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AGENDA BILL Agenda Item No. 5(8) Date: January 17, 2012 To: El Cerrito City Council From: Subject: Mary Dodge, Administrative Services Director/City Treasurer Annual Review of Financial Policies ACTION REQUESTED Adopt a City Council resolution approving revised Comprehensive Financial Policies and Investment Policies and rescinding City Council Resolution No. 2011-05. BACKGROUND Currently there is one City Council and one Redevelopment Agency policy relating to the City and Redevelopment Agency's finances that require annual review - the Comprehensive Financial Policy and the Investment Policy. Each year the policies are reviewed by city staff and the Financial Advisory Board (F AB). Any recommendations for change are brought to the City Council and Redevelopment Agency for review and consideration. The policies were last reviewed in February 2011. However, with the dissolution of the Redevelopment Agency scheduled for February 1, 2012, the proposed resolution pertains only to the City. Financial Policy Changes The policies were presented to the FAB at its October 25, 2011 and November 8, 2011 meetings. The F AB' s recommendations are shown in "redline" form as Exhibits A and B to the attached resolution. In 2009 many changes were recommended for approval by the FAB in conjunction with the City Council and Redevelopment Agency Board's careful review of the general fund reserve requirements. Since 2009 there have been no policy changes regarding reserve requirements. Changes proposed this year are largely clarifying language within the policies and two substantive changes are recommended to Section 1 of the Comprehensive Financial Policy. Staff concurs with the recommended changes. The F AB recommends adding provisions regarding cash flow monitoring and criteria regarding annexations in the Overview and Long Term Financial Planning Section of the Comprehensive Financial Policy. These recommendations do not require any new ongoing procedures but are intended to discuss financial areas previously unaddressed in the policy. Page 1 ---PAGE BREAK--- AGENDA BILL Agenda Item No. 5(8) FINANCIAL CONSIDERATIONS These policies are intended to provide financial direction to staff and greater assurance to the City Council on the processes· and procedures taken to assure financial responsibility of the City. A requirement to continue the annual review of these Financial Policies has been included in the proposed changes to ensure ongoing legislative review and consideration. Reviewed by: Scott Hanin City Manager Attachments: l.City Resolution Exhibit A - Comprehensive Financial Policy Exhibit B - Investment Policy Page 2 ---PAGE BREAK--- RESOLUTION 2012-XX Agenda Item No. S(B) Attachment 1 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO TO APPROVE REVISIONS TO THE CALENDAR YEAR 2012 COMPREHENSIVE FINANCIAL POLICY AND INVESTMENT POLICY WHEREAS, the purpose of the Comprehensive Financial Policy and Investment Policy is to provide guidelines for operational and strategic decision making related to financial matters; and WHEREAS, the Comprehensive Financial Policy and Investment Policy were last amended in February 2011 as a part of the annual review; and WHEREAS, the Comprehensive Financial Policy and Investment Policy were reviewed by the Financial Advisory Board at the request of the City Council; and WHEREAS, revisions to both policies as recommended by the Financial Advisory Board and further recommended by City staff are incorporated into Exhibit A - Comprehensive Financial Policy and Exhibit B - Investment Policy; and WHEREAS, Resolution No. 2011-05 is hereby rescinded. NOW THEREFORE, BE IT RESOLVED that the City Council of the City of El Cerrito hereby approves the revised City of El Cerrito Comprehensive Financial Policy and Investment Policy for Calendar Year 2012 attached hereto as Exhibit A and Exhibit B and incorporated by reference. · BE IT FURTHER RESOLVED, that Resolution No. 2011-05 is hereby rescinded. I CERTIFY that at the regular meeting on January 17, 2012 the El Cerrito City Council passed this resolution by the following