2024_Beaverton_Investment_Policy.pdf

Investment Policy

CITY OF BEAVERTON

City Council Policy

Effective Date 07/01/2024

TABLE OF CONTENTS

1. INTRODUCTION

2. GOVERNING AUTHORITY

3. SCOPE

4. INVESTMENT OBJECTIVES

5. DELEGATION OF AUTHORITY; STANDARD OF CARE

6. TRANSACTION COUNTERPARTIES

7. SAFEKEEPING AND MANAGEMENT OF FUNDS; INTERNAL CONTROLS

8. AUTHORIZED AND SUITABLE INVESTMENTS

9. INVESTMENT PARAMETERS

10. POLICY COMPLIANCE, PERFORMANCE STANDARDS AND REPORTING

11. POLICY ADOPTION PROCESS AND EFFECT OF PRIOR ADOPTIONS

12. EXHIBIT I: GLOSSARY OF KEY INVESTMENT TERMS

13. EXHIBIT II: COMMUNITY DEPOSIT INITIATIVE PROGRAM

1. INTRODUCTION

This Investment Policy (Policy) establishes the investment objectives of the City of Beaverton (City); delegates authority to certain individuals or entities to carry out the investment objectives of the Policy; provides the standard of care to be used when investing funds; identifies the eligible investments and transactions for investments; and lists the internal controls, reporting requirements, and safekeeping and custodial procedures necessary for the prudent management and investment of City funds.

2. GOVERNING AUTHORITY

The City Council has the ultimate responsibility and authority for the investment of City funds, subject to federal, state, and other legal requirements, including applicable administrative regulations, relating to investment programs.

This Policy is written in conformance with Oregon Revised Statutes (ORS) 294.035; 294.040;

294.052; 294.135; 294.145 and 294.810. Revisions of these sections of the ORS or associated administrative rules automatically become part of this Policy once enacted and operative.

3. SCOPE

The average monthly balance of cash invested in the City’s general portfolio, including proceeds from bond issues, is approximately $160 million. The highest balances in the portfolio occur in November and December after property taxes are collected. The portfolio ranges between $123 and $186 million. This Policy establishes the parameters under which these City funds are to be invested and managed by the City.

This Policy applies to all investable funds of the City and any of its component units, including investable funds of the Beaverton Urban Redevelopment Agency (BURA). Included under the provisions of this Policy are the financial assets of the general fund, enterprise funds, special revenue funds, capital project funds, debt service funds, internal service funds, and other funds recognized in the City’s Annual Comprehensive Financial Report (ACFR). This Policy also applies to the investment of excess cash.

This Policy does not apply to funds held by a trustee or fiscal agent if the City does not have investment control over the funds held by the trustee or fiscal agent; however, all funds are subject to regulations established by the State of Oregon.

4. INVESTMENT OBJECTIVES

The City's principal investment objectives are listed below and ranked in the following priority order:

4.1 Safety

a. Preserve capital and protect investment principal.

b. Diversify asset classes and maturity dates to avoid incurring unreasonable risks regarding specific security types or individual financial institutions, and to mitigate credit and interest rate risk.

4.2 Liquidity

a. Maintain sufficient liquidity to meet all operating requirements reasonably anticipated. Investments should include securities with active secondary markets.

Where possible and prudent, the portfolio should be structured so that investments mature concurrent with anticipated demands.

4.3 Yield/Return

a. Attain a market value rate of return throughout economic and fiscal cycles consistent with the constraints imposed by the City’s safety objective and cash flow requirements.

4.4 Legality

a. Conform to federal, state, and other legal requirements.

5. DELEGATION OF AUTHORITY; STANDARD OF CARE

5.1 Delegation of Authority

a. Investment Officer: The city council hereby designates the City’s finance director as the City’s “Investment Officer” for City funds and declares its intent that this Policy constitutes a “written order” from the city council per ORS 294.035. The Investment Officer must invest City funds in accordance with this Policy. The Investment Officer may further delegate the authority to invest city funds to additional City finance personnel pursuant to this Policy.

b. Investment Advisor: The City may select a qualified individual or firm to serve as an investment advisor. The City may engage the support services of investment advisors regarding its financial program, so long as the City can demonstrate that it reasonably anticipates that these services will produce a net financial advantage or provide necessary financial protection of the City’s resources. External investment advisors are subject to Oregon law and regulations and must provide investment advisor services consistent with this Policy. Investment advisors must provide advisory services and require prior approval from the Investment Officer or Investment Officer’s designee on all transactions. The minimum requirements and standards for investment advisors are described further in Section 6.4.

5.2 Restriction of Performance

a. A person is prohibited from engaging in an investment transaction using City funds except as provided under the terms of this Policy. All persons and entities in the investment process described in this Policy must act responsibly as custodians of the public trust.

b. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds or the overall portfolio, the Investment Officer must act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiarity would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.

