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1997 03 12 IABT0 CA) 4hf 4 11114� 09mr 78-495 CALLE TAMPICO — LA QUINTA, CALIFORNIA 92253 - (619) 777-7000 FAX (619) 777-7101 AGENDA INVESTMENT ADVISORY BOARD Study Session Room 78-495 Calle Tampico- La Quinta, CA 92253 March 12, 1997 - 5:30 P.M. I CALL TO ORDER a. Pledge of Allegiance b. Roll Call II CONFIRMATION OF AGENDA III PUBLIC COMMENT -(This is the time set aside for public comment on any matter not scheduled on the agenda.) IV CONSENT CALENDAR A. Approval of Minutes of Meeting on February 12, 1997 for the Investment Advisory Board. V BUSINESS SESSION A. Sweep Account Presentation - Damon Santos, Wells Fargo Bank B. Transmittal of Treasury Report for January 31, 1997 C. Fiscal Year 97/98 Investment Policies. D. CMTA Conference - April 14 - 18, Palm Springs, California VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - February 1997 B. Request for Proposals for Audit Services C. Staffs Response to Board/Commissions Handbook VII BOARD MEMBER ITEMS Vill ADJOURNMENT MAILING ADDRESS - P.O. BOX 1504 - LA QUINTA, CALIFORNIA 92253 �� 0010 O� p Fes- 2 • du V � M � of I�tiO INVESTMENT ADVISORY BOARD Business Session Item No. A Meeting Date: March 12, 1997 TITLE: Sweep Account Presentation - Damon Santos, Wells Fargo Bank cl,-111019 The City maintains a separate checking account and money market savings account. Funds in the checking account are ensured up to $100,000 FDIC limit and funds in the money market are collateralized by the bank. The checking account is non interest bearing, however available funds are analyzed and these amounts are applied against bank fees or services. The money market account is interest bearing. An analysis prepared by the Financial Services Assistant on the historical interest earned on the money market account. In addition, the money market account is limited to three withdrawals and three deposits made outside of the branch. Mr. Damon Santos, Vice President of Wells Fargo Bank will make a presentation on the use of a Treasury Bill Money Market Sweep account in conjunction with the checking account. The money market account would be eliminated. In addition, included in a previous staff report is a survey of Coachella Valley Cities and their use of sweep accounts. RECOMMENDATION: Ydmed appropriate. . Falconer, Finance Director MONEY MARKET AND EARNINGS CREDIT RATE COMPARISON MM RATE EARN CRDT RATE FY 96/97 FY 95/96 FY 96/97 FY 95/96 JULY 3.23% 3.36% NO STMT 5.260% AUGUST 2.41 % 3.42% 5.172% 5.200% SEPTEMBER ** 2.88% 3.34% ** 5.070% 5.420% OCTOBER 2.31 % 3.34% 5.124% 5.280% NOVEMBER 2.29% 3.19% 5.005% 5.290% DECEMBER 2.12% 3.24% 5.030% 5.350% JAN UARY 0.50% 3.37% 4.914% 5.200% FEBRUARY 3.21% 5.030% MARCH 2.97% 4.860% APRIL 3.26% 4.950% MAY 3.50% 4.990% JUNE 3.33% 5.020% ** Wells Fargo Bank took over First Interstates banking operations effective September 1, 1996. 000001,24 MMINTRT.WK4 City of La Quinta Survey of Coachella Valley Cities Sweep Accounts 5/9/96 City Yes No If no, Vehicle Used If yes, Swept Into Palm Springs X LAIF N/A Palm Desert X LAIF N/A Indio X LAIF N/A Desert Hot Springs (1) X N/A Savings Account . 3% Rancho Mirage X LAIF N/A .Indian Wells X N/A Money Market Mutual Funds Coachella Did Not Respo d Cathedral City X N/A Money Market Mutual Funds City of La Quinta X LAIF N/A (1) - Will be discontinued by Bank - will utilize LAIF WELLS FARGO SWEEP SERVICES: SAVING YOU TIME For most of us, . time is at a premium. with wells Fargo Bank Overland Sweep Services, you can devote your time where you're needed most — managing your business. Sweep Services seeks to improve your company's day -to day cash management capabilities by integrating the investment funds transfer and business checking functions. OPTIMAL CASH MANAGEMENT How does Sweep Services optimize your cash management capabilities? Sweep Services automatically: • Keeps your WDDA (business checking account) at a pre -determined target balance level; and • Moves any excess amounts into one of the three Overland Express money market mutual funds that you designate. You can customize Sweep Services to meet your business's specifications. You can tailor Sweep Services to only transfer funds to and from an Overland Express money market mutual fund. BENEFITS THAT GIVE YOU VALUE What will Sweep Services mean to you and your business? Q More Time. You will have more convenient access to the available balances in your checking account and Overland Express money market mutual funds. 0 Less worry. You will not have to worry about unpredictable overdrafts. Your pre -determined WDDA (business checking account) target balance is maintained by automatically moving funds between your WDDA and your mutual fund investment. EZ Lower Cost. Sweep Services helps reduce daily overdraft fees and FDIC costs, as funds move from your WDDA to your non -FDIC insured money market mutual fund. Q Improve Investment Potential Sweep Services automatically sweeps excess balances into a money market mutual fund on any day your target balance is maintained. You can choose from three Overland Express Funds depending on your investment objectives: Overland Sweep Fund, U.S. Treasury Money Market Fund and the California Tax -Free Money Market Fund. �\0 o GIN o� Fund advised by ells Fargo Bank * SponsoredlDrstributed by Stephens Inc., Member NYSE/SIPC 0 Q Wells Fargo. At the frontier of financial innovation. •� 4 WELLS FARGO. BA � `' FEATURES THAT MAKE YOUR LIFE EASIER Sweep Services has a number of features that make your life easier: EZ Daily Access To Balance ITSrmation. You have daily access to your balance position through PC Manager, Information Express Balance Reporting Service, or your touch-tone telephone by 1-800 AT -WELLS. Q One -Stop Customer Service. Use our Cash Management Client Services to get immediate help for your cash management questions. The Overland Express Funds are not FDIC insured, are not a deposit or other obligation of Wells F argo Bank, and are not guaranteed by the Bank. The Overland Express Money Market Mutual Funds seek to maintain a stable net asset value of $1.00 per share; however, there can be no assurance that the Funds will meet this objective. The Overland Express Funds involve invesbnent risk, including possible loss of principal. * Fund advised by Welb Farp Bank * Sponsored/Distributed by Stephens Inc., Member NYSFISIPC FEATURES THAT MAID YOUR LIFE EASIER Sweep Services has a number of features that make your life easier.- 0 Daily Aeems To Balance IVSr nation. You have duly access to your balance position through PC Manager, Information Express Balance Reporting Service, or your touch-tone telephone by dialing 1-800 AT -WELLS. 0 Ono -Stop cwtmw Service. Use our Cash a it Client Services to get immediate help for your cash management questions. The Overland Expre" Funds are not FDIC insured we not a deposit or odw obri dea of Weft F ardo Bani4 and are not guarants d by do Bank The Ovrrland Exp%ss Money Uglket Mutual Funds seek to maintain a stable not asset value of $1.00 per share; however, dyers can be no assurance dat die Funds will meat this objective. The Overland Express Funds involve investment risk inciudlnd possible loss of principal. * Fwsd advaa by Wdk Fare Bank * Spomor IlDistr4used by SupixiA Inc., Member NYSF-ISIPC WELLS FARGO SWEEP SERVICES Here's how Sweep Services fits into your organization to serve you: You Manage: ■ Collections ■ Projected Cash Flow ■ Borrowing and Investments ■ Bank Service Charges ■ Disbursements M n Your Wholesale Demand Deposit Account ("WDDA') Gives You: ■ Daily Reporting Through PC Manager, Information Express and InfoTouch Access ■ Overdraft Protection ■ Monthly Statements ■ On -Line Customer Service HIR Information Reporting Your , Sweep Account Works For You By: ■ Investing in One of Three Money Market Funds w ■ Transferring Funds to WDDA When Balance Falls Below Target ■ Reinvesting Dividends into Your WDDA or Money Market Fund ■ Delivering Semi -Annual Shareholder Reports PC Manager InfoTouch Customer Service N Statements & Information Fund Reports Express 1-800-AT-WELLS w% 11) ;, Wells Fargo. At the frontier of financial innovation.WELLS FARCTO BAD ANSWERS TO COMMONLY ASKED QUESTIONS Question: I assume that this service protects me should I write a check for more than the balance in my WDDA? Answer: Yes, so long as the amount of the check does not exceed the WDDA balance plus the Sweep Account balance. Balances are automatically transferred from your Sweep Account (up to the balance you have invested) both: 1) to cover any unexpected collected balance overdraft that may result from your disbursements, and also 2) to replenish your collected balance target. Again, these transfers are at the end of each business day. Question: Can the dividends I earn automatically be tranrferred to another alternative investment? Answer. You may initiate a transaction to an alternative investment vehicle by writing a check or transferring money from your WDDA. Dividends that are not transferred from the Sweep Account to replenish your WDDA target balance are reinvested automatically, enabling you to enjoy investment compounding. Question: How are dividends calculated and when are they credited to my account? Answer. Each Fund seeks to declare dividends daily and credit your Sweep Account on a monthly basis, on the first business day of the month. You may choose to have dividends credited instead to your WDDA transaction account. To elect this option, simply check the box on the Sweep Authorization Agreement. Dividends are calculated based on the beginning balance in your Sweep Account, except for the business day prior to a non -business day, and any day(s) each year where Wells Fargo is open but the NYSE is closed. For this exception, the beginning and ending balances in the Sweep Account are compared and the lower of the two balances is used for the dividends payable calculation. Please refer to your prospectus for a complete explanation of how dividends are calculated. Question: How do I get access