vote: A YES: Councilmember NOES: Councilmember ABSENT: Councilmember IN WITNESS of this action, I sign this document and affix the corporate seal of the City ofEl Cerrito on January XX, 2012. Cheryl Morse, City Clerk APPROVED: William C. Jones III, Mayor ---PAGE BREAK--- CITY OF EL CERRITO CITY COUNCIL/REDE'JELOP~4ENT AGENCY SUBJECT: COMPREHENSIVE FINANCIAL POLICY PURPOSE: Resolution No. 2011-:XX Exhibit A NUMBER: III 4 DATE: January 2012 AUTHORITY: City Councilf Agency Board Re$Qiution Nos. 201-l--95 j ~ To establish a comprehensive set of fiW«qp!al policies for t~~~~,i~/Agency that will serve as a guideline for operational and deqi~jpn making'ir# 11~:ted to financial matters. , · .Ul; POLICY: The following financi~.I,:.R.olicies an3' 'iJiltendethe budget amendment process, budget a,m~lilqfim~D~ autborities. :H 1 ~ J! t; , ~ r n n l } q i L; ; · · ~ n l ; : ; ~ \!ty~jjl;depart~~tW~~~~,re 1 t~~P;Rnsible,;fbh,'meeting the City/AgencyCity's financial p;~H~r goals and ~D~:uring~:lr~~ City's long-term financial health. Budget control is' ril~irtained at th~i~;fund, l~~1l· The City Manager is authorized to transfer budget~~;', 'departments and within funds. In addition, amendm~of,y,that areJ!made to authorize spending of increased or new special purpose rev~n~,es rl);~~~be approved by the City Manager. Budget modifications between funa&l;pf,d~*reases or decreases to a fund's overall budget must be approved by th~L~~i~ ;Council. 2.3. It is the City/1\gencyCity's policy to adopt a balanced General Fund budget where operating revenue is equal to, or exceeds, operating expenditures. In the event a balanced budget is not adopted, due to a deliberate reduction of accumulated fund balance or if the cause of the imbalance is expected to last for no more than one year, as with the case of a one time settlement or large purchase, the planned use of reserves to balance the budget is permitted as long as the reserve is consistent with the amounts described in Section General Fund Balance Reserve Policy. Page 2 of 10 ---PAGE BREAK--- 2.4. 2.5. 2.6. The operating budget shall serve as the annual financial plan for the City/l\gencyCity. It shall serve as the City/l\gencyCity's management plan for implementing goals and objectives of the City Council, Redevelopment Agency, City Manager and departments and will define service levels. During the annual budget development process, the existing budget shall be examined to assure removal or reduction of any services or programs that should be eliminated or reduced in cost. dk, ,;n!W!PP The annual review process shall inclu"G:teUari assessment to determine if ~ funds are available to operate and maira~~~ih "~t~Rosed capital facilities and other public improvements. ' i ' l ~ ~ i 2.7. Any year-end operating surplus~,s\rvill revert to una:ppCr;qpriated balances for use in maintaining reserve levels s~t policy and will bel;~~~ilable for capital projects and/or one-time expenditures hJIPQn approvaJJh of the Gtty Council/l\gency BoardCit:.t-1" ~n!lj;P 2.8. Where practical, budget will include performance measures of wgn~locieti;\i~fifi.ciency; 1a:md, effectiveness. . '''il!i!l!l: 2.9. 2.9.1. The,)qn9/Agenc~g:ity will e$1i[l1~te' annuaU.~evenues using an objective, analytidai;U:proces$W; specific ··9ssumptions ' will be documented and fl1~intainedL;t;q~ud~,~t~5f:fevenue~':will be estimated conservatively using sta.r:lp*r;psi;:;r~OP;;; estim~~~s provided by the state, other fd1!i;g'dvt9.rnf111,9:R~al · ·a9,~n,~ies, : 't~n em~r,gency situation such as a natural disq~t~rJorlu:r;t~nticipateddUabilitY!ili;!:;i!li·!·· . t~ d (!l!Hhl i:Jf); n< · 3.2. ltis a goai'~~~f~~ Cj~~R,;'i\~hiev~'~l~eneral fund annual operating reserve of 1~;9,f?t,l;l!~i!H'::;a m 1 i;~imWmin.'of:!'lJ:R~(o, . "~hprojected General Fund operating .;i!#~Jb'en~~flttir~~~iR. eacH;~i~j~al ye'aru:,fl.