HomeMy WebLinkAbout16 AMEND INV POLICY 04-01-96Inter-Com
NO. 16
4-1-96
DATE: ydm¢lt 25, 1996
Adopt the attached amended City of Tustin Investment Policy as
recommended by the City's Audit Committee.
DISCUSSION:
The Government Code of the State of California and the City of
Tustin's Investment Policy require at least an annual review of the
current policy and informal adoption of the policy for the
following year. The city Council has given the City's Audit
Committee the charge to annually review the policy and recommend
changes to the City Council for its consideration. Beginning in
December 1995, the Audit Committee has spent a considerable amount
of time reviewing and revising the current policy, and at its
meeting of March 21, the Committee approved the attached amended
policy and recommend its adoption by the City Council.
The City Treasurer and the Audit Committee have made several non-
material changes to the policy, to clean up language and to
incorporate changes as may be required by SB 866 which became
effective January 1, 1996. The Committee and Treasurer are
recommending the deletion of authority to invest in the Orange
county Treasury co-mingled pool.
The recommended policy continues the conservative nature of prior
policies and reinforces the emphasis on the safety and availability
of the public's funds with less emphasis on maximizing yield.
I will be available at the City Council meeting to answer any
questions you may have regarding the policy as presented.
RAN/,: Po [ icy. Ma r
GLOSSARY
OF
COMMON TREASURY TERMINOLOGY
USED IN T~{IS REPORT
BANKERS' ACCEPTkNCE (BA): A draft, bill °r exchange accepted by a
bank or trust company. .The accepting institutioh guarantees
payment of the bill, as well as the issuer.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific
maturity evidenced by a certificate. Large denomination CD's are
typically negotiable.
COMMERCIAL PAPER: PrimarilY issued by corporations to finance
receivables, commercial paper is a short term, unsecured promissory
note issued for a maturity specified by the purchaser not to exceed
270 days.
FEDERAL CREDIT AGENCIES: Agencies of the Federal Government set up
to supply credit to various classes, of institutions and
individuals, e.g., S&L's, small business firms, students, farmers,
farm cooperatives, and exporters.
LOCAL AGENCY INVESTMENT FUND (LAIF): The aggregate of all funds
from political subdivisions that are placed in the custody 'of the
California State Treasurer for investment and rein~estment.
.MEDIUM TERM NOTES: Primarily issued by corporations to finance
capital improvements, typically issued for three to five years.
TREASURY BILLS: A non-interest bearing discount security issued by
the U.S. Treasury to finance the national debt. .Most'bills are
issued to mature in three months, six months, or one year.-
TREASURY BOND: Long-term U.S. Treasury securities having initial
maturities of more than ten years.
TREASURY NOTES: Intermediate term coupon bearing U.S. Treasury
securities having initial maturities of from one to ten years.
RAN4: $ [ ossary. Jan
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Draft 12/14/95
Revised 12/19/95
Revised 12/21/95
Revised 3/15/96
Revised 3/21/96
CITY OF TUSTIN
STATEMENT OF INVESTMENT POLICY
I. GENERAL
PURPOSE
This statement is intended to provide guidelines for the
investment of the City's temporary idle cash, and outline the
policies for maximizing the efficiency of the City's Cash
Management System. The ultimate goal is to enhance the
economic status of the City while protecting its pooled cash.
It is the intent of the City Council that all deposit and
investment activities authorized by this policy shall be at
the sole discretion of the City Treasurer as to selection and
appropriateness.
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SCOPE
It is intended that this policy cover all funds and investment
activities under the direct authority of the City.
OBJECTIVE
The City's Cash Management System is designed to accurately
monitor and forecast expenditures and revenues, thus enabling
the City to invest funds to the fullest extent possible. The
City investments meet the criteria established for safety and
liquidity. The investment portfolio will be diversified to
avoid incurring unreasonable risks regarding specific security
types or individual financial institutions.