to my mutual fund balances and dividends? Answer: In order to provide for the automatic sweep of balances between the WDDA and money market mutual fund, your mutual fund shares will be maintained in sub -account of a Wells Fargo custodial account with the money market mutual fund. As a result, once you open an account, you will be able to access your mutual fund shares only through your WDDA. * Fund advised by Wells Fargo Bank * SponsoredlDimibuted by Stephens Inc., Member NYSE/SIAC Wells Farg ✓ ✓ J o. At the �j-ontier offinancial innovation. J *04 W, WELLS FARGO BANK Quution: How do I know what happened to my cash fow on any given day? Answer: We provide a specially -designed report that shows your balance position. The Account Position Report, accessed via our Information Express balance reporting system or PC Manager, will provide you with key balance and activity information about your WDDA, Sweep Account, and line of credit. A toll -free telephone call to our InfoTouch telephone reporting service will give you key balance and yield information about your investment in the Sweep Account. The Overland money market mutual funds are not FDIC insured, are not a deposit or other obligation of Wells Fargo Bank, and are not guaranteed by the Bank. The Overland money market mutual funds seek to maintain a stable net asset value of $1.00 per share; however, there can be no assurance that the Funds will meet this objective. The Overland money market mutual funds involve investment risk, including possible loss of principal. This material must be accompanied or preceded by a prospectus. * Fund advised by Wells Fargo Bank * SponsoredDistributed by Stephens Inc., Member NYSE(SIPC How do I Arnow what happcaed to my cash fi m on any gwm day? Answer. We provide a specially -designed report that shows your balance position. The Account Position Report, accessed via our Information Express balance reporting system or PC Manager, will provide you with key balance and activity information about your WDDA, Sweep Account, and line of credit. A toll -free telephone call to our InfoTouch telephone reporting service will give you key balance and yield information about your investment in the Sweep Account. The Overland money market mutual funds are not FDIC Insured, are not a deposit or other obli0iWan of Wells Fargo Bank and are not guaranteed by the Bank The Ovw1and money market mutual funds seek to maintain a stable net asset value of $1.00 per share; however, them can be no assurance that the Funds will meet this objecdv� The Ovwfand money market mutusi finds k ohn investment nisi, including possible loss of principrl. This matodal must be accompanied or preceded by a prospectus. * Raid advired by Welk Farp Bank * Spexwna r/Diss:ibrmd by Ssep&m lac., Member NYSB/SIPC GLOSSARY TO KEY TERMS CMCS I Cash Management Client Services provides customer service and implementation support for all cash management products and services, including the Overland Sweep Service. CSO Customer Services Officer, the primary service contact for you to communicate with Wells Fargo Bank when questions or problems arise concerning any of your cash management products or services. The Customer Service Officers are part of the Cash Management Client Services. Dividends The Fund seeks to declare dividends each calendar day and credit your Sweep Account (or your WDDA, if you elect this alternative) on the first business day of the following month. Dividends payable to you are calculated based on beginning balances in the Sweep Account, except for the business day prior to a non -business day. For this exception, the beginning and ending balances in the Sweep Account are compared and the lower of the two is used for the dividends payable calculation. The amount of dividends paid each month will vary with market conditions. Refer to the prospectus for more information. Ease of Acceu The securities held by the portfolio in which the Overland Sweep Fund, Overland Express U.S. Treasury Money Market Fund and Overland Express California Tax -Free Money Market Fund invest are priced daily to reflect current market value. Shares of these Funds held by investors can be redeemed daily to cover disbursements from the transaction account and to replenish the collected balance target in the business checking account. Fwsds There are three money market mutual funds available through Sweep Services: The Overland Sweep Fund, a taxable money market mutual fund that is advised by Wells Fargo Bank, seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in a portfolio of short-term money market instruments and is part of the Overland Express Family of Funds. The Overland Express U.S. Treasury Money Market Fund seeks to provide investors with a high level. of current income, while preserving capital and liquidity, by investing exclusively in U.S. Treasury securities, which arc debt obligations issued by the U.S. Government and which the payment of interest and repayment of principal are secured by the full faith and credit of the U.S. Treasury. Shares of the Fund itself arc not obligations of, or guaranteed by, the U.S. Government. The Overland F.xpress Galifornia Tax -Free Money Market Fund seeks to provide investors with a high level of current income exempt from federal income taxes, a portion of which is also exempt from California personal income taxes, while preserving capital and.liquidity, by investing in high -quality instruments, principally municipal securities. We encourage you to read about each Fund in the applicable prospectus which must accompany this material. * Fund advised by We& Fargo Bank * Sponsored/Dist buted by Stephens Inc., Member NYSFJSIPC Wells Fargo. At the frontier of financial innovation. WELLS FARGO BANK Fund Yield The 7-day yield reflecting current income on each share of the Fund. Yields will fluctuate with market conditions. IOTouch The touch tone telephone service that supports Wells Fargo's telephone balance reporting service. Mutual fund yields and account balance/detail information are available to all Sweep Services customers. Ixformation Fxprw Wells Fargo's automated, PC or terminal based, balance reporting system. Net Asset Value (NAi9 Each Fund seeks to maintain share value at $1.00; however, there can be no assurance that this objective will be met. Prospectus The prospectus contains important disclosures about the Fund in which your money is invested. It must be provided to each customer who inquires about the Fund and/or becomes an investor in the Fund. The prospectus may be changed or supplemented from time to time. Relatiomhip Manager Your primary contact with Wells Fargo Bank. Shareholder Materials Periodic reports and other materials are provided to each shareholder of the Fund. These include: the Fund's current prospectus, a semi-annual report, an annual report and proxy materials. Shahs Purchased Shares purchased in the Fund are reflected as a credit to the Sweep Account. Shares Redeemed Shares redeemed from the Fund are reflected as a debit to the Sweep Account. Sweep The term "sweep" generally refers to an automatic transfer of funds from one account to another. When your WDDA balance exceeds the pre -determined target balance, the term refers to the automatic movement of balances in excess of the target balance from your WDDA to your selected money market mutual fund. When your WDDA balance falls below the target balance, the term refers to the automatic transfer of funds from your Sweep Account to your WDDA. Shares of your chosen money market fund are redeemed, up to the amount invested and the proceeds of the redeemed shares are swept into the WDDA. Sweep Account The term "Sweep Account" means the account in which the Overland Express money market mutual fund shares purchased on your behalf are held. WDDA (Bodnar Chwking Account) The business checking account (WDDA) that you use for your day-to-day cash management activities. Collected balances over the pre- determined target balance are transferred automatically from the WDDA to your Sweep Account. The Overland Express money market mutual funds are not FDIC insured, are not a deposit or other obligatidn of Wells Fargo Bank, and are not guaranteed by the Bank. The Overland Express money market mutual funds seek to maintain a stable net asset value of $1.00 per share; however, there can be no assurance that the Funds will meet this objective. The Overland Express money market mutual funds involve investment risk, including possible loss of principal. This material must be accompanied or preceded by a prospectus. * Fund advised by Wells Fargo Bank * Spomored/Distr bzwd by Stephens Inc., Member NYSEISIPC Fuxd Yield The 7-day yield reflecting current income on each share of the Fund. Yields will fluctuate with market conditions. IX Torc% The touch tone telephone service that supports Wells Fargo's telephone balance reporting service. Mutual fund yields and account balance/detail information are available to all Sweep Services customers. ITS nra ion Exprdw Wells Fargo's automated, PC or terminal based, balance reporting system. Net Asw Vibe (NA" Each Fund seeks to maintain share value at $1.00; however, there can be no assurance that this objective will be met. Pr,ocspsss it - The prospectus contains important disclosures about the Fund in which your money is invested. It must be provided to each customer who inquires about the Fund and/or becomes an investor in the Fund. The . prospectus may be changed or supplemented from time to time. Re�Gtiowsbip Ms�rr Your primary contact with Wells Fargo Bank, Sr6rsrrbolder M9teriATb Periodic reports and other materials are provided to each shareholder of the Fund. These include: the Fund's current prospectus, a semi-annual report, an annual report and Prosy materials. Shmw Pxnl awd Shares purchased in the Fund are reflected as a credit to the Sweep Account. Shares Redeemed Shares redeemed from the Fund are reflected as a debit to the Sweep Account. Swap The term "sweep" generally refers to an automatic transfer