5.3 Ethics

a. Ethics. City staff involved in the investment process must:

i. Comply with the Oregon government ethics laws in ORS Chapter 244 and any other code of ethics adopted by the City.

ii. Refrain from any personal activity that conflicts or reasonably could conflict with the objectives or proper execution of the investment program of the City or create the appearance of an impairment of the ability to make impartial investment decisions.

iii. Disclose in writing to the city staff’s supervisor and City Attorney any actual or potential conflicts of interest, including, but not limited to:

1. Any material financial interests that they have in financial institutions that conduct business with the City.

2. Any personal financial or investment positions that may be related to the performance of the City’s investment portfolio.

iv. Cause their relatives to refrain from undertaking personal investment transactions with any individuals or firms with whom business is conducted on behalf of the City.

6. TRANSACTION COUNTERPARTIES

The transaction counterparties must meet the minimum qualifications identified in this section. The Investment Officer or Investment Officer’s designee are responsible for monitoring and overseeing the transaction counterparties and managing the lists of approved transaction counterparties to ensure the transaction counterparties meet the minimum qualifications as described in this section.

6.1 Broker-Dealers

a. Minimum Qualifications of Broker-Dealers. The following must meet the minimum qualifications described below before any authorized investment transactions may occur.

i. Primary and secondary dealers must be registered with FINRA and meet the Securities and Exchange Commission (SEC) rule 15c3-1 (uniform net capital rule).

ii. Broker-dealer firms must A. Be registered with the SEC.

B. Be registered with the Financial Industry Regulatory Authority

(FINRA).

C. Provide the most recent audited financials.

D. Provide FINRA Focus Report filings.

iii. Broker-dealer employees who execute transactions with the City must A. Be a registered representative with FINRA.

B. Be licensed by the State of Oregon.

C. Provide in writing that they have read and understood the Policy and have agreed to comply with the Policy.

b. Investment Officer’s Responsibilities.

v. Determine Authorized Broker-Dealers. The Investment Officer must determine which broker-dealer firms and registered representatives are authorized to invest funds within the scope of this Policy. The Investment Officer may impose more stringent criteria than the criteria listed in the above section.

vi. Maintenance of List. The Investment Officer and Investment Advisor must maintain a list of all authorized broker-dealers (and affiliated registered representatives) approved by the Investment Officer for investment purposes.

vii. Additions or Removals to List. Any firm is eligible to submit an application to the Investment Officer or Investment Advisor to be added to the list. The Investment Officer or Investment Advisor may add a firm to the list using the criteria in the Policy.

viii. Due Diligence Review.

1. The Investment Officer must periodically review the approved list of all authorized broker-dealers (and affiliated registered representatives) for due diligence regarding the authorized broker-dealers’ financial condition, registration, and ethical conduct. The Investment Officer may assign the responsibility of this review to an Investment Advisor, provided that all licensing information on the broker-dealers is maintained by the Investment Advisor and available upon request.

2. If responsibility of this due diligence review is assigned to an Investment Advisor, the review should include:

• FINRA certification check

• Firm profile

• Firm history

• Firm operations

• Disclosures of arbitration awards, disciplinary, and regulatory events

• State registration verification

• Financial review of acceptable FINRA capital requirements or letter of credit for clearing settlements.

3. If a City’s Investment Advisor is contracted to provide securities transactions on behalf of the City, the Advisor’s broker-dealer list must be provided to the Investment Officer for approval. The City’s Investment Advisor must provide the Investment Officer with any changes to the list before transacting on behalf of the City.

6.2 Financial Bank Institutions

a. Minimum Qualifications. All financial banks that provide bank deposits, certificates of depositions, or any other deposit of the bank to the City must either

i. Be fully covered by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA); or

ii. Be a participant of the Public Funds Collateralization Program (PFCP) as described in ORS Chapter 295.

b. Approved List. The Investment Officer may use the PFCP list maintained by the State Treasurer’s Office as the financial bank institution approved list.

6.3 Direct Issuers

The City may purchase commercial paper and bank products directly from issuers that meet the authorized and suitable investments criteria requirements.

6.4 Investment Advisors

a. Minimum Qualifications. Investment Advisors and Investment Advisor firm representatives who provide services necessary to carry out the investment objectives of the Policy must meet the following criteria.

i. Minimum Qualifications of Investment Advisors. An Investment Advisor must

1. Be selected through a competitive Request for Proposals process.

2. Be either (A) licensed by the State of Oregon if the assets under management is $100 million or under, or (B) the SEC if the assets under management is over $100 million.

3. Provide in writing that they have read and understood the Policy and have agreed to comply with the Policy, including, but not limited to, Section 6.4.

ii. Minimum Qualifications of Investment Advisor Firm Representatives. An

Investment Advisor firm representative must

1. Be registered representatives with FINRA.

2. Be licensed by the State of Oregon.

b. Investment Officer Responsibilities. The Investment Officer must conduct an at least annual review of all investment advisors under contract to determine their continued eligibility under the criteria of this Policy.

c. Notification by Investment Advisor. An Investment Advisor under contract with the City must notify the Investment Officer immediately if any of the following issues arise while a contract is active:

i. Pending investigations by securities regulators.

ii. Significant changes in net capital.

iii. Pending customer arbitration cases.

iv. Regulatory enforcement actions.