POLICY
The City of Tustin operates' its temporary pooled idle cash
investments under the prudent man rule (Civil Code Sec. 2261,
et seq. and Government Code Section 53600.3). The prudent man
rule states, in essence, that "in investing .... property for
the benefit of another, a trustee shall exercise the judgment
and care, under the circumstances then prevailing, which men
of prudence, discretion and intelligence exercise in the
management of their own affairs .... ', This affords the City
a broad spectrum of investment opportunities as long as the
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investment is deemed prudent and allowable under current
legislation of the State of California (Government Code
Section 53600 et seq.) and the guidelines established by the
following prioritized criteria for selecting investments: and
1. Safety. It is the primary duty and responsibility
of the City, City Council, City Treasurer and Director of
Finance at all times to protect, preserve and maintain
intact the principal placed in trust with the City on
behalf of the citizens of the community.
· --~ ..... [ &vailahility. An adequate percentage of
the portfolio shall be maintained in liquid, short-term
securities which can be converted to cash as necessary to
meet disbursement requirements.
3. Yield. Yield is to be a consideration only after
the basic requirements of adequate safety and liquidity
have been met.
Legal Investment Authority. Temporarily idle monies shall be
invested in accordance with State and local laws and
regulations and this Statement of Investment Policy.
Statement of I~vestment Policy. Each year after review and
report by the Audit Committee, the Treasurer shall submit to
the City Council a proposed Statement of Investment Policy for
Council consideration and adoption as submitted, or as revised
by the City council.
Cash Purchas? Only. All securities shall be purchased on a
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delivery vs payment (DVP) basis only· Securities shall not be
purchased on margin, credit or for other than full cash
payment and shall not be pledged as collateral·
Repurchase Agreements. Funds shall not be directly invested
in repurchase or reverse repurchase agreements
Selling Securities Prior to Maturity. Generally losses will
be acceptable on a sale before maturity if the reinvested
proceeds will earn income with a present value greater than
the present value of the income that would have been generated
by the old investment, considering any capital loss or forgone
interest on the original investment.
Performance Standards. The investment portfolio will be
designed to obtain a market-average rate of return during
budgetary and economic cycles, taking into account the City's
investment risk constraints and cash flow needs. The market-
average rate of return is defined as the U.S. Treasury
note yield which most closely matches the average portfolio
LIFE as stated on the monthly investment report, using a 12
month movinq averaqe. ~ .......... ~ .... ~ ......
Quarterly Reports The Treasurer ~
.... ocr ~-~-- quarterly report to the City
m~ shall render a ..........
Council, City Manager and internal and external auditors,
which states its relationship to the Statement of Investment
..... ~-- ~-- Exhibit I
Cc ........ ~ Sample attached,
.
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Required elements of the _A~..
.......... z quarterly report are as
follows®
a. Type of investment "
b. Institution.
C. Date of maturity·
·
d. Amount of deposit or cost of the security.
e. Rate of interest·
f. Statement relating the report~to the Statement of
Investment Policy·
'g. Statement that there are sufficient funds to meet the
next 30 days" 6 months" obligations·
h. The current book value.
i. The current market value.
·
j. Average portfolio life.
k. Average portfolio yield.
1. Current treasury yield that most closely matches
average portfolio life·
Reports of the State Treasurer's Locai'Aqency Investment Fund
,
shall be accepted in lieu of subparagraphs a. through 1. to
support City deposits in the Fund.
II' GUIDELINES. The following directions and limitations are
hereby .established to direct and control investment
activities in such a manner that above-stated goals are
achieved.
Delegation of AUthority. California Government Code, Section
53607 provides the authority for the legislative body of the
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local agency to invest funds of the local agency or to
delegate that full responsibility to the Treasurer of the
local agency. Under CitY of Tustin Ordinance~ No. 832, the
City Council has authorized the City Treasurer to invest City
funds in accordance with California Government Code Section
53600, et. seq.
Ethics and Conflicts of. Interest. The City Treasurer shall
refrain from personal business activity that could conflict
with proper execution of theinvestment program Or which could
impair the ability to make impartial investment decisions.
The City Treasurer is governed by Government Code Section 1090
et.seq.; the Political Reform Act of 1974 regarding disclosure
of material financial'interests; disqualification requirements
and the City's gift requlation.