of funds from one account to another. When your WDDA balance exceeds the pre -determined target balance, the term refers to the automatic movement of balances in excess of the target balance from your WDDA to your selected money market mutual fund. When your WDDA balance falls below the target balance, the term refers to the automatic transfer of funds from your Sweep Account to your WDDA. Shares of your chosen money market fund are redeemed, up to the amount invested and the proceeds of the redeemed shares are swept into the WDDA. S»ep Aonmt The If "Sweep Account" means the account in which the Overland Express money market mutual fund shares purchased on your behalf are held. WDDA (Busixw Owhixg Accbms) The business chocking account (WDDA) that you use for your day-to-day cash management activities. Collected balances over the pre- dexrmined target balance are transferred automatically from the WDDA to your Sweep Account. The Overland Express -money markst mutual funds are not FDIC Insured, are not a deposit or other obllgatidn of WWls Fargo Bank and are not guaranteed by" BaWL The Overland Express money market mutual fiends seek to maintain a stable net asset value of $1.00 per share; however, there can be no assurance that the Funds will meet this objective. The Overland Express money market mutual funds Involve Investment dsly Including possible loss of principal. This material must be accompanied or preceded by a prospectus. * Fund advised by Wells Farr Bank * Sponmonid1Diasr4umd by Stepf = Inc., Member NYSESIPC THE FINE PRINT (Our Legal Disclosure) Wells Fargo Overland Sweep: How the Product Works Here is an overview of how Overland Sweep Services works: Incoming collected funds above the target balance in your WDDA are invested in a non -FDIC insured money market mutual fund. Assuming there are sufficient funds in your WDDA and Sweep Account, the pre- determined target balance will be maintained. In order to maintain the target balance, funds will be transferred into your WDDA by redeeming shares from your Sweep Account, up to the total amount invested. For more information about the Overland Sweep Fund, the Overland Express U.S. Treasury Money Market Fund, and the Overland Express California Tax -Free Money Market Fund, including management fees and expenses, refer to the respective prospectus which must accompany this material. Contact your Relationship Manager for more information. More About Mutual Funds and Other Securities Mutual funds and other securities: • are NOT insured by the FDIC or U.S. government are NOT obligations or deposits of Wells Fargo Bank nor guaranteed by the Bank • involve investment risk, including possible loss of principal Money market mutual funds seek to maintain a stable net asset value of $1 per share, however, there can be no assurance that the funds will meet this objective. Brokerage services arc available through Wells Fargo Securities Inc., Member NASD/SIPC, a wholly owned subsidiary of Wells Fargo Bank, N.A. Brokerage Accounts are carried and cleared by Stephens Inc., Member NYSE/SIPC. * Fund advised by Wells Fargo Bank * Sponsored/Distributed by Stephens Inc., Member NYSFJSIPC AL i0,0,�;� Wells Fargo. At the ontier o nancial innovation. g WELLS FARGO BANK Wells Fargo Bank and its affiliates provide investment advisory services, shareholder services and certain other services for the Overland Express Funds. The Funds are sponsored and distributed by Stephens Inc. Wells Fargo Bank and its affiliates and Stephens Inc. receive compensation for acting in these capacities, as more fully disclosed in the Overland Express Funds prospectuses. Neither Wells Fargo Bank nor Wells Fargo Securities Inc. is affiliated with Stephens Inc. • For further information about a mutual fund, please see the prospectus for the fund. For further information about Wells Fargo Securities Inc. Brokerage Accounts, please see your Brokerage Account Terms and Conditions. * Fund advised by wells Fargo Bank * Sponwrad/Disr bzwd by Stephens Inc., Member NYSFJSIAC Wells Fargo Bank and its affiliates provide investment advisory services, shareholder services and certain other services for the Overland Express Funds. The Funds are sponsored and distributed by Stephens Inc. Wells Fargo Bank and its affiliates and Stephens Inc. receive compensation for acting in these capacities, as more fully disclosed in the Overland Express Funds prospectuses. Neither Wells Fargo Bank nor Wells Fargo Securities Inc. is affiliated with Stephens Inc. • For further information about a mutual fund, please see the prospectus for the fund. • For further information about Wells Fargo Securities Inc. Brokerage Accounts, please see your Brokerage Account Terms and Conditions. Furl advised by wills Farm Barth "Spwwred/Di vibuted by Strpbem Im., Member NYSEISIPC THE COST FOR WELLS FARGO'S OVERIAND SWEEP SERVICES The cost of the Sweep Services depends on the structure of your account, and the Fund you choose for investment. No monthly service charges will be assessed on your account if you maintain a pre -determined collected balance in your WDDA. You must maintain a pre- determined target collected balance in your WDDA and minimum or maximum threshold balance in your Sweep Account, depending on which Fund you choose. As an alternative to keeping a pre -determined target collected balance in your WDDA account, you can pay a flat monthly service charge for the entire service. Ask your Relationship Manager for more information. Please refer to the applicable prospectus for more information on Fund level fees and expenses. For services used as part of the WDDA, Information Express and other cash management services, Wells Fargo's standard price schedules apply. HOW TO SUBSCRIBE Subscribing is really very easy. Simply: 1. Complete the Wells Fargo Credit Sweep Authorization Agreement. Also complete the IRS W 9 form which is required for the Sweep Services. You will need to designate which Fund you want linked to your. WDDA. Your Relationship Manager will help you with this step and review the WDDA target balance requirements and minimum or maximum balance thresholds that may apply to your Sweep Account. 3.. Set up, at your option, a Zero Balance Accounting system if you want your multiple WDDA accounts consolidated to a master account for purposes of simplifying the number of Sweep Accounts that are needed. Again, your Relationship Manager will assist you with this step. * Fund advised by Wells Fargo Bank * Sponsored/Distribuud by Stephens Inc., Member NYSE/SIPC .Wells Fargo. At the frontier of financial innovation. 6` U WELLS FARGO BANK YOUR MONEY MARKET MUTUAL FUND CHOICES There are three money market mutual funds which may be linked to your Sweep Services: Q The Overland Sweep Fund, a taxable money market mutual fund that is advised by Wells Fargo Bank, seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in a portfolio of short-term money market instruments. The Overland Sweep Fund is part of the Overland Express Family of Funds. E1 The Overland Express U.S. Treasury Money Market Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing exclusively in U.S. Treasury securities, which are debt obligations issued by the U.S. Government and which the payment of interest and repayment of principal are secured by the full faith and credit -of the U.S. Treasury. Shares of the Fund itself are not obligations of, or guaranteed by, the U.S. Government. 0 The Overland Bxpreas California Tax -Free Money Market Fund seeks to provide investors with a high level of current income exempt from federal income taxes, a portion of which is also exempt from California personal income taxes, while preserving capital and liquidity, by investing in high -quality instruments, principally municipal securities. We encourage you to read about each Fund in the applicable prospectus accompanying this material. * Fund advised by Wells Fargo Bank * Sponsored/Distributed by Stephens Inc., Member NYSE/SIPC YOUR MONEY MARKET MUTUAL FUND CHOICES There are three money market mutual funds which may be linked to your Sweep Services: E( T76 Overland Su► V Fund, a taxable money market mutual fund that is advised by Wells Fargo Bank, seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in a portfolio of short-term money market instruments. The Overland Sweep Fund is part of the Overland Express Family of Funds. 0 The Overland Exprm U.& Treasury Money MarAW Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing exclusively in U.S. Treasury securities, which are debt obligations issued by the U.S. Government and which the payment of interest and repayment of principal are secured by the full faith and credit - of the U.S. Treasury. Shares of the Fund itself are not obligations of, or guaranteed by, the U.S. Government. 0 The Overland Erprei; Cahfnrnra TM6Fres MoneyM"Awt Fund seeks to provide investors with a high level of current income exempt from federal income taxes, a portion of which is also exempt from California personal income taxes, while preserving capital and liquidity, by investing in high -quality instruments, principally municipal securities. We encourage you to read about each Fund in the applicable prospectus accompanying this material. * Fund advised by Welk Fwr Bank * Sp~red/Distributed by SA14ens Inc., Member NYSFJSIPC TRACKING YOUR ACCOUNT ACTIVITY With the Wells Fargo Bank Overland Sweep Services, you receive, or have access to the following information concerning your accounts: 1. Account Position Report. This report gives you summary information about your WDDA and non -FDIC insured Sweep Account from the previous day. A sample Account Position Report is included with these materials. 2. Statement for your Sweep Account. This statement serves as your fund confirmation statement. It recaps the balances for the statement period and the individual sweep transactions, as well as the number of shares purchased and redeemed in the Fund, and the dividends earned. (See the reverse side to see a sample report.) .. Bang statement for your WDDA. This is the same statement and format you receive today as part of your WDDA service. 