6.5 Local Banks and Credit Unions (Beaverton Community Deposit Initiative)

The Investment Officer may place a portion of the City’s investment portfolio in local banks and credit unions under City’s Beaverton Community Deposit Initiative, which makes City resources available to support community reinvestment efforts. Exhibit II of this Policy contains (a) the description of the Beaverton Community Deposit Initiative;

and (b) a list of local banks and credit unions eligible to participate under the Beaverton Community Deposit Initiative.

7. SAFEKEEPING AND MANAGEMENT OF FUNDS; INTERNAL CONTROLS

7.1 Safekeeping of Securities and Delivery vs. Payment Me

Securities purchased by the City must be held in a segregated account for the City’s benefit at a third-party trustee as safekeeping agent. Upon request, the safekeeping institution must make available a copy of its Statement on Standards for Attestation Engagements (SSAE) No. 16. The broker-dealer or investment advisor authorized to perform an investment transaction must provide the City with a confirmation ticket listing the specific instrument, issuer, coupon, maturity, CUSIP number, purchase or sale price, transaction date, and other pertinent information. The broker/dealer, who executes the transaction on the City’s behalf, must deliver all securities on a delivery versus payment (DVP) method to the designated third-party trustee at the direction of the Investment Officer. All securities will be receipted and recorded based on the terms in the custodial contract.

All trades of marketable securities must be executed on a delivery vs payment (DVP) basis to ensure that securities are deposited in the City’s safekeeping institution prior to the release of funds. The City will have online access through the safekeeping bank for verification of the account holdings and transactions.

7.2 Restrictions on Locations of Bank Deposits and Certificates of Deposit;

Conditions for Repurchase Agreement Collateralization

a. Bank Deposits and Certificates of Deposit. The City may only hold bank deposits and certificates of deposits in banks that participate in the PFCP.

b. Repurchase Agreement Collateralization. Collateral for repurchase agreements must be limited in maturity and priced in compliance with ORS 294.035(3)(j). The purchased securities must have an original minimum market value including accrued interest of 102 percent of the dollar value of the transaction, as prescribed by written policy of the Oregon Short Term Fund Board. Collateral must be held delivery versus payment in the City's custodian bank as safekeeping agent, and the market value of the collateral securities must be marked-to-the-market daily.

7.3 Accounting Method

The City must 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 limited to, the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA).

7.4 Consolidated Account for Investment Purposes

Except for cash in certain restricted, excluded funds, and special funds, the City will consolidate balances from all funds into one account to maximize investment earnings.

Investment income will be allocated pro-rata to the contributing funds based on their respective participation, average daily cash balances, and in accordance with generally accepted accounting principles. The commitment of resources must include financial and staffing considerations

7.5 Internal Controls

The Investment Officer must establish and maintain a system of written internal controls consistent with this Policy. The system of written internal controls must be designed to prevent the loss of public funds due to fraud, error, misrepresentation or imprudent actions by third parties or by employees of the City and provide reasonable assurance that the investment objectives in the Policy are met. The concept of reasonable assurance described in this section recognizes that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by Investment Officer.

The written internal controls maintained by the Investment Officer must address the following points, at a minimum:

a. Compliance with this Policy

b. Control of collusion

c. Separation of transaction authority from accounting and recordkeeping

d. Custodial safekeeping

e. Avoidance of physical delivery of securities whenever possible and control requirements of physical delivery where necessary.

f. Clear delegation of and limits on authority given to subordinate staff members

g. Confirmation of transactions for investments and wire transfers in written or digitally verifiable and reviewable electronic form

h. Dual authorization of wire and ACH transfers

i. Staff training

j. Review, maintenance, and monitoring of internal control and security procedures both manual and automated

This system of written internal controls must be published and available for review by the City Auditor. The City Auditor must provide an annual independent review to assure the written internal controls comply with Oregon state law, this Policy, and other relevant City policies and procedures.

8. AUTHORIZED AND SUITABLE INVESTMENTS

8.1 Authorized Investments

All investments of the City will be made in accordance with ORS 294.035, ORS 294.040, ORS 294.135, ORS 294.145, ORS 294.805 to 294.895, and ORS 294.052.

Additional securities not identified in this Policy are not eligible for investment until this Policy is amended and adopted by city council.

Deposit accounts in excess of deposit insurance limits may only be maintained at financial institutions included in the State Treasurer’s list of qualified depositories for public funds.

8.2 Suitable Investments

The City may invest in the types of securities described in this section. Minimum credit ratings and percentage limitations apply to the time of purchase.