'Investment Transaction-. Every investment transaction shall
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be reviewed, authorized and documented by the Treasurer.
Pooled Cash. Wherever practical, the City's cash shall be
consolidated into one bank account .and invested on a pOoled
concept basis. Interest ear~ings shall be allocated according
to fund cash and investment balances.
Competitive Bids. Purchase and sale of securities shalI be
made on the basis,of competitive offers and bids whenever
practical.
Cash Forecast. The cash flow for the City shall be analyzed
with the receipt of revenues and maturity of investments
scheduled so that adequate cash will be available to meet
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disbursement requirements.
Investment Limitations. Security purchases, deposits and
holdings shall be maintained with statutory limits imposedby
the California Government Code and shall include only the
following'
·
a. Certificates of deposit (or time deposits) of less than
$100,000 may be placed with commercial banks, savings and
loan institutions and federally insured industrial loan
companies (with a percentage of equity to assets of not
less than three (3) percent to the extent they are fully
insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation as
required by the Government Code· Deposits in excess of
$100,000 may be made based on a full evaluation of
financial soundness of the depository and approved
collateral at the required percentage of market value in
accordance with California Government Code Section 53651
and 53652. Evaluation of financial soundness shall be
,
based on a minimum equity to asset ratio of, three (3)
percent; $100 million of assets minimum; continued
profitability
~'~ ='' ~ ~ .... ~- ' '--~ ^"~ .... ~ with minimum rating
se ce ra ng of A or better. ~ - F...dl '
· ~-~ ~ .... ~ v~ ~.~ The maximum deposit per
institution shall not e×¢eed the lesser of $1 million, or
ten (10) percent of the bank's capital ('or equity account
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b.
Ce
de
as measured by Findley's Bank-A-Lert Report). Total non-
insured deposits shall not exceed ten ,(10) percent of
invested funds and limited to a maximum maturity of one
year.
Prime quality Commercial Paper, highest letter and
numerical~v,.~-~- short term debt ratings by Moody's or
Standard and Poors, mAI or P1 or equivalent; but not to
exceed twenty-five (ZS) percent of invested funds at the
time of purchase and limited to a maximum maturity of
ninety .(90) days. Average weighted maturity shall not
exceed 31 days if Commercial'Paper exceeds fifteen (15)
percent of total portfolio assets.
Local Agency Investment Fund (State Pool) demand account.
No deposit or investment shall be permitted in a co-
minqled pool, JPA or other non-statewide arrangement
unless the specific investment policy is reviewed by the
Audit Committee and approved as an investment option per
this policy.
Commercial Bank Time Drafts (Bankers Acceptances),
highest letter and numerical~e~short term debt ratings
by MoodY's or Standard and Poors, ~ A1 or P1 or
equivalent; but not in excess of twenty-five percent
(Z5%) of invested funds at the time of purchase with a
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maximum maturity of one hundred and eighty
(180) days.
e u^~,,_ m~_ ,,A~ Corporate notes of a .... ~ .... maturity
of five (5) years remaininq to stated final maturity,
issued by corporations organized and operating within the
U.S. or by depository institutions licensed by the U.S.
or any State, and operating within the U.S.. Notes
eligible for investment under this subdivision shall have
a long term debt rating of AA or its equivalent by
Moody's or Standard and Poors. Purchases may not exceed
ten percent (10%) of invested funds at the time of
purchase.
f. Federal Agency bonds or notes, but not in excess of
twenty-five (25%) percent of invested funds at time of
purchase with a maximum maturity of five (5) .years
remaininq to stated final maturity.
g. Treasury bills, bonds or notes not exceeding five (5)
years to final maturity.
Liquidity. The marketability (salability) of a security shall
be considered at the time of purchase, as the security may
have to be sold at a later date to meet an unanticipated cash
demand.
~Intermediate-Term Maturities. As a general rule, .... ~
intermediate-termmaturities shall not represent a significant
percentage'of the total portfolio, as the ~-~--~
~ ...... ~ price risk
involved can outweigh the potential for higher earnings· In
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no event shall any investment have a tc~.,~ final stated
maturity longer than five (5) years; and, at the time of
purchase, holdings with maturities greater than one (1) year
shall not exceed thirty. five '(35) percent of the total
portfolio.