4. Access to the current Fund yield information by calling 1-800-AT-WELLS, Wells Fargo's InfoTouch service, you will access an audio response telephone balance reporting service. 1Access to information about all of your WDDAs and your Sweep Account through your own terminal or personal computer using Wells Fargo's PC Manager or Information Express service, the automated balance reporting system. {. Periodic reports and shareholder information from Overland Express about the Fund linked to your Sweep Account. These are the additional benefits you receive from Wells Fargo's Overland Sweep Services. * Fund advised by wells Fargo Bank * SpoworedlDistributed by Stephens Inc., Member NYSF✓SIPC Wells Fargo. At the frontier of financial innovation. WELLS FARGO BANK-) SAMPLE STATEMENT - SWEEP ACCOUNT 1. InfoTouchTM telephone number to obtain your Fund yield and balance information. 2 Customer Service telephone number to obtain other account information on any of your WDDA accounts, to request statement address changes, etc. '; Statement Period Fund* dividends are credited on the first business day of each month. Sweep Account Activity. This displays the summary of transactions made during the statement period, such as shares purchased via the automatic sweep, dividends paid and shares redeemed to replenish your WDDA's target collected balance. >5 Year -to -Date Dividends paid on your shares. >6� Net Asset Value (NAV) per share. The value of each of the Funds' shares is $1.00. . Debit and Credit Triasa4;don Detail. Reflects a) the redemption of shares to replenish the collected balance target, and b) the purchase of shares via the automatic balance sweep from your WDDA. 5: Account Balance by date for the accounting period. The only dates listed are days for which the balance changed. EXAMPLE 4417.07OW P.O. BOX 63020 SAN FRANCISCO, CA 94163 FOR CURRENT YIELD/BALANCES CASH FLOW COMPANY 0 Q CALL 1-800.203557 525 MARKET STREET 0 6:00 AM TO 7:00 PM PT SAN FRANCISCO, CA 94105 1 FOR ASSISTANCE CALL: BUSINESS ACCT SVC CENTER B AT (415) 243-7888 7:00 AM TO 6:00 PM PT PAGE 1 OF 1 THIS STATEMENT COVERS: 8/4/XX THROUGH SIM ® SUMMARY SWEEP ACCOUNT 4417476543 BEGINNING BALANCE .00 ® DIVIDENDS YTD: 131.79 SHARES PURCHASED 609.934.21 NET ASSET VALUE PER SHARE 100 DIVMDS 13179 + • Q SHARES REDEEMED 403,445.44 9NDING BALANCE 207162056 REDEMPTION TRANSACTION DESCRIPTION EFFECTIVE POSTED SHARES TRANSFER TO 412UW89 8127 402,44&44 a — PURCHASE TRANSACTION DESCRIPTION EFFECTIVE POSTED SHARES TRANSFER TO 4123-456789 8/24 57029M TRANSFER TO 4123-456789 8/29 5.744.43 TRANSFER TO 4123-456 70 9/01 33,898.96 DIVIDEND PAYMENT 9/01 13t79 BALANCE Q DATE BALANCE DATE BALANCE DATE BALANCE INFORMATION 8/24 57OZ9482 so 167,845.38 8/28 173,589.81 9/01 2o7,6M SHARES OF THE FUND ARE NOT FDIC INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT THANK YOU FOR BANKING WITH WELLS FARGO PRNIED ON RECYCLED RECYCLABLE PAPER �Mc The dividends earned that are shown in this example are for illustrative purposes only. Actual dividends earned will vary. * Fund advised by wells Fargo Bank * SponsoredJDist buted by Strphens Inc., Member ATSESIPC SAMPLE STATEMENT - SAP ACCOUNT ]. " InfoTouchT" telephone number to obtain your Fund yield and balance information. Customer Service telephone number to obtain other account ... ^ information on any of your WDDA accounts, to request statement address changes, etc. Stu went Period Fund* dividends are credited on the first burin day of each month. Sw�ssp Account Activity. This displays the summary of naasacdom made during the scata-I=t period, such as shard purchased via the automatic sweep+ dhidends paid and shard redeemed to replenish your WDDA's target collected balance. Year -to -Date Dividends paid on your share:. Net Asset Value (NAV) per share. The value of each of the Funds' shard is $1.00. Debit and Credit Transaction Detail. ReBects a) the rodempdon of shares to replenish the collected balance target, and b) the purchase of shares via the automatic balance sweep from your WDDA. : Accoaat Bala ace by date for the accounting period. The only dates listed are days for which the balance changed. 4417417SM3 P.O. BOX am SAN FRANCISCO. CA 94M FOR CURRENT YIELOIBALANCES CASH FLOW COMPANY 0 • CALL: 14100a3657 53 MARKET STREET 0 &00 AM TO 7.00 PM PT SAN FRANCISCO. CA 94106 1 FOR ASSISTANCE CALL: BUSINESS ACCT SVC CENTER • AT (415) 24337M 7:00 AM TO e00 PM PT PAGE I OF 1 THIS STATEMENT COVERS: It= THROUGH 91v10( • SUMMARY SWEEP ACCOUNT 441747" BEGIO NG BALANCE oo • DIVDEINDS YTD: M79 SHARES PURCHASED 604l34.41 + NET ASSET VALUE PER SHARE UM DIV m" 13t79 . • • SHARES REDEEMED 4 &44&44 . tNDNG BALANCE 2117eM REDOPTION TRANSACTION DESCRIFTION EFFECTIVE POSTED SHARES TRANSFER TO 41234" W27 QZ44L44 PURCHASE TRANSACTION DESCRIPTION EFFECTIVE POSTED SHARES TRANSFER TO 4123456M SF24 510290E TRANSFER TO 4US 45i79i to 17"43 TRANSFER TO 41234H 78 9/01 33JUM DIVIDEND PAYMENT 9/01 1309 BALANCE • DATE BALANCE DATE BALANCE DATE BALANCE (FORMATION 9124 5702MM W27 161.84!<3t 012s 173' 11 9/01 207AM SHARES OF THE FUND ARE NOT FDIC NSURED NOR GUARANTEED BY THE U.S. GOVERNMENT THANK YOU FOR BANKING WITH WELLS FARGO MI fiD OI RECYCLED IMCYQM PAW The dividends earned that are shown in this example are for iJlustrstiw purposes only. Actual dividends earned will vary. * Fund advised by wells Farp Bank * Spwwred/Diseributird by Smplmm Ixc., Meix6s ff NYSFJSIPC Sponsor, Administrator and Distributor Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Investment Adviser, Transfer and Dividend Disbursing Agent and Custodian Wells Fargo Bank, N.A. P.O. Box 63084 San Francisco, California 94163 Legal Counsel Morrison & Foerster LLP 2000 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Independent Auditor KPMG Peat Marwick LLP Three Embarcadero Center San Francisco, California 94111 NOT FDIC INSURED For more information about the Funds, simply call (800) 552-9612, or write: Overland Express Funds, Inc. c / o Overland Express Shareholder Services Wells Fargo Bank, N.A. P.O. Box 63084 San Francisco, California 94163 MMP 5/96 IL OVERLAND EXPRESS ° PROSPECTUS " California Tax -Free t Money Market Fund Money Market Fund Class A Shares U.S. Treasury Money Market Fund Class A Shares May 1, 1996 NOT FDIC INSURED ILgoo- OVERLAND Telephone: (800) 552 -9612 EXPRESS Stephens Inc. — Sponsor, Administrator and Distributor Wells Fargo Bank, N.A. — Investment Adviser, Transfer and Dividend Disbursing Agent and Custodian Overland Express Funds, Inc. (the "Company") is an open-end, series investment company. This Prospectus contains information about three of the Company's funds — the California Tax -Free Money Market Fund, the Money Market Fund and the U.S. Treasury Money Market Fund (each, a "Fund," and collectively, the "Funds") . The California Tax -Free Money Market Fund seeks to provide investors with a high level of current income exempt from federal income taxes, a portion of which is also exempt from California personal income taxes, while preserving capital and liquidity, by investing in high -quality instruments, principally municipal securities. Under normal market conditions, a substantial majority of the Fund's total assets will consist of securities the interest on which is exempt from California personal income taxes. In any event, at the close of each calendar quarter at least 50% of the Fund's total assets will consist of such securities. The Money Market Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in high -quality, short-term securities. The U.S. Treasury Money Market Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in short-term U.S. Treasury bonds, notes and bills. Each of the Funds seeks to maintain a net asset value of $1.00 per share. This Prospectus sets forth concisely the information a prospective investor should know before investing in any of the Funds. A Statement of Additional Information ("SAI") dated May 1, 1996, containing additional and more detailed information about each of the Funds has been filed with the Securities and Exchange Commission (the "SEC") and is hereby incorporated by reference into this Prospectus. The SAI is available without charge and can be obtained by writing the Company at P.O. Box 63084, San Francisco, CA 94163 or by calling the Company at (800) 552-9612. An investment in the Funds is neither insured nor guaranteed by the U.S. Government. There is no assurance that the Funds will be able to maintain a constant $1.00 net asset value per share. Investors should read this Prospectus carefully and retain it for future reference. FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED BY, WELLS FARGO BANK, N.A. ( "WELLS FARGO BANK") OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS DATED MAY 19 1996 This Prospectus describes the shares of the California Tax -Free Money Market Fund and the Class A Shares of the Money Market Fund and the U.S. Treasury Money Market Fund. Each of the Money Market Fund and the U.S. Treasury Money Market Fund also offers a class of shares known as the Institutional Class ( shares of the Institutional Class are referred to hereinafter as the "Institutional Shares") . Institutional Shares of these Funds require a minimum initial investment of $150,000. Additional information about the Institutional Shares and a free copy of the current prospectus describing the Institutional Shares is available from the Company by calling (800) 552-9612. WELLS FARGO BANK IS THE INVESTMENT ADVISER AND PROVIDES CERTAIN OTHER SERVICES TO THE FUNDS, FOR WHICH IT IS COMPENSATED. STEPHENS INC. ("STEPHENS") , WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR AND DISTRIBUTOR FOR THE FUNDS. Table Of Contents Page Prospectus Summary...................................................................... ii Summary of Expenses..................................................................... iv Financial Highlights....................................................................... v Investment Objectives, Policies and Activities ............................................... 