U. S Treasury Obligation: Direct obligations of the United States Treasury whose payment is guaranteed by the United States, ORS 294.035(3)(a).

US Agency Obligations: Federal agency and instrumentalities if the United States or enterprises sponsored by the United States Government (GSEs) and whose payment is guaranteed by the United States, the agencies and instrumentalities of the United States or enterprises sponsored by the United States Government. ORS 294.035(3)(a).

Municipal Debt: Lawfully issued debt obligations of the states of Oregon, California, Idaho and Washington and political subdivisions of those states that have a long-term rating on the settlement date of AA- or better by S&P or Aa3 or better by Moody’s or equivalent rating by any nationally recognized statistical rating organization, or are rated on the settlement date in the highest category for short-term municipal debt by a nationally recognized statistical rating organization. ORS 294.035(3)(b) and (c).

Corporate Indebtedness: Corporate Indebtedness subject to a valid registration statement on file with the Securities and Exchange Commission or issued under the authority of section 3(a)(2) or 3(a)(3) of the Securities Act of 1933, as amended. Corporate indebtedness must be rated on the settlement date AA- or better by Standard and Poor’s or Aa3 or better by Moody’s or equivalent rating by any nationally recognized statistical rating organization. ORS 294.035(3)(i)(A).

Commercial Paper: Corporate Indebtedness subject to a valid registration statement on file with the Securities and Exchange Commission or issued under the authority of section 3(a)(2) or 3(a)(3) of the Securities Act of 1933, as amended. Commercial Paper must be rated A1 by Standard and Poor’s or P1 by Moody’s or equivalent rating by any nationally recognized statistical rating organization. Issuer constraints for commercial paper combined with corporate notes will be limited by statute to 5% of market value per issuer.

ORS 294.035(3)(i)(B).

Time Deposit Open Accounts and Savings Accounts: Time deposit open accounts and savings accounts in insured institutions as defined in ORS 706.008, in credit unions as defined in ORS 723.006 or in federal credit unions, if the institution or credit union maintains a head office or a branch in this state. ORS 294.035(3)(d)

Bankers Acceptances: A short-term credit investment created by a non-financial firm and guaranteed by a qualified financial institution whose short-term letter of credit rating is rated in the highest category without any refinement or gradation by one or more nationally recognized statistical rating organizations. For the purposes of this paragraph, “qualified financial institution” means: (i) A financial institution that is located and licensed to do banking business in the State of Oregon; or (ii) A financial institution that is wholly owned by a financial holding company or a bank holding company that owns a financial institution that is located and licensed to do banking business in the State of Oregon. [ORS 294.035(3)(h)(A)]

Local Government Investment Pool: State Treasurer's local short-term investment fund up to the statutory limit per ORS 294.810

Repurchase Agreements: Repurchase Agreements with maturities of 90 days or less collateralized by U.S. Treasury securities with the maturity of the collateral not exceeding three years. For the purpose of this section, the term collateral must mean purchased securities under the terms of the City approved Master Repurchase Agreement.

Broker/dealers and Financial Institutions must have an executed Master Repurchase Agreement with the City maintained by the Investment Officer.

8.3 Prohibited Investments and Practices

The Investment Officer must not:

a. Invest in any investments not described in the Policy, including, but not limited to, stocks, inverse floaters, range notes, commercial mortgage-backed, interest-only strips, or any security that could result in zero interest accrual if held to maturity.

b. Make a commitment to invest funds or sell securities more than 14 business days prior to the anticipated date of settlement of the purchase or sale transaction.

c. Enter into any agreement to invest funds or sell securities for future delivery for a fee other than interest.

d. Invest in “144A” private placement securities, which includes commercial paper privately placed under section 4(a)(2) of the Securities Act of 1933.

e. Lend securities to any person or institution, except on a fully collateralized basis, and unless such lending is specifically permitted under this Policy.

f. Purchase, per ORS 294.040, any bonds of issuers listed in ORS 294.035(3)(a) to

(c) that have a prior default history; or

g. Deliver securities to the purchaser upon sale prior to receiving payment in full.

However, the Investment Officer may deliver the securities to any custodian bank, defined in ORS 295.001, upon instructions to hold the same pending receipt by the institution of full payment therefore.

9. INVESTMENT PARAMETERS

9.1 Diversification and Credit

The City will diversify investments across maturities, security types, and financial institutions to avoid incurring unreasonable risks. All credit and concentration limits must apply at time of purchase. Credit investments must have a rating from one nationally recognized statistical ratings organization (NRSRO): Moody’s Investors Service; Standard & Poor’s; and Fitch Ratings Service as detailed in the table below. The minimum average credit rating for the investments shall be maintained at AA.