Collateral. Collateral requirements are addressed in
California Government Code Section 53652. Ail active and
inactive deposits must be secured at all times with eligible
securities in securities pools pursuant to Sections 53656 and
53657. Eligible securities'held as collateral shall have a
market value in excess of the total amount of all deposits of
a depository as follows:
--government securities at least i0 110 percent in
--mortgage backed securities, at least ~9 150 percent in
Authorized Broker/Dealers. Investments shall be transacted
only through Authorized Broker/Dealers ........ , .......
have been~~we~approved by the Financc Director Treasurer
for reliability, credit worthiness and trustworthiness.
Diversification. The pOrtfolio shall consist of-a mix of the
various types of securities approved by statute and this
Statement of Investment Policy as well as a mix of issuers and
maturities.
Safekeeping. Securities purchased from broker/dealers shall
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be held in third party safekeeping by the trust department of
the local agency's bank, or by other third party trustee
designated by the Treasurer. Said securities shall be held in
the name of the City with the trustee executing agreements and
confirmations of investment transactions as directed by the
City Treasurer.
III STRATEGY Strategy refers to the ~~"
........ ~ plan to manage
financial resources in the most advantageous manner.
Economic Forecasts. The Treasurer periodically ~hall may
obtain economic forecasts from economists and financial
experts through bankers and broker/dealers in order to assist
the Treasurer with the formulation of investment plans.
Implementinq Investment Strateq¥. The Treasurer shall execute
investment transactions which conform with anticipated cash
requirements, interest rate trends, and the current investment
strategy ~tx%~.
~%a~Tt-rRelationships. The Treasurer Shall maintain a close
working relationship with the departments of the City so as to
anticipate and accommodate disbursements of City funds. For
liquidity planning purposes, department heads shall apprise
the. Treasurer When large 'expenditures (over $500,000) are
anticipated.
Preserve Portfoli° Value. The Treasurer shall develop an
investment strateqy that "~^~ -~~- ~ ~ ~ maintains
earnings near the market and to preserves the value of the
City's portfolio.
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Internal Controls. The Finance Department shall establish a
system of internal controls which shall be reviewed annually,
with the independent auditor. The controls shall be designed
to prevent losses of public funds arising from fraud, employee
error, misrepresentation by third parties, unanticipated
changes in financial markets, or imprudent action by employees
and officers of the City of Tustin.
The City strives to maintain the level of investment of all
funds as near at 100 percent as if possible, through daily and
projected cash flow determinations. Management of idle cash
......... ~ and inVestment transactions are the responsibility
of the City Treasurer. The basic premise' underlying the
City's.investment philosophy isT and will continue to bet to
insure that money is always safe and available when needed.
The'City of Tustin Audit Committee shall review the City's
Investment Policy with the City Treasurer at least annually.
~,,~ ...... ~ Exceptions to the policy shall receive prior
approval of the Audit Committee. and Proposed amendments
will be brought to the City Council for final action upon the
recommendation of the Committee.