~n8~rfof the annual budget process, the City t;HJffipuncil shaH'cW~~ideri~lJ;en-Year'F>iah that attempts to maintain the minimum : r~~~.rve balancei:of':.15°/o! 1 fTIR~ City Council may adopt a deficit budget to deal uses discus·~,ed in' Section 3.5 so long as the projected reserve does not ~l0l9~1ow 1 0°/o i~·~~ry year of the Ten-Year Plan. Should the General Fund reserve:f;C11~;,below 1 qMH each budget year the City will adopt a plan to restore the reserveij~~rcen~~Qw tO 1 0°/o Within fiVe yearS and 15o/o by the tenth year Of the Ten-Yeiifll~~mm!!li!f 1 3.3. The portion of 'the reserve below 1 Oo/o should be utilized only for a financial emergency (as determined by the City Council), natural disaster or significant unanticipated liability. If this portion of the reserve is utilized for such an event, the Ten-Year Plan presented with the Annual Operating Budget must be developed so that the 1 0°/o base threshold is replenished within five years. 3.4. The unreserved fund balance in the Equipment Replacement Fund may be transferred to the General Fund only for a fiscal emergency where the current year revenues have decreased from the prior year or for one-time uses such as natural disasters or unforeseen liabilities. Page 4 of 10 ---PAGE BREAK--- 3.5. The reserves between the 1 0°/o and 15°/o level are designed to be used by the City to deal with revenue fluctuations that arise as a result of changes in the economy and provide opportunities to maintain services and programs where funding may be difficult. Also, a portion of any operating reserve in excess of 1 0°/o of annual revenues resulting from the previous fiscal year's operations could be committed to capital improvement projects or used to retire existing debt, fund future liabilities or potential legislative actions, establish or replenish equipment replacement funds, and/or establish or replenish deferred maintenance funds as long amount is considered in the adopted Ten-Year Plan to achieve a bala~H~1·~(15°/o within ten years. djl ::nq~ 3.6. One-time revenues will not be used.lt~llfUW~i!gpgoing City programs. Any one-time revenue receipt during thJ\Liti?:dai yearLl;~~puld be recognized and recorded in a "non-recurring re~~~:~~'Ysource" cate:~.~IY· One-time revenue windfalls include: sales of city-o\1\.{n~:direal estate, CaiPW~§.rebates, lump sum (net present value) savings fro~'IJRebt rest~ucturing, 'illiti~~tion settlement, unexpected revenues, and other simil~~,sourc;;.~~;of revenu.ei~§, designated by the City Council. 4. FINANCIAL REPORTING ~CfjLICiiESl 1 > ,n1HiiHn,. . ' 4.1. ' ;1u. 4.1.1. The ~~~~i~y/l\genc~%i~y's accq~.~1ing· and ·frr\~rcial reporting systems shall be maitit~i~td in c~~formancEf~~.ith all state and federal laws, generally accepted ''\9~~ou,~tjp'9.:t:Princip'l~~. (GAAP) and standards of the :irm~~:Y:~fri\J'!lent'ali~GR~llntimQ,; ~.t~nda.rtd~ Board (GASB) and the Government 10)llil FfNah,H:mt~. '~re deemed uncollectible, they will be li 1 ~~~~~~fti~~«l~,tlV~!!f!n!~~cial St~tements in accordance with established 6. FINJfN~!AL MANAGEMENTPOL/CIES ~ n .q 6.1. Staff W~#llh keepiH'~ity Councii/Agensy BoardCitv apprised of financial opportunitiesH~y,~j!~iql,e and shall develop appropriate recommendations. 6.2. All requests for City Council/Agency BoardCity action shall include an analysis of the immediate and future fiscal impact of such action. No appropriation for new or expanded programs or staffing levels shall be approved without identifying the amount and source of available funds. 6.3. All externally mandated services for which funding is available shall be charged to allow for complete reimbursement of expenses including overhead. 6.4. Cash Management Investment: 6.4.1. Cash and investment programs will be maintained in accordance with California Government Code Section 53600 et seq. and the Page 7 of 10 ---PAGE BREAK--- City/1\gencyCity's adopted investment policy and will ensure that proper controls and safeguards are maintained. Pursuant to the Investment Policy, the Financial Advisory Board, at least annually, will -reviews, and the City Council /Redevelopment Agency will affirms, a detailed investment policy. 6.4.2. Reports on the investment portfolio and cash position will be developed and presented to the Financial Advisory Board and the Gity Council/Redevelopment 1\gencyCity Council in conformity with the California Government Code. 6.4.3. Funds will be managed in a prudent a~.q~!