Maximum

Holdings

Maximum % Per Issuer

Ratings S&P, Moody’s, or Equivalent

NRSRO Maximum Maturity Issue Type US Treasury Obligations 100% None N/A 5.25 Years

US Agency Obligations 100% 35% N/A 5.25 Years

Municipal Bonds (OR, CA, ID, WA) 25% 5% AA- / Aa3

Short Term* 5.25 Years

Corporate Bonds 35%** 5%***

AA- / Aa3 5.25 Years

Commercial Paper A1 / P1 270 days

Bank Time Deposits/Savings Accounts

20% 5% Oregon Public Depository N/A

Certificates of Deposit 20% 10% Oregon Public Depository 5.25 Years

Banker’s Acceptance 20% 10% A1 / P1 180 days

Oregon Short Term Fund

Maximum allowed per

ORS 294.810

None N/A N/A

Repurchase Agreements 10% 5% AA- / Aa3 90 days

*Short Term Ratings: Moody’s – P1/MIG1/VMIG1, S&P – A-1/SP-1, Fitch – F1 **35% maximum combined corporate and commercial paper per ORS.

***Issuer constraints apply to the combined issues in corporate and commercial paper holdings.

9.2 Investment Maturity

Except as authorized in subsection (e) of this section and Section 9.4, below, the City will not directly invest in securities maturing more than five and a quarter (5.25) years from the date of purchase.

a. The maximum weighted maturity of the total portfolio must not exceed 2.0 years. This maximum is established to limit the portfolio to excessive price change exposure.

b. Liquidity funds will be held in the State Pool or in money market instruments maturing six months and shorter. The liquidity portfolio must, at a minimum, represent six-month budgeted outflows.

c. Core Investment funds are funds in excess of liquidity requirements. The investments in this portion of the portfolio will have maturities between 1 day and 5.25 years and will be only invested in high quality and liquid securities.

d. Total Portfolio Maturity Constraints:

Maturity Constraints Minimum % of Total Portfolio

Under 90 days 10%

Under 1 year 25%

Under 5.25 years 100%

Maturity Constraints Maximum of Total Portfolio in Years

Weighted Average Maturity 2

Security Structure Constraint Maximum % of Total Portfolio

Callable Agency Securities 25%

e. Reserve or program monies may be invested in securities exceeding five and a quarter (5.25) years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of the funds.

9.3 Investing Bond Proceeds

The City recognizes that bond proceeds may be subject to the provisions of the Tax Reform Act of 1986, Federal Arbitrage Regulations, as amended. Due to the legal complexities of arbitrage law and the City’s goal to match investments to required cash flow disbursements, funds from bond proceeds and amounts held in a bond payment reserve or proceeds fund may be invested pursuant to ORS 294.052.

Investments of bond proceeds are typically not invested for resale and maturity matched with expected outflows.

Information will be maintained for arbitrage rebate calculations.

9.4 Investing Money from Reserves or Capital Improvement Projects

Pursuant to ORS 294.135(1)(b), reserve or capital improvement project monies may be invested in securities exceeding 5.25 years when the funds are being accumulated for an anticipated use that will occur more than 18 months after the funds are invested. Then, the maturity of the investment or investments made with the funds may occur when the funds are expected to be used upon the approval of the governing body of the county, municipality, school district or other political subdivision.

9.5 Competitive Transactions

The Investment Officer or an Investment Advisor will obtain telephone, faxed or emailed quotes before purchasing or selling an investment. The Investment Officer or Investment Advisor will select the quote which best satisfies the investment objectives of the investment portfolio within the parameters of this Policy. The Investment Officer and the Investment Advisor will maintain a written record of each bidding process including the name and prices offered by each participating broker-dealer.

In the instance of a security for which there is no readily available competitive bid or offering on the same specific issue, the Investment Officer must document quotations for comparable or alternative securities.

Securities that are primary offerings direct from the issuer do not need to be priced through a competitive process. These securities include, but are not limited to, Commercial Paper, and Banker’s Acceptance and New Issue Agency securities.

Documentation of comparable securities at the time of purchase will be maintained by the Investment Advisor.

The City’s Investment Advisor must provide documentation of competitive pricing execution on each transaction. The Investment Advisor will retain documentation and provide it to the Investment Officer upon request.

10. POLICY COMPLIANCE, PERFORMANCE STANDARDS AND REPORTING

10.1 Compliance Report and Other Reports

a. Compliance Report. The Investment Officer must maintain a compliance report quarterly to document the portfolio’s characteristics as compared to the Policy.