Approved by the Audit Committee:
Adopted by the City Council:
3-21-96
Emp. Op. 1:95New. i nv
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I CITY'x.~ USTIN INVESTMENT REPt~R T
DATE: MARCH XX,19XX
TO: HONORABLE MAYOR and MEMBERS OF THE CITY COUNCIL EXHIBIT I
FROM: G. W. JEFFRIES, TREASURER
SUBJECT: I NVESTM ENT SCHEDULE AS OF: FEBRUARY 29,19XX
(2)
YIELD ORIGINAL
(1) TO PURCHASE MATURITY PURCHASE
DESCRIPTION-LIMITS MATURITY DATE DATE PRICE
(3)
CURRENT
BOOK
VALUE
(4)
CURRENT
MARKET
VALUE
Certificates of Deposit (CD's)- No Limit
Commercial Paper-25%, Max 90 Days
Bankers Acceptances-25%,.Max 180Days I
Current Total:
Current Total:
$0
$0
(5)
Medium Term Notes- 10%
PFIZER INC. Rating- (AANAAA)
KELLOGG CO. Rating- (AAA/AAA)
PAC TELL CAP. Rating- (Al/A+)
Federal Acjency Bonds or Notes-25% I
FEDERAL FARM CREDIT BANKS
FEDERAL HOME LOAN BANK FRN (6)
FED. HOME LOAN MORT. CORP. 1325-C (6)
FEDERAL FARM CREDIT BANKS FRN
FEDERAL FARM CREDIT BANKS FRN
FED. HOME LOAN MORT. CORP. 1402-H
FED. HOME LOAN MORT. CORP. 1436-SB
FEDERAL HOME LOAN BANK FRN
FEDERAL HOME LOAN BANK FRN (6)
TENNESSEE VALLEY AUTHORITY (AAA/AAA)
I US Treasury Bills/Bonds/Notes-No Limit
Treasury Note (6)
Current Total:
$0
I 0.00%
(8)
6.32% 05/12/94 02/01/97 $251,078 $250,216
6.22% 05/15/95 07/15/97 $149,034 $149,034
5.83% 03/17/93 10/15/97 $574,140 $529,656
6.06%
4.05%
5.84%
2.73%
2.09%
3.54%
4.51%
2.55%
3.63%
5.60%
6.19%
Current Total:
02/28/94 02/10/97 $742,500
10/20/93 06/02/97 $2,550,000
05/06/94 07/15/97 $1,024,371
01/31/94 07/28/97 $1,050,000
11/09/93 09/23/97 $1,025,000
01/28/94 10/15/97. $1,006,886
03/21/94 12/15/97 $723,054
09/29/93 03/23/98 $1,507,500
10/21/93 05/07/98 $502,500
02/03/94 08/01/99 $520,000
$928,906
2.94% J
(8)
$742,500
$2,532,145
$934,364
$1,021,486
$1,004,255
$970,019
$649,147
$1,505,001
$502,500
$511,1 12
Current Total: $10,372,529
32.86%
$251,950
$1 50,555
$526,500
$929,005
$750,000
$2,251,990
$918,579
$1,003,530
$1,000,000
$934,422
$611,892
$1,335,000
$461,071
$504,530
$9,771,014
05/27/94 05/15/97 $2,021,360 $2,017,088 $2,038,120
Current Total: $2,017,088
[ 6.39%
Daily- No Limit
Cash
Fidelity Money Market (AAA/AAA)
Local Agency Investment Fund
I
4.95% (7)
Acct. closed 2/29/96 *
5.60%
Current Total:
* Fidelity Money Market Acct. used for AD 85-1 TOTAL CITY INVESTMENTS
Bond construction funds. Balance in this
acct. was transferred to the. Bond Trustee PERFORMANCE MEASUREMENT: !1
to be used to call outstanding bonds in Average Portfolio Life (Years)' 1.09
rr
conjunction with the assessment district Average Portfolio Yield: 4.67%
bond refunding which closed 2/29/96. Current I yr Treasury: 5.10%
(s)
$2,990,774
$0
$15,253,146
$2,038,120
1
$2,990,774
$15,253,1 46
$18,243,920
57.80%
$31,562,443
$18,243,920
$30,982,059
ClT~ OF TUSTIN 1NVESTME~~POR T
(1)
DESCRIPTION- LIMITS
TUSTIN COMM UNITY REDEVELOPMENT AGENCY
FEBRUARY 19XX
YIELD
TO PURCHASE MATURITY
MATURITY DATE DATE
(2) (3) (4)
ORIGINAL CURRENT CURRENT
PURCHASE BOOK MARKET
AMOUNT VALUE VALUE
[ Certificates of Deposit (CD's)-No Limit I
First Interstate Bank 4.75%
First Interstate Bank 4.75%
I Commercial Paper-25%, Max 90 Days
[ Bankers Acceptances-25%, Max 180Days
(5)
Medium Term Notes- 10% I
Franklin Un iversal Trust- (AAA/AAA)
GE Capital- (AAA/AAA)
08/30/95 04/30/96 $1,000,000 $1,000,000 $1,000,000
08/30/95 06/30/96 $1,250,000 $1,250,000 $1,250,000
Current Total: $2,250,000 $2,250,000
10.31%
Current Total: (8)
Current Total: $0
I o.oo% I
(8)
$0
$0
4.94% 09/14/93 09/01/98 $1,029,800 $1,017,880 $989,080
5.19% 11/18/93 11/18/98 $2,006,060 $2,003,636 $1,973,760
I Federal Aqency Bonds or Notes-25%
FEDERAL HOME LOAN BANK FRN
FEDERAL FARM CREDIT BANKS FRN
FEDERAL FARM CREDIT BANKS FRN
TENNESSEE VALLEY AUTHORITY (AAA/AAA)
[ US Treasury Bills/Bonds/Notes-No Limit I
Daily-No Limit I
RDA Cash
Local Agency Investment Fund
Current Total: $3,021,516 $2,962,840
3.85%
(8)
4.05% 10/20/93 06/02/97 $2,040,000 $2,025,715 $1,801,592
2.47% 01/31/94 07/28/97 $1,058,750 $1,025,182 $995,732.