1 Advisory, Administration and Distribution Arrangements ..................................... 8 DistributionPlans........................................................................ 10 Determination of Net Asset Value.......................................................... 10 Purchase of Shares........................................................................ 11 ExchangePrivileges....................................................................... 14 Redemption of Shares..................................................................... 15 Dividends and Distributions............................................................... 18 Taxes.................................................................................... 19 Custodian and Transfer and Dividend Disbursing Agent ...................................... 20 Organization and Capital Stock............................................................ 21 PROSPECTUS SUMMARY The Company, as an open-end management investment company, provides a convenient way for you to invest in portfolios of securities selected and supervised by professional management. The following provides information about the Funds, each of which has its own investment objective. Q. What Are The Funds' Investment Objectives? A. The California Tax -Free Money Market Fund seeks to provide investors with a high level of current income exempt from federal income taxes, a portion of which is also exempt from California personal income taxes, while preserving capital and liquidity, by investing in high -quality instru- ments, principally municipal securities. The Money Market Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in high -quality, short-term securities. The U.S. Treasury Money Market Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in short-term U.S. Treasury bonds, notes and bills. Each Fund seeks to maintain a net asset value of $1.00 per share; however, there can be no assurance that this will be achieved. As with all mutual funds, there can be no assurance that the Funds will achieve their investment objectives. Q. What Are Permissible Investments? A. The California Tax -Free Money Market Fund invests in high -quality instruments, primarily municipal securities, the income from which is exempt from federal income taxes, a portion of which is also exempt from California personal income taxes. Under normal market conditions, a substantial majority of the total assets of this Fund will consist of securities the interest on which is exempt from California personal income taxes. In all events, at the close of each calendar quarter, at least 50% of the Fund's total assets will consist of such securities. Income exempt from federal income tax may be of benefit to investors who pay federatincome taxes, whether or not they are residents of California. See "Investment Objectives, Policies and Activities." The Money Market Fund invests in high -quality money market instruments, including obligations of the U.S. Government, its agencies and instrumentalities (including government -sponsored enter- prises), certain debt obligations, including corporate debt, certain obligations of U.S. banks and certain repurchase agreements. See "Investment Objectives, Policies and Activities." The U.S. Treasury Money Market Fund invests primarily in short-term U.S. Treasury bonds, notes and bills. See "Investment Objectives, Policies and Activities." Q. Who Manages My Investments? A. Wells Fargo Bank, as the investment adviser to each Fund, manages your investments. Wells Fargo Bank also provides the Funds with transfer agency, dividend disbursing agency and custodial services. Stephens Inc. is the sponsor, administrator and distributor for the Company. See "Advi- sory, Administration and Distribution Arrangements" and "Distribution Plans." ii C C� �' C 11.� Q. What Are Some Of The Potential Risks Associated With An Investment In The Funds? A. Shares of the Funds are not guaranteed or insured against loss of principal or interest, although certain of the Funds' portfolio securities may be insured or guaranteed as to repayments of principal and/or the payment of interest. Although each of the Funds seeks to maintain a stable net asset value of $1.00 per share, there is no assurance that it will be able to do so. As with all mutual funds, there can be no assurance that the Funds will achieve their investment objectives. Since the California Tax -Free Money Market Fund will invest primarily in securities issued by California, its agencies and municipalities, events in California are more likely to affect this Fund's investments. Also, the California Tax -Free Money Market Fund is non -diversified, which means that its assets may be invested -in fewer issuers and therefore the value of its assets may be subject to greater impact by events affecting one of its investments. See "Investment Objectives, Policies and Activities — Municipal Securities" in this Prospectus and "Special Factors Affecting the California Tax -Free Money Market Fund" both in this Prospectus and in the SAI. Q. How May I Purchase Shares? A. Shares of the Funds may be purchased on any day the New York Stock Exchange (the "Exchange") is open for trading. There is no sales load for purchasing shares of any of the Funds. In most cases, the minimum initial purchase amount for shares of any of the Funds is $1,000. The minimum initial purchase amount is $100 for shares purchased through the Systematic Purchase Plan. The minimum subsequent purchase amount is generally $100 or more. However, certain exceptions may apply. You may purchase shares of the Funds through Stephens, Wells Fargo Bank, as transfer agent (the "Transfer Agent"), or any authorized broker/dealer or financial institution. Purchases of Shares of the Funds may be made by wire directly to the Transfer Agent. See "Purchase of Shares." Investors intending to invest at least $150,000 in either the Money Market Fund or the U.S. Treasury Money Market Fund should consider purchasing Institutional Shares rather than Class A Shares. A free copy of the current Prospectus for the Institutional Shares is available from the Company by calling (800) 552-9612. Q. How Will I Receive Dividends? A. Dividends on shares of the Funds are declared daily and paid monthly. Dividends are automatically reinvested in additional shares, unless you elect to receive dividends in cash. All reinvestments in shares of the Funds are at net asset value. See "Dividends and Distributions." Q. How May I Redeem Shares? A. Shares may be redeemed on any day the Exchange is open upon request to Stephens or the Transfer Agent directly, or through any authorized broker/dealer or financial institution. Shares may be redeemed by a request in good form in writing or through telephone direction. Proceeds are payable by check, or for shareholders who make prior arrangements, by wire. Accounts maintaining less than the applicable minimum initial purchase amount may be redeemed at the option of the Company. The Company does not charge for redeeming its shares. However, the Company reserves the right to impose charges for wiring redemption proceeds. See "Redemption of Shares." iii r r, r) n + r- SUMMARY OF EXPENSES Annual Fund Operating Expenses (as a percentage of average net assets) Management Fees (after waivers or reimbursements)' .... 12b-1 Fees ............................................ Other Expenses Administrative Fees .................................. Miscellaneous Expenses (after waivers or reimbursements)' .................................. Total Other Expenses ( after waivers or reimbursements) 1 .................................... Total Fund Operating Expenses (after waivers or reimbursements)' .................................... Class A California Class A Shares of Tax -Free Shares of U.S. Money Money Treasury Market Market Money Market Fund Fund Fund 0.45% 0.25% 0.24� 0.04% 0.25% 0.250, 0.10% 0.10% 0.10% 0.09% 0.05% 0.06% 0.19% 0.15% 0.16 0/1 0.68% 0.65% 0.65 ' The percentages shown above under "Management Fees," for the Class A Shares of the U.S. Treasury Money Market Fund and under "Miscellaneous Expenses," "Total Other Expenses" and "Total Fund Operating Expenses" for the Class A Shares of the Money Market and U.S. Treasury Money Market Funds are based on amounts incurred during the most recent fiscal year restated to reflect voluntary fee waivers and expense reimbursements. The fee waivers and expense reimbursements are expected to continue to reduce expenses during the current fiscal year. Absent waivers and reimbursements, the percentage shown above under "Management Fees" would have been 0.25% for the Class A Shares of the U.S. Treasury Money Market Fund. The percentages shown under "Miscellaneous Expenses," "Total Other Expenses" and "Total Fund Operating Expenses" would have been 0.09%, 0.19% and 0.69%, respectively, for the Class A Shares of the Money Market Fund, and 0.13%, 0.23% and 0.73%, respectively for the Class A Shares of the U.S. Treasury Money Market Fund. Stephens and Wells Fargo Bank each may elect, in its sole discretion, to otherwise waive its respective fees or reimburse expenses. Stephens,and Wells Fargo Bank each has agreed to waive all or a portion of its respective fees, through at least the current fiscal year, to the extent Total Fund Operating Expenses for Class A Shares of either the Money Market Fund or the U.S. Treasury Money Market Fund exceed 0.70% of average daily net assets. Any such waivers or reimbursements of fees with respect to a Fund would reduce the total expenses of such Fund. There can be no assurances that voluntary fees waivers and reimbursements will continue. iv r, 0 EXAMPLE OF EXPENSES 1 Year 3 Years 5 Years 10 Years You would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return and (2) redemption at the end of each time period indicated: California Tax -Free Money Market Fund .............. $7 $22 $38 $85 Money Market Fund — Class A Shares ................ $7 $21 $36 $81 U.S. Treasury Money Market Fund — Class A Shares .. $7 $21 $36 $81 The purpose of the foregoing table is to assist you in understanding the various costs and expenses that investors in shares of the Funds will bear directly or indirectly. There are no sales loads,- redemption fees or exchange fees charged by the Funds. However, the Company reserves the right to impose charges for wiring redemption proceeds. The Example of Expenses is a hypothetical example which illustrates the expenses associated with a $1,000 investment over the periods shown, based on the expenses in the table on the previous page and an assumed annual rate of return of 5%. This rate of return should not be considered an indication of the actual or expected performance of the fund. In addition, the Example should not be considered a representation of past or future expenses; actual expenses and returns may be greater or lesser than those shown. See "Advisory, Administration and Distribution Arrangements," "Purchase of Shares" and "Distribution Plans" for more complete descriptions of the various costs and expenses applicable to the Funds. FINANCIAL HIGHLIGHTS The following information has been derived from the Financial Highlights in the Funds' 1995 annual financial statements. The financial statements are incorporated by reference into the SAI and have been audited by KPMG Peat Marwick LLP, independent auditors, whose report dated February 14, 1996 also is incorporated by reference in the SAI. This information should be read in conjunction with the Funds' 1995 annual financial statements and the notes thereto. The SAI has been incorporated by reference into this Prospectus. v ,r r) P CALIFORNIA TAX-FREE MONEY MARKET FUND For a Share Outstanding as Shown Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991 Dec. 31, 1990 Dec. 31, 1989 Dec. 31,1988* Net asset value, beginning of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations: Net investment income .. 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.03 Net realized and unrealized gain/ (loss) on investments ........ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total from investment operations ............ 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.03 Less distributions: Dividends from net investment income..... (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.03) Distributions from net realized gain .......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tax return of capital..... 0.00 U0 0.00 0.00 0.00 0.00 0.00 0.00 Total from distributions.. (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.03) Net Asset Value, End of Period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return (Not Annualized) (3) ....... 3.25% 2.22% 1.84% 2.54% 3.99% 5.20% 5.84% 3.29% Ratios/supplemental data: Net assets, end of period (000) ................ $355,868 $288,409 $397,712 $363,067 $299,234 $312,023 $247,777 $271,683 Number of shares outstanding, end pf period (000) .......... 355,940 288,409 397,717 363,069 299,234 312,023 247,777 271,683 Ratios to average net assets (annualized): Ratio of expenses to average net assets(l) .. 0.68% 0.68% 0.66% 0.66% 0.66% 0.65% 0.61% 0.55% Ratio of net investment income to average net assets(2) ............. 3.20% 2.17% 1.82% 2.50% 3.92% 5.07% 5.73% 4.93% (1) Ratio of expenses to average net assets prior to waived fees and reimbursed expenses ........... 0.68% 0.70% 0.70% 0.69% 0.70% 0.73% 0.75% 0.73% (2) Ratio of net investment income to average net assets prior to waived fees and reimbursed 3.20% 2.15% 1.68% 2.47% 3.88% 4.99% N/A N/A expenses ........... (3) Total returns do not include any sales charges. * The Fund commenced operations on April 7, 1988. V1 rrnn^ V l . v .) ti MONEY MARKET FUND For a Class A Share Outstanding as Shown Year Year Year Year Year Year Period Ended Ended Ended Ended Ended Ended Ended Dec.31, Dec.31, Dec.31, Dec.31, Dec.31, Dec.31, Dec.31, 1995 1994 1993 1992 1991 1990 1989* Net Asset Value, Beginning of Period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -$ 1.00 $ 1.00 Income From Investment Operations: Net investment income (loss) ........................... 0.05 0.04 0.03 0.03 0.06 0.08 0.01 Net realized and unrealized gain (loss) on investments .......................................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total from investment operations ........................ 0.05 0.04 0.03 0.03 0.06 0.08 0.01 Less Distributions: Dividends from net investment income ................... (0.05) (0.04) (0.03) (0.03) (0.06) (0.08) (0.01) Distributions from net realized gain ...................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tax return of capital .................................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total from distributions ................................ (0.05) (0.04) (0.03) (0.03) (0.06) (0.08) (0.01) Net Asset Value, End of Period .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total return (not annualized) (3) ........................ 5.44% 3.70% 2.57% 3.23% 5.65% 7.88% 1.37% Ratios/supplemental data: Net assets, end of period (000)....... ................... $375,218 $307,878 $228,084 $268,424 $229,863 $198,187 $40,143 Number of shares outstanding, end of period (000) ....... 375,364 307,915 228,085 268,434 229,866 198,192 40,143 Ratios to average net assets (annualized): Ratio of expenses to average net assets (1) ................ 0.65% 0.68% 0.74% 0.75% 0.74% 0.68% 0.53% Ratio of net investment income to average net assets(2) ... 5.43% 3.71% 2.54% 3.17% 5.54% 7.55% 8.11% (1) Ratio of expenses to average net assets prior to waived fees and reimbursed expenses ........................ (2) Ratio of net investment income to average net assets prior to waived fees and reimbursed expenses .. . (3) Total returns do not include any sales charges. * The Fund commenced operations on November 1, 1989 0.69% 0.72% 0.74% 0.75% 0.75% 0.84% 1.82% 5.39% 3.67% 2.54% 3.17% 5.53% 7.39% N /A vll U.S. TREASURY MONEY MARKET FUND For a Class A Share Outstanding As Shown Year Year Year Period Ended Ended Ended Ended Dec.31, Dec.31, Dec.31, Dec.31, 1995 1994 1993 1992* Net Asset Value, Beginning of Period ...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations: Net investment income (loss) ............................................. 0.05 0.03 0.03 0.02 Net realized and unrealized gain (loss) on investments ...................... 0.00 0.00 0.00 0.00 Total from investment operations .......................................... 0.05 0.03 0.03 0.02 Less distributions: Dividends from net investment income ..................................... (0.05) (0.03) (0.03) (0.02) Distributions from net realized gain ........................................ 0.00 0.00 0.00 0.00 Tax return of capital ..................................................... 0.00 0.00 0.00 0.00 Total from distributions.................................................. (0.05) (0.03) (0.03) (0.02) Net Asset Value, End of Period ............................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return (not annualized) (3)......................................... 5.09% 3.44% 2.56% 1.97% Ratios/supplemental data: Net assets, end of period (000)............................................ $198,753 $195,031 $118,169 $137,412 Number of shares outstanding, end of period (000) .......................... 198,782 195,042 118,169 137,416 Ratios to average net assets (annualized): Ratio of expenses to average net assets(l).................................. 0.65% 0.63% 0.52% 0.27% Ratio of net investment income to average net assets (2) ..................... 4.97% 3.47% 2.55% 3.12% (1) Ratio of expenses to average net assets prior to waived fees and reimbursed expenses .................................................. 0.73% 0.80% 0.77% 0.79% (2) Ratio of net investment income to average net assets prior to waived fees and reimbursed expenses .............................................. 4.89% 3.30% 2.30% 2.60% (3) Total returns do not include any sales charges. * The Fund commenced operations on May 12, 1992. r r 0 ,nt C" INVESTMENT OBJECTIVES, POLICIES AND ACTIVITIES Set forth below is a description of the investment objectives and related policies of each of the Funds. As with all mutual funds, there can be no assurance that the Funds will achieve their respective investment objectives. The Funds invest only in U.S. dollar -denominated ."Eligible Securities" with remaining maturities not exceeding thirteen months, as defined in Rule 2a-7 under the Investment Company Act of 1940 ( the "1940 Act") , and maintain a dollar -weighted average portfolio maturity of 90 days or less. An Eligible Security is a security that is determined to present minimal credit risks and is rated in one of the two highest rating categories by the required number of nationally recognized statistical rating organiza- tions ("NRSROs") or, if unrated, is determined to be of comparable quality to such rated securities. These determinations are made by the investment adviser under guidelines adopted by the Company's Board of Directors, although in certain instances the Board of Directors must approve or ratify the Funds' investments. The Board of Directors of the Company (or Wells Fargo Bank, under authority delegated to it as investment adviser to the Funds) will determine on an ongoing basis that any Eligible Securities purchased by the Funds present minimal credit risks. The Funds will endeavor to maintain a constant net asset value of $1.00 per share; however, there is no assurance that they will be able to do so. California Tax -Free Money Market Fund Investment Objective. The California Tax -Free Money Market Fund seeks to provide investors with a high level of current income exempt from federal income taxes, a portion of which is also exempt from California personal income taxes, while preserving capital and liquidity, by investing in high -quality instruments, principally