain a current list of all brokerage firms that have been approved by the Chief Financial Officer (or designee) to conduct investment business with the City. The Treasury will obtain a minimum of three quotes from different brokers before it executes a government securities transaction, or purchases commercial paper issued by a corporation outside of Oregon on the national market. The allocation of brokerage business will be based upon which brokerage firm offers the best price to the City on each particular transaction. Where two or more brokers have offered the same best price, allocation will go to the investment firm that has provided the best service to the City.

 

When purchasing bankers’ acceptances or commercial paper, the Treasury will compare interest rates on similar investments from other investment dealers. The Treasury will also determine that the rates being offered the city are rates comparable to those available for similar investments in the national market.

 

 

 

 

 

 

City of Portland

Investment Policy

May 2006

Page Five

 

 

When purchasing interest-bearing deposits, the Treasury will obtain interest rate offers from all Oregon financial institutions approved to do business with the City. The interest bearing deposits will be allocated to the highest interest rate offered the City, consistent with the maximum deposit levels set for each financial institution by the Chief Financial Officer (or designee).

 

METHOD OF ACCOUNTING

 

The City shall comply with all required legal provisions and Generally Accepted Accounting Principles (GAAP). The accounting principles are those contained in the pronouncements of authoritative bodies including but not necessarily limited to, the American Institute of Certified Public Accountants (AICPA); the Financial Accounting Standards Board (FASB); and the Government Accounting Standards Board (GASB).

 

REPORTING REQUIREMENTS

 

The City Treasurer will provide the following reports on a monthly basis to the City’s Investment Advisory Committee, the Chief Administrative Officer and the Chief Financial Officer:

 

‚  A list of securities owned, with all maturities over one year priced at both cost and market value.

 

‚  A list of all investment transactions showing the net gain or loss on each investment.

 

 

INTERNAL CONTROLS

 

The internal controls of the City of Portland’s Treasury are reviewed and tested by the City’s internal and external auditors.

 

PERFORMANCE EVALUATION

 

The City’s investment performance shall be reviewed monthly by the Chief Financial Officer. The City’s portfolio yield will be compared monthly to the yield of U.S. Treasury Securities with a maturity similar to the average maturity of the City’s portfolio.

 

 

 

 

 

 

City of Portland

Investment Policy

May 2006

Page Six

 

 

ANALYSIS OF INVESTMENT RISKS

 

In analyzing the City’s Investment Portfolio, there are three areas of risk exposure that the City confronts through its investment activities. The first risk confronting the City is interest rate risk. This risk is the uncertainty of the size of future incomes from securities caused by fluctuations in the general level of interest rates in the capital markets.

 

Interest rates have fluctuated dramatically over the last ten years and, therefore, the City’s Investment Policy is designed to minimize interest rate risk. This is accomplished by limiting investments to a maximum maturity of seven years (ten years for Treasury Inflation Indexed Securities only), and by investing to meet the City’s cash flow requirements.

 

The second area of risk exposure confronting the City can be termed purchasing power risk. It is predominantly the risk associated with inflation. This risk can be defined as the uncertainty of the purchasing power of interest and principal to be received in the future. It can be easily recognized that if the amount of income from a security in current dollars remains unchanged over a period of time while inflation is rising, then the amount of income in constant dollars declines and the constant value of the principal to be received also declines. The City’s Investment Policy is designed to mitigate this risk through the short-term nature of the portfolio maturity requirements as well as the ability to invest in Treasury Inflation Indexed Securities.

 

The final risk is credit risk or the financial risk of not receiving principal and interest when due from an issuer. The types of investments permitted by the Investment Policy seeks to minimize this risk by the conservative nature of the permissible investments and by establishing safe limits on the level of investments with Oregon financial institutions and issuers of commercial paper and monitoring their credit quality on an ongoing basis. A portfolio policy stressing a relatively short maturity serves to additionally minimize credit risk.

 

Therefore, it is the conclusion that the shorter the portfolio is in terms of maturity, the less risk exposure the City faces with regard to the all three major areas of risks confronting the City’s investment activities. The policy of maintaining 100% of the funds in securities maturing in seven years or less (ten years for Treasury Inflation Indexed Securities only), provides ample flexibility to earn capital gains on the City’s investments by extending funds out to longer maturities when interest rates are falling, yet avoids the extreme amount of exposure to interest rate risk and purchasing power risk that exist in longer-term portfolios.