4.27% 11/09/93 09/23/97 $1,435,000 $1,406,362 $1,354,511
5.60% 02/18/94 08/01/99 $515,048 $508,360 $501,875
Current Total: $4,965,619 $4,653,710
22.76%1
(8)
5.35%
5.60%
(7)
Current Total:
Current Total:
$0 $0
0.00% I
(8)
$137,213 $137,213
$11,445,918 $11,445,918
$11,583,131 $11,583,131
I 5~.0e% I
TOTAL RDA INVESTMENTS
$21,820,266 $21,449,681
PERFORMANCE MEASUREMENT: II
Average Portfolio Life (Years)' 1.12
Average Portfolio Yield: 5.17%
Current I yr Treasury: 5.10%
TOTALCITY/RDA INVESTMENTS: $53,382,709 $52,431,740
CIT~ ~.~F 7~STIN 1N'VF~TM-E~ R~OR T
FOOT NOTES:
(1) DESCRIPTION-LIMITS reflects the various authorized investments as documented in the most current adopted
investment polcy and the allowable per-centage of total portfolio per investment type.
(2) Original Purchase Price is the amount paid for a security less any discount plus any premium.
(3) Current Book Value is a securities original cost less rceipt of principal payments, net of amortized premiums/discounts.
(4) Current Market Value is the price that the security is currently trading and could presumablyu be
purchased or sold. Current market values are provided by Bank of America and First Interstate Bank
on all securities held in safekeeping for the City or RDA. Differences in value are only booked if the
security is sold prior to maturity.
(5) In compliance with Section II, paragraph f. of the City's Investment Policy, Corporate Medium Term
Notes shall have a Moody's/Standard and Poors's long term debt rating of at least AA.
(6) Securities held in Trust per the Funding Agreement between the City of Tustin and the Foothill/Eastern Transportation Corridor Agency adopted by the City Council on 6-5-95.
(7) Earnings allowance on compensating bank balances to offset bank activity charges. Not included in the Average Yield calculation.
(8) Current percentage by investment type to be measured against allowable limits in current investment policy.
CERTIFICATION:
I certify that this report reflects all City and RDA pooled investments. Due to current cash flow considerations maturities
in excess of one year temporarily exceed the current Investment Policy limits by approximately 10%. Projected cash flows,
maturing investments and the prudent sale of longer maturities Will mitigate this condition. In all other aspects the
investments represented in this report are in conformity with the current adopted investment policy of the City of Tustin.
The investment program herein shown provides sufficent cash flow liquidity, to meet the next sixty days estimated
expenditures.
This statement is prepared in conformance with Section 53646 of the Government Code.
Signed:
G. W. Jeffries, Treasurer
LEGEND:
CD-Certificate of deposit
FRN- Floating rate note
FNMA- Federal National Mortgage Association
· FFCB-Federal Farm Credit Bank
FHLMC-Federal Home Loan Mortgage Corp.
FHLB-Federal Home Loan Bank
TVA-Tennesee Valley Authority