municipal securities. As a matter of fundamental policy, the Fund under normal circumstances invests at least 80% of its net assets in municipal securities that are exempt from federal income taxes and are not subject to the alternative minimum tax (or in other open-end tax-free money market funds with a similar fundamental policy). Under normal market conditions, a substantial majority of the Fund's total assets will consist of securities, the interest on which is exempt from both federal income taxes and California personal income taxes. Under normal market conditions, at least 65% of the Fund's total assets will consist of such securities. In addition, as a matter of fundamental policy, at the close of each quarter of the Fund's taxable year at least 50% of its total assets will consist of such securities. The Fund invests in municipal obligations issued by or on behalf of the State of California, its cities, municipalities and other public authorities and may also invest in obligations issued by the U.S. Virgin Islands, Puerto Rico and Guam; the income on these securities is exempt from both federal income taxes and California personal income taxes. See "Investments and Activities — Municipal Securities" and "Taxes." Pending the investment of proceeds from the sale of Fund shares or proceeds from sales of portfolio securities or in anticipation of redemptions, or to maintain a "defensive" posture when, in the opinion of the investment adviser, it is advisable to do so because of market conditions, the Fund may elect to invest temporarily up to 20% of the current value of its net assets in cash reserves, high -quality taxable money market instruments (discussed below) and high -quality municipal obligations, the income from which may or may not be exempt from federal income taxes. Some portion of the income received by Fund shareholders may be subject to federal income taxes and California personal income taxes. The Fund is a non -diversified portfolio, which means that its assets may be invested in fewer issuers than a diversified portfolio and therefore the value of its assets may be subject to greater impact by events affecting one of its rCf)r,I-)I �_ V -' 11.0 M1 - investments. Since the Fund will invest primarily in securities issued by California, its agencies and municipalities, events in California are more likely to affect this Fund's investments. For a further discussion of factors affecting investments by the California Tax -Exempt Money Market Fund, see "Investments and Activities — Municipal Securities" and "Special Factors Affecting the California Tax - Free Money Market Fund" both in this Prospectus and in the SAI. Money Market Fund Investment Objective. The Money Market Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in high -quality, short-term securities. Under normal market circumstances, this Fund invests its assets exclusively in money market instruments ( discussed below) . This Fund is a diversified portfolio. U.S. Treasury Money Market Fund Investment Objective. The U.S. Treasury Money Market Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity, by investing in short-term U.S. Treasury bonds, notes and bills ("U.S. Treasury Securities") . The Fund will invest exclusively in U.S. Treasury Securities. U.S. Treasury Securities are debt obligations issued by the U.S. Government, of which the payment of interest and repayment of principal are secured by the full faith and credit of the U.S. Treasury. Treasury bonds, notes and bills differ mainly in the length of their maturities: Treasury bonds are long-term debt instruments with original maturities of ten years or more; Treasury notes are medium -term debt instruments with original maturities of one to ten years; and Treasury bills are short-term debt obligations with original maturities of one year or less and are issued on a discounted basis. The U.S. Treasury Money Market Fund may only purchase U.S. Treasury Securities with remaining maturities of 13 months or less. This Fund is a diversified portfolio. Investments and Activities Municipal Securities The municipal securities in which the California Tax -Free Money Market Fund may invest are: Long-term municipal bonds rated at the date of purchase "Aa" or better by Moody's Investors Service, Inc. ("Moody's") or "AA" or better by Standard & Poor's Corporation ("S&P" ) ; Medium -term municipal notes rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG 2" in the case of an issue having a variable rate with a demand feature) by Moody's or "SP-1" or better by S&P; and Short-term municipal commercial paper rated at the date of purchase "Prime-1" by Moody's or "A-1" or better by S&P. Medium -term municipal notes are generally issued in anticipation of the receipt of tax funds, of the proceeds of bond placements or of other revenues. The ability of an issuer to make payments on notes is therefore especially dependent on such tax receipts, proceeds from bond sales or other revenues, as the case may be. Municipal commercial paper is a debt obligation with a stated maturity of 270 days or less that is 2 issued to finance seasonal working capital needs or as short-term financing in anticipation of longer -term debt. From time to time, the Fund may invest 25% or more of the current value of its total assets in municipal obligations that are related in such a way that an economic, business or political development or change affecting one such obligation also would affect the other obligations; for example, municipal obligations the interest on which is paid from revenues of similar type projects. Furthermore, from time to time, the Fund may invest 25% or more of the current value of its total assets in certain "private activity bonds," the interest on which may be subject to federal alternative minimum tax, such as pollution control bonds; provided, however, that such investments will be made only to the extent they are consistent with the Fund's fundamental policy, described above, of investing, under normal circumstances, at least 80% of its net assets in municipal obligations that are exempt from federal income taxes and are not subject to the alternative minimum tax. In addition, because the Fund intends to invest at least 25% of its total assets in obligations issued by or on behalf of the State of California, its cities, municipalities and other public authorities, the Fund is particularly dependent on, and may be adversely affected by, general economic conditions in California. In this regard, certain of the municipal securities in which the California Tax -Free Money Market Fund may invest may be bonds or other types of obligations of California issuers that rely in whole or in part, directly or indirectly, on ad valorem real property taxes as a source of revenue. The California Constitution limits the powers of municipalities to impose and collect ad valorem taxes on real property, which, in turn, restricts the ability of municipalities to service their debt or lease obligations from such taxes. Money Market Instruments Money Market Instruments consist of: (a) short-term securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities ( including government -sponsored enterprises) ("U.S. Gov- ernment obligations") ( discussed below) ; (b) negotiable certificates of deposit, bankers' acceptances and fixed time deposits and other short-term obligations of domestic banks (including foreign branches) that have more than $1 billion in total assets at the time of the investment and are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"); (c) commercial paper rated at the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined by the Investment Adviser; (d) certain repurchase agreements ( discussed below) ; and (e) short-term U.S. dollar -denominated obligations of foreign banks (including U.S. branches) that at the time of investment: (i) have more than $10 billion, or the equivalent in other currencies, in total assets; (ii) are among the 75 largest foreign banks in the world as determined on the basis of assets; and (iii) have branches or agencies in the United States. U.S. Government Obligations The U.S. Treasury Money Market Fund invests exclusively in U.S. Treasury Securities. The California Tax -Free Money Market Fund and the Money Market Fund may invest in various types of U.S. Government obligations. U.S. Government obligations include securities issued or guaranteed as to principal and interest by the U.S. Government and supported by the full faith and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of their maturity. Treasury bills, the most frequently issued marketable government securities, have a maturity of up to one year and are issued on a discount basis. U.S. Government obligations also include securities issued or guaranteed by federal 3 agencies or instrumentalities, including government -sponsored enterprises. Some obligations of agencies or instrumentalities of the U.S. Government are supported by the full faith and credit of the United States or U.S. Treasury guarantees; others, by the right of the issuer or guarantor to borrow from the U.S. Treasury; still others, by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others, only by the credit of the agency or instrumentality issuing the obligation. In the case of obligations not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality, which may be privately owned, issuing or guaranteeing the obligation for ultimate repayment. There can be no assurance that the U.S. Government will provide financial support to its agencies or instrumentalities where it is not obligated to do so. In addition, U.S. Government obligations are subject to fluctuations in market value due to fluctuations in market interest rates. Certain types of U.S. Government obligations are subject to fluctuations in yield or value due to their structure or contract terms. Floating- and Variable -Rate Instruments Certain of the debt instruments in which the Funds may invest bear interest at rates that are not