The Investment Officer must provide the quarterly investment reports to the City Council in a similar manner as outlined in ORS 208.090, and the quarterly investment reports must include the securities holdings and cash balances held in the investment portfolio.

b. Other Reports. The Investment Officer must also create and provide the following additional reports quarterly:

i. Earnings Yield

ii. Holdings Report (including Mark to Market)

iii. Transactions Report

iv. Weighted Average Maturity or Duration

10.2 Compliance Measurement and Procedures

a. Compliance Measurement. Guideline measurements will use the market value of investments.

b. Compliance Procedures.

i. Except as provided in subsection ii of this section, if the investment portfolio falls outside of compliance with the guidelines in this Policy or is being managed inconsistently with this Policy, the Investment Officer must bring the investment portfolio back into compliance in a prudent manner and as soon as prudently feasible.

ii. Due to fluctuations in the aggregate surplus funds balance, maximum percentages for a particular issuer or investment type may be exceeded at a point in time. Securities need not be liquidated to realign the investment portfolio; however, the Investment Officer must consider whether appropriate diversification is necessary in future purchases.

iii. The Investment Officer must document and report to the City Council all violations of transactions guidelines in the Policy; all actions taken to bring the investment portfolio back into compliance; and the reasoning for those actions taken to bring the investment portfolio back into compliance.

iv. If a credit rating of a security is subsequently downgraded below the minimum level for a new investment of that security, then the Investment Officer must evaluate the downgrade on a case-by-case basis to determine if the security should be held or sold. In making a decision to hold or sell a security, the Investment Officer must apply the investment objectives identified in Section 4 of this Policy to make the decision.

10.3 Performance Measurement

a. The liquidity component yield of the City’s investment portfolio will be compared quarterly to the Local Government Investment Yield (LGIP) average yield.

b. The Investment Officer must invest the core investment portfolio into a predetermined structure that is measured against a selected benchmark portfolio. The predetermined structure must be based upon a chosen minimum and maximum duration, the average maturity. The purpose of the benchmark portfolio is to appropriately manage the risk in the investment portfolio given interest rate cycles.

c. The core investment portfolio is expected to provide similar returns as the benchmark portfolio, but may underperform or outperform in certain periods. The core investment portfolio is structured to first provide for safety and liquidity before achieving market rates of return, as identified in the investment objectives in Section 4 of this Policy.

d. The Investment Officer must use a 0-3 year and 0-5 standard market index as benchmark portfolios. The Investment Officer must calculate comparisons monthly and create a report on the comparisons quarterly.

11. POLICY ADOPTION PROCESS AND EFFECT OF PRIOR ADOPTIONS

This Policy will be reviewed and re-adopted annually by the city council in accordance with ORS 294.135 (1) (a), even if there are no changes. Prior to adoption by the City Council, if significant changes to the Policy require review and comment by Oregon Short-Term Fund Board, such review will be sought by the Investment Officer prior to formal adoption by the City Council. The Investment Officer may update information in the exhibits to this document, provided the changes in no way affect the substance or intent of the Policy.

Upon its adoption by the city council, this Policy supersedes the City’s investment policy adopted by Resolution No. 4816 by the city council on 2 November 2022.

12. EXHIBIT I: GLOSSARY OF KEY INVESTMENT TERMS

Accrued Interest. Interest earned but which has not yet been paid or received.

Agency. See "Federal Agency Securities."

Bankers' Acceptance (BA's). A draft or bill of exchange drawn upon and accepted by a bank.

Frequently used to finance shipping of international goods. Used as a short-term credit instrument, bankers' acceptances are traded at a discount from face value as a money market instrument in the secondary market on the basis of the credit quality of the guaranteeing bank.

Basis Points. A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. In most cases, it refers to changes in interest rates and bond yields.

Benchmark. A market index used as a comparative basis for measuring the performance of an investment portfolio. A performance benchmark should represent a close correlation to investment guidelines, risk tolerance and duration of the actual portfolio's investments.

Bond Ratings: Agency’s Ability to Meet its Financial Obligation

S&P Moody’s

Extremely Strong Capacity, Highest Quality AAA Aaa Minimal Credit Risk

Very Strong Capacity, High Quality Low Credit Risk AA+ Aa1 AA Aa2 AA- Aa3

Strong Capacity, Upper Medium Grade Subject to Low Credit Risk A+ A1 A A2 A- A3

Weakened Capacity, Medium Grade Subject to Moderate Credit Risk BBB+ Baa1 BBB Baa2 BBB- Baa3

Exposure to Adverse conditions, Subject to Substantial Credit Risk BB+ Ba1 BB Ba2 BB- Ba3

Broker/Dealer. A person or firm transacting securities business with customers. A “broker” acts as an agent between buyers and sellers, and receives a commission for these services. A “dealer” buys and sells financial assets from its own portfolio. A dealer takes risk by owning inventory of securities, whereas a broker merely matches up buyers and sellers. See also "Primary Dealer."

Certificate of Deposit (CD). Bank obligation issued by a financial institution generally offering a fixed rate of return (coupon) for a specified period of time (maturity).

Collateral. Investment securities or other property that a borrower pledges to secure repayment of a loan, secure deposits of public monies, or provide security for a repurchase agreement.

Commercial Paper. Short term unsecured promissory note issued by a company or financial institution. Issued at a discount and matures for par or face value. Usually a maximum maturity of 270 days, and given a short-term debt rating by one or more NRSROs

Corporate Note. A debt instrument issued by a corporation with a maturity of greater than one year and less than ten years.