~Ui'gent manner with emphasis on safety, liquidity, and yield, in that org~;~H!L 7. CAPITAL IMPROVEMENT PROJEC"[JRQt~fiES: 1 jjHh;, 7.1. A Ten-year Capital lmproverp~ 1 ~t 1 'Pian will be d~~~~pped and updated annually, including anticipated fun;dipg sources Capital frnp~?vement projects are defined as infrastructure or equip,r11ent p,~rHrases or· d~p~~ruction which result in a capitalized as~:~tand have a:·U~y{HILQCJepreciable) life;q~ two years or more. · · 7.2. +He-Each Capital \M11; ,identify, where applicable, current opera~i:~~~,rn~intenanb~pposts··;a~~P~~rding};,;~~~~ams available to repair and/or rep!~lR~JJclet~rJwrating iilfha,,~try 1~1~.ne;;~m~~.to ·a~bid significant unfunded liabilities. . ;;;lll!ll 'l:jllliW~''' . 7 T~.e City will iRyyel~~;~.r;l.~. i~plen1'~0t a post-implementation evaluation of its cdh~~m9n!iorV~~~p~cifi~~jW~E(riodic basis, estimating the remaining 'ilfei;:~o<;l.proje;¢t(ng repladetln,~nt GOsts. 7.4;'·Hip~re City ~H~II; 11~ctiVelk.;;pursue outside funding sources for all Capital lm~~~~lf~ment Proj~Rf~· Outside funding sources, such as grants, shall be used to fidan;cr,r only those',~apital Improvement Projects that are consistent with the Ten-year/H;9apital l'~provement Project Plan and/or local governmental priorities,'ii~.h~:, wh~~~~i!bperating and maintenance costs will be included in future operatHh~;R,lti,~Qe't forecasts. ~qi~·:ir!J~i 7.5. Capital improvement lifecycle costs will be coordinated with the development of the Operating Budget. Future operating, maintenance and replacement costs associated with new capital improvements will be forecasted, matched to available revenue sources, and included in the Operating Budget. Capital project contract awards will include a fiscal impact statement disclosing the expected operating impact of the project and when such cost is expected to occur. 7.6. The City/1\gencyCity must carefully seek and analyze the appropriate type of financing instrument appropriate for financing capital projects. Several options may be available - general obligation debt, fee-supported debt, fund Page 8 of 10 ---PAGE BREAK--- 8. reserves, tax increment, etc. All debt financing mechanisms shall be carefully considered and analyzed for fiscal benefit and cost effectiveness. Long-term borrowing shall be restricted to projects too large to be financed from current revenues (pay-as-you-go). Where possible, special assessment, revenue or other self-supporting bonds shall be used in lieu of general obligation bonds. l H ~ ~ DEBT MANAGEMENT POLICIES 8.1. Issuance of Debt: . · 8.1.1. The City/AgencyCity will notli;~~e long-term pay for on-going operations. The use of bond~r}Pertificates of partidJ):~t,ipn or capital leases will only be considered for1H.significan~ capitafl;i~Q.d infrastructure improvements. , • 8.1.2. New debt issues, 11 refinancing 1 :CifLy~i~tirig debt, musfb~:analyzed for compatibility within tn,r)6,G,i~~AgencyCityr~; .~verall financial planning within the Ten-Year Financial~!~lafilq.f~.;!:~e reviev.(~;~;~all include, but not be limited to, cash flow analysis ao,~}h·e;~~ir~.~nander~{t~,he City/AgencyCity's bond rating. An,nu.al\debt servj~e adverse impact upon future 9W:~t~;ti8H~!~j; 1 8.1.3. Debtijfj~~ncing· 1 ;&nmuld not::~~~eea the 'us~ful life of the infrastructure improvert)~n,t with 'i~i~e avera9~iJ'(weighted) bond maturities at or below t\JVe~ty year~i~n~ . nUH;H;:,: B1:1l~*:HTI~~·~I.:~.ebt ·wiJ,I'ln,q~:exce· ~ ~ , i + ; i, i ~ ~ i ~ 10. ENTERPRISE FUNDS 1 0.1. All Enterprise Funds user feesWIII:R·~ examin~d annu~h~~~~.~nsure that they recover all direct and indirect costs ofi~~~ic~ 1 ,JP,~p~ide for capi~~L!mprovements and maintenance, and 'll~,ip,tain adequateiiU~~~:~pies. 1 0.2. Rate increases shal;::;g~i;~~W~tffiyed b~ ;lW~I!!tity Council following formal noticing and a public based on the projected expenditures q 1 ~~~:;ren-Year···iW1i;randaPp.l~.~t 'i;J;ihn , o~n~ 'tt t< ; ,L ' ~ · LH} < i" ~ < \ ~ ; Page 10 of 10 ---PAGE BREAK--- CITY OF EL CERRITO A-ND Resolution No. Exhibit B BL CERRITO REDEVELOPl\1ENT 1\.GENCY 2012 INVESTMENT POLICY FY 2010 11 1.0 POLICY It is the policy of the City of El Cerrito ("City") and the El Cerrito Redevelopment i\gency gency", v;hich \Vith the City shall be refened to herein collectively as the "City") to invest public funds in a manner which provides for safety of principal while providing sufficient liquidity to cover the City's short and long term needs while generating the appropriate yield. All investment activity will conform to the California Government Code, Sections 53601 through 53659. In accordance with Section 53646 of the California Government Code, the Treasurer may annually render to the City Council a statement of investment policy and the policy will have been previously reviewed by the Financial Advisory Board. 2.0 SCOPE This investment policy applies to all financial assets of the City and Agency as accounted for in the City of El Cerrito's Comprehensive Annual Financial Report. Policy statements included in this document focus on the City's pooled funds, but will also apply to all other funds under the Treasurer's control unless specifically exempted by statute or ordinance. This policy includes, but is not limited to the following funds: a. General Fund b. Enterprise Funds c. Capital Project Funds d. Debt Service Funds e. Special Revenue Funds f. Internal Service Funds g. Trust and Agency Funds h. Retirement Agency Funds 1. Any new funds created by the City Council This policy specifically exempts any City or l\gency bond proceeds in the possession of a trustee or fiscal agent. These bond proceeds shall be invested in accordance with the requirements and restrictions outlined in the bond documents. This policy does not apply to any lending program of the City or the Agency. Page 1 of 11 ---PAGE BREAK--- City of El Cerrito ana-El-Ger-Fite-Reee-ve-lepitloot-AgerH3-Y Investment Policy 3.0 PRUDENCE 4.0 All persons authorized to make investment decisions for the City of El Cerrito are trustees and therefore fiduciaries subject to the prudent person rule. The standard of prudence to be used by City of El Cerrito fiduciaries is the "Prudent Investor" Standard found in the California Government Code Section 53600.3:. and shall be applied in the context of managing the overall portfolio. OBJECTIVE q;~nh The objective of the inve~ti}t~ptportfolio'•j~:t?Jm¢gtthe City's shortqa~d long-term cash flow needs. To acH~~"Kel~~i~>objective~ portfolio will be structured to provide, in priority order, s'af~~y 'of principal, liqui.dii~y and return on investment. H ~ . . : 4.1 s;tf~*J'o~ is the ~ijf~~W~t obj'~i~lfiitdf the City of El Cerrito. All investPp:rpts of ttl~ City shall?)Rr undertaken in a manner that ensures the f','i·~reserva~'ftf1 in '·:~fft overall portfolio. Each investment jiliii!tri~p,~~ctio~j·~n~p·:seelh.Wective::Qf return' 1d~l!!ipvestment be subordinate to th~, objectives of;f{:;t{ety,i~~~iliquidity. EmPtp~ees should also seek the be~tfY~vrn on investnietH~ /while satisfying tliei concerns of safety and liquidity.' 1f~e~~fpre, the Trefl:~:wer shall seek to achieve a return on the funds underi j ~eil:· S~tt eontrof~ ?3,~ptl;;~fthe Caii~~f11ia Government Code, the City Council 1iii~!l~~i~l~tive :bpq~h;0f.thet: :diversification. · , . tHj:t'' l-l '1 ~ l 1 Time Certificate~!ilif':;U~~R~·~t. coll~i~~~\j~~d in accordance with the California Governnh~~f. Cdd~!H~rc~ions'·:~:S1~l5? and 53653, may be purc~~~fl~p~xthe CitY;i~rpm ba~$l!Pf:· loan associations or c~~4}~\;tlniori~;p~urchases;ci~p ~IY$,·:,<;.ate:g~4f;;.willi;not exceed 5 years to mat»~i,ty nor '30:ipprcent OI\F~~.;~ost value·o~ahe portfolio. Purchases in a sirigienipstitutionnwill not exceed 10 percent of the cost value of the portfol1:¢~pures. Investments in the State Pool or money market'mutual funds are undeliverable and are not subject to delivery or 1 ~hird party safel(ee~ing. : , , t; ~ ~ . } { DI\f~RSIFICATid~ The CityHij~~~l C~tn~16 will diversify its portfolio by investment type, issuer, maturity datesi;')lM~i~~:roker/dealer. Limits for security types are set forth in Section 8.0 of this docuh!feWt. 13.0 INTERNAL CONTROLS The City Treasurer has developedwill maintain a system of internal controls to ensure compliance with investment procedures of the City and Redevelopment i\:gency of the