Counterparty. The other party in a two-party financial transaction. "Counterparty risk" refers to the risk that the other party to a transaction will fail in its related obligations. For example, the bank or broker/dealer in a repurchase agreement.

Current Yield. Annual rate of return on a bond based on its price. Calculated as (coupon rate / price), but does not accurately reflect a bond’s true yield level.

Custody. Safekeeping services offered by a bank, financial institution or trust company, referred to as the “custodian.” Service normally includes the holding and reporting of the customer's securities, the collection and disbursement of income, securities settlement and market values.

Delivery Versus Payment (DVP). Settlement procedure in which securities are delivered versus payment of cash, but only after cash has been received. Most security transactions, including those through the Fed Securities Wire system and DTC, are done DVP as a protection for both the buyer and seller of securities.

Depository Trust Company (DTC). A firm through which members can use a computer to arrange for securities to be delivered to other members without physical delivery of certificates. A member of the Federal Reserve System and owned mostly by the New York Stock Exchange, the Depository Trust Company uses computerized debit and credit entries. Most corporate securities, commercial paper, CDs and BAs clear through DTC.

Discount Notes. Unsecured general obligations issued by Federal Agencies at a discount.

Discount notes mature at par and can range in maturity from overnight to one year. Discount Notes typically have very large primary (new issue) and secondary markets.

Diversification. Dividing investment funds among a variety of security types, maturities, industries and issuers offering potentially independent returns.

Federal Agency Security. A debt instrument issued by one of the federal agencies. Federal agencies are considered second in credit quality and liquidity only to U.S. Treasuries.

Federal Agency. Government sponsored/owned entity created by the U.S. Congress, generally for the purpose of acting as a financial intermediary by borrowing in the marketplace and directing proceeds to specific areas of the economy considered to otherwise have restricted access to credit markets.

Federal Farm Credit Banks Funding Corporation (FFCB). A Government Sponsored Enterprise (GSE) system that is a network of cooperatively owned lending institutions that provide credit services to farmers, agricultural cooperatives and rural utilities. The FFCBs act as financial intermediaries that borrow money in the capital markets and use the proceeds to make loans and provide other assistance to farmers and farm-affiliated businesses. Consists of the consolidated operations of the Banks for Cooperatives, Federal Intermediate Credit Banks, and Federal Land

Banks. Frequent issuer of discount notes, agency notes and callable agency securities. FFCB debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and agricultural industry. Also issues notes under its “designated note” program.

Federal Home Loan Bank System (FHLB). A Government Sponsored Enterprise (GSE) system, consisting of wholesale banks (currently twelve district banks) owned by their member banks, which provides correspondent banking services and credit to various financial institutions, financed by the issuance of securities. The principal purpose of the FHLB is to add liquidity to the mortgage markets. Although FHLB does not directly fund mortgages, it provides a stable supply of credit to thrift institutions that make new mortgage loans. FHLB debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes and callable agency securities. Also issues notes under its “global note” and “TAP” programs.

Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). One of the large Federal Agencies. A government sponsored public corporation (GSE) that provides stability and assistance to the secondary market for home mortgages by purchasing first mortgages and participation interests financed by the sale of debt and guaranteed mortgage backed securities.

FHLMC debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes, callable agency securities and MBS. Also issues notes under its “reference note” program.

Federal National Mortgage Association (FNMA or "Fannie Mae"). One of the large Federal Agencies. A government sponsored public corporation (GSE) that provides liquidity to the residential mortgage market by purchasing mortgage loans from lenders, financed by the issuance of debt securities and MBS (pools of mortgages packaged together as a security). FNMA debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market.

Frequent issuer of discount notes, agency notes, callable agency securities and MBS. Also issues notes under its “benchmark note” program.

Federal Reserve Bank. One of the 12 distinct banks of the Federal Reserve System.

Federal Reserve System (the Fed). The independent central bank system of the United States that establishes and conducts the nation's monetary policy. This is accomplished in three major ways: (1) raising or lowering bank reserve requirements, (2) raising or lowering the target Fed Funds Rate and Discount Rate, and (3) in open market operations by buying and selling government securities. The Federal Reserve System is made up of twelve Federal Reserve District Banks, their branches, and many national and state banks throughout the nation. It is headed by the seven member Board of Governors known as the “Federal Reserve Board” and headed by its Chairman.

Government Sponsored Enterprise (GSE). Privately owned entity subject to federal regulation and supervision, created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy such as students, farmers, and homeowners. GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries. Some consider GSEs to be stealth recipients of corporate welfare. Examples of GSEs include: FHLB, FHLMC, FNMA and

SLMA.

Government Sponsored Enterprise Security. A security issued by a Government Sponsored Enterprise. Considered Federal Agency Securities.

Index. A compilation of statistical data that tracks changes in the economy or in financial markets.

Investment Advisor. A company that provides professional advice managing portfolios, investment recommendations and/or research in exchange for a management fee.

Liquidity. Relative ease of converting an asset into cash without significant loss of value. Also, a relative measure of cash and near-cash items in a portfolio of assets. Also, a term describing the marketability of a money market security correlating to the narrowness of the spread between the bid and ask prices.

Market Value. The fair market value of a security or commodity. The price at which a willing buyer and seller would pay for a security.

Maturity Date. Date on which principal payment of a financial obligation is to be paid.

Municipal Obligations. A debt instrument issued by a state or local government unit or public agency. The vast majority of municipals are exempt from state and federal income tax, although some non-qualified issues are taxable.

NRSRO. A “Nationally Recognized Statistical Rating Organization.” A designated rating organization that the SEC has deemed a strong national presence in the U.S. NRSROs provide credit ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory purposes of rating such as Moody’s, S&P, Fitch and Duff & Phelps.

Par Value. Face value, stated value or maturity value of a security.

Principal. Face value of a financial instrument on which interest accrues. May be less than par value if some principal has been repaid or retired. For a transaction, principal is par value times price and includes any premium or discount.

Rate of Return. Amount of income received from an investment, expressed as a percentage of the amount invested.

Repurchase Agreement (Repo). A short-term investment vehicle where an investor agrees to buy securities from a counterparty and simultaneously agrees to resell the securities back to the counterparty at an agreed upon time and for an agreed upon price. The difference between the purchase price and the sale price represents interest earned on the agreement. In effect, it represents a collateralized loan to the investor, where the securities are the collateral. Can be DVP, where securities are delivered to the investor’s custodial bank, or “tri-party” where the securities are delivered to a third party intermediary. Any type of security can be used as “collateral,” but only some types provide the investor with special bankruptcy protection under the law. Repos should be undertaken only when an appropriate approved master repurchase agreement is in place.

State of Oregon Local Government Investment Pool. The LGIP is organized pursuant to ORS

294.805 through 294.895. Participation in the Pool will not exceed the maximum limit annually set by ORS 294.810.

Safekeeping. Service offered for a fee, usually by financial institutions, for the holding of securities and other valuables. Safekeeping is a component of custody services.

Total Return. Investment performance measured over a period of time that includes coupon interest, interest on interest, and both realized and unrealized gains or losses. Total return includes, therefore, any market value appreciation/depreciation on investments held at period end.

Treasuries. Collective term used to describe debt instruments backed by the U.S. Government and issued through the U.S. Department of the Treasury. Includes Treasury bills, Treasury notes, and Treasury bonds. Also a benchmark term used as a basis by which the yields of non-Treasury securities are compared (e.g., "trading at 50 basis points over Treasuries").

Treasury Bills (T-Bills). Short-term direct obligations of the United States Government issued with an original term of one year or less. Treasury bills are sold at a discount from face value and do not pay interest before maturity. The difference between the purchase price of the bill and the maturity value is the interest earned on the bill. Currently, the U.S. Treasury issues 4-week, 13-week and 26-week T-Bills.

Treasury Bonds. Long-term interest-bearing debt securities backed by the U.S. Government and issued with maturities of ten years and longer by the U.S. Department of the Treasury. The Treasury stopped issuing Treasury Bonds in August 2001.

Treasury Notes. Intermediate interest-bearing debt securities backed by the U.S. Government and issued with maturities ranging from one to ten years by the U.S. Department of the Treasury.

The Treasury currently issues 2-year, 5-year and 10-year Treasury Notes.

Yield to Maturity (YTM). Calculated return on an investment, assuming all cash flows from the security are reinvested at the same original yield. Can be higher or lower than the coupon rate depending on market rates and whether the security was purchased at a premium or discount.

There are different conventions for calculating YTM for various types of securities.

13. EXHIBIT II: COMMUNITY DEPOSIT INITIATIVE PROGRAM

Beaverton deposit guidelines:

Maximum amount available for transfer under Deposit Program: $20 million Maximum amount deposited in any one bank or credit union: $10 million

Banks:

Headquarters in California, Washington, or Oregon Branch office in Beaverton or vicinity History of Community Reinvestment Act (CRA) or similar community-based activity in Washington County Qualified as public depository under Oregon State law Deposit interest rate meets requirements established by City Investment Officer

Credit Unions:

Headquarters in Washington or Oregon Branch in Beaverton History of community-based activity in Beaverton Qualified as public depository under Oregon State law Deposit interest rate meets requirements established by City Investment Officer

Approved Custodians (2020) Advantis Credit Union Bank of the West – Bought by BMO Banner Bank Columbia Bank Heritage Bank Northwest Community Credit Union OnPoint Community Credit Union Opus Bank (Pacific Premier Bank) Rivermark Community Credit Union Umpqua Bank Unitus Community Credit Union US Bank Wells Fargo Zion Bank