City of El Cerrito and the California Government Code and these controls will be audited annually by the City's external audit firm. Page 7 of 11 ---PAGE BREAK--- City of El Cerrito and-E-1--Gs-r-r-ite---R:edeveleprne-nt-Ageney Investment Policy 14.0 REPORTING 15.0 The Council may request that the Treasurer render a report to the City Council. The report shall include the type of investment, issuer, maturity date, par and cost/book values of all securities, investments and monies held by the City of El Cerrito. It shall also include the rate of interest, the current market value as of the report date and the source of the valuation. The report shall state compliance-of !he portfolio te-with the Investment policy as well as the California Government Code and it shall state the City's ability to meet its ~~timated expenditures for the next six months or provide an explanation as ~pq~hy sufficient money is not available and what actions are being done to deficiency. INVESTMENT POLICY REVIE~J~D ADOPTidNl\ . ' j ll 1; . , ; The City of El Cerrito's wi.l~H~ontinue td!.lRh/eviewed and adopted by the City Council annu~liy;~,;~ve?~~~~~!f;;not require~dlJ~)Y, California Government Code 5364p~:~:r~pr to the amru,'\LsUbinission to the CitylCouncil the Investment Policy will l)~;trevj~~ed by the'i;~'Rfincial Advisory Board and the Board~s comments will · q~ pre~ented to the.:: Council for their its consideration. i .l h ~ ~ ; 16.0 GLOSSA~'Ml!lii"' i!!I!H' . LWj :uw , , , ~ , i L n , r t.H ~ s p ·t . ~ AGENCIES: F edgt~l;agency' M¢~urities a~UV~~. Governme~t sponsored enterprises. BANKJERS.i&CCEPTX~c~\::(~~j~iH~H~nJ~~er-owned ''dqft?,9~ation{ll;i rhe corporation's purchases include a variety of adjusta~~~ 1 ,111ortgages ~rttl;(~,~con~h~Hrn.and·~~~Mions and financial statements to the Federal Resei'V¥:!~;~nk of New and·iat~::~ubject to its informal oversight. Primary dealers include··s~y;w;!ties and Exbij~pge Conjwission (SEC) registered securities broker-dealers, banks and'c:t~fe,w unregulate~~!:tirms. · "iiHiBI;.. ~!In~ PRUDENT PERS(}}N RUlJEi An investment standard. In some states, the law requires that a fiduciary, sucH!~~;,'}!m#stee, may invest money only in a list of securities selected by the custody state. In otn:er states, the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. RATE OF RETURN: For fixed-rate securities, it is the coupon or contractual dividend rate divided by the purchase price which is also the current yield. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. Page 10 of 11 ---PAGE BREAK--- City of El Cerrito aBd-El-Ge-H-ite--Reee:v~lep-Bte-nt-Age-Rey Investment Policy SEC RULE 15C301: See Uniform Net Capital Rule. TREASURY BILLS: A non-interest bearing discount security issued by the US Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY BONDS: Long-term coupon-bearing US Treasury securities issued as direct obligations of the US Government and having initi'}~ maturities of more than 10 years. TREASURY NOTES: Medium-term coupon-be~i#~ili.M~ Treasury securities issued as direct obligations of the US Government and pavh1;g initi~l!''Waturities from two to 10 > ( • • : ~ j! 0 ~ years. UNIFORM NET CAPITAL RVLEil' }''Securities and '"~WJ~llJl.ge Commission requirement that member firms as well ~~~P:;?~-mem9Rf broker-Ct6~~~f~ in securities maintain a maximum ratio of ind~?tedness to iiql.),iQ cag~~~' i9f 15:1; also 1 H~H~4 net capital rule and net capital ratio. In~~~1~9ness cover's,::~!HJ#}pney owed to a firm', including margin loans and commitments ''tq 1 p;ili,t;Rh~se securitie~J!p~e reason new public issues are spread among members of under\wiltill'~ · ~Xn4icates. ll~q\\id capital includes cash and assets easily converted into cash. · ; , ; · · · T: . • ~ ; I ~ ; YIELD: The re~Jt~lf~n~~JiVg~~t~~l, ~~~ressed as a percentage: Income Yieltl\~$;~btained 'li}11pividing t~~mlirrent dollar~dncome by the current market price for the securlt~l!l~~) Nefm'~ld or Yielqt1R Maturity is the current income yield ~B()~~\p~ftii{~Rl~§I~~y from par in purchase price, with the adiustment~~)PJJt~a;<;t; th~ip~rind froll);~he.date;9f:purchase to the date of maturity of the ~ Page 11 of 11