fixed, but float or vary with, for example, changes in specified market rates or indices or at specified intervals. Certain of these floating- and variable -rate instruments may carry a demand feature that would permit the holder to tender them back to the issuer at par value prior to maturity. The Funds may purchase certificates of participation in pools of floating- and variable -rate instruments from banks and other financial institutions. The investment adviser may rely upon either the opinion of counsel to the issuer or bond counsel regarding the tax-exempt status of these securities purchased by the California Tax -Free Money Market Fund. The Funds may invest in floating- and variable -rate instruments even if they carry stated maturities in excess of thirteen months, upon compliance with certain conditions of the SEC, in which case such instruments will be treated, in accordance with these conditions, as having maturities not exceeding thirteen months. Wells Fargo Bank, as investment adviser to each of the Funds, monitors on an ongoing basis the ability of an issuer of a demand instrument to pay principal and interest on demand. Events occurring between the date a Fund elects to demand payment on a floating- or variable -rate instrument and the date payment is due may affect the ability of the issuer of the instrument to make payment when due, and unless such demand instrument permits same -day settlement, such events may affect a Fund's ability to obtain payment at par. Demand instruments whose demand feature is not exercisable within seven days may be treated as liquid, provided that an active secondary market exists. Repurchase Agreements The California Tax -Free Money Market Fund and the Money Market Fund may enter into repurchase agreements wherein the seller of a security to the Fund agrees to repurchase that security from the Fund at a mutually agreed -upon time and price. The period of maturity is usually quite short, often overnight or a few days, although it may extend over a number of months. These Funds may enter into repurchase agreements only with respect to U.S. Government obligations and other securities which are permissible investments for the Funds. All repurchase agreements will be fully collateralized at 102% based on values that are marked to market daily. The maturities of the underlying securities in a repurchase agreement transaction may be greater than twelve months. However, the term of any repurchase agreement on behalf of the Fund will always be less than twelve months. If the seller defaults and the value of the underlying 4 ! securities has declined, the Fund may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, the Fund's disposition of the security may be delayed or limited. These Funds may not enter into a repurchase agreement with a maturity of more than seven days if, as a result, more than 10% of the market value of the Fund's total net assets would be invested in either repurchase agreements with maturities of more than seven days and/or illiquid securities and, with respect to the California Tax -Free Money Market Fund, restricted securities. The Funds will enter into repurchase agreements only with primary broker/dealers and commercial banks that meet guidelines established by the Company's Board of Directors and are not affiliated with the investment adviser. The Funds may participate in pooled repurchase agreement transactions with other funds advised by Wells Fargo Bank. Foreign Obligations The California Tax -Free Money Market Fund and the Money Market Fund may invest less than 25% of their assets in high -quality, short-term debt obligations of foreign branches of U.S. banks or U.S. branches of foreign banks that are denominated in and pay interest in U.S. dollars. Investments in foreign obligations involve certain considerations that are not typically associated with investing in domestic obligations. There may be less publicly available information about a foreign issuer than about a domestic issuer. Foreign issuers also are not subject to the same accounting, auditing and financial reporting standards or governmental supervision as domestic issuers. In addition, with respect to certain foreign countries, taxes may be withheld at the source under foreign income tax laws, and there is a possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments that could adversely affect investments in, the liquidity of, and the ability to enforce contractual obligations with respect to, securities of issuers located in those countries. Other Tax -Exempt Mutual Funds The California Tax -Free Money Market Fund may invest in shares of other open-end investment companies that invest exclusively in high -quality, short-term securities, provided, however, that such company is a tax-free money market fund with a fundamental policy of investing, under normal circum- stances, at least 80% of its net assets in obligations that are exempt from federal income taxes and are not subject to the alternative minimum tax. Such investment companies can be expected to charge management fees and other operating expenses that would be in addition to those charged to the Fund. However, the investment adviser has undertaken to waive its advisory fees with respect to assets so invested. In no event may this Fund, together with any company or companies controlled by it, own more than 3% of the total outstanding voting. stock of any such company, nor may the Fund, together with any such company or companies, invest more than 5% of its assets in any one such company or invest more than 10% of its assets in securities of all such companies combined. Special Factors Affecting the California Tax -Free Money Market Fund California is experiencing recurring budget deficits caused by lower than anticipated tax -revenues and increased expenditures for certain programs. These budget deficits have depleted the state's available cash resources, and the state has recently had to use a series of external borrowings to meet its cash needs. In addition, since 1992 some of the credit rating agencies have assigned their third highest rating to certain of the state's debt obligations. On July 15, 1994, three of the NRSROs rating California's long-term debt 5 lowered their ratings of the state's general obligation bonds. Moody's lowered its rating from "Aa" to "Al," S&P lowered its rating from "A+" to "A" and termed its outlook as "stable," and Fitch Investors Service lowered its rating from "AA" to "A." The California Tax -Free Money Market Fund may invest only in securities rated in the top two rating categories. Any further rating downgrade of the state's debt obligations may impact the availability of securities that meet the Funds' investment policies and restrictions. The Fund's investment adviser will continue to monitor and evaluate the investments of the Fund in light of the events in California and the Fund's investment objective and investment policies. The NRSROs will also continue to monitor events in the state and the state and local governments' responses to budget shortfalls. Risk Factors Pursuant to the 1940 Act, each Fund must comply with certain investment criteria (noted in the first paragraph of this section) designed to provide liquidity, reduce risk and allow the Funds to maintain a stable net asset value of $1.00 per share. Of course, the Funds cannot guarantee a $1.00 share price. The Funds seek to reduce risk by investing their assets in securities of various issuers and will comply with Internal Revenue Code of 1986 (the "Code") diversification requirements. Although the Money Market and U.S. Treasury Money Market Funds will be considered "diversified" for purposes of the 1940 Act, the California Tax -Free Money Market Fund will be considered non -diversified for purposes of the 1940 Act. See "Taxes" below. Since their inception, the Funds have emphasized safety of principal and high credit quality. In particular, the internal investment policies of the Funds' investment adviser, Wells Fargo Bank, have always prohibited the purchase for the Funds of many types of floating-rate instruments commonly referred to as "derivatives" that are considered potentially volatile. The following types of derivative securities ARE NOT permitted investments for the Funds: • capped floaters (on which interest is not paid when market rates move above a certain level) ; • leveraged floaters (whose interest -rate reset provisions are based on a formula that magnifies changes in interest rates) ; • range floaters (which do not pay any interest if market interest rates move outside of a specified range) ; • dual index floaters (whose interest -rate reset provisions are tied to more than one index so that a change in the relationship between these indices may result in the value of the instrument falling below face value); and • inverse floaters (which reset in the opposite direction of their index) . Additionally, the Funds may not invest in securities whose interest rate reset provisions are tied to an index that materially lags short-term interest rates, such as Cost of Funds Index ("COFI") Floaters. The Funds may only invest in floating rate instruments that bear interest at a rate that resets quarterly or more frequently, and which resets based on changes in standard money market rate indices such as U.S. Treasury bills, London Interbank Offered Rate, the prime rate, published commercial paper rates, federal funds rates, Public Securities Associates ("PSA") Floaters or JJ Kenney index floaters. 6 J Each of the Funds' investment objectives, as set forth in the first paragraph of the subsection describing each Fund above, is fundamental; that is, the investment objective may not be changed without approval by the vote of the holders of a majority of the Fund's outstanding voting securities, as described under "Capital Stock" in the SAI. If the Board of Directors determines, however, that a Fund's investment objective can best be achieved by a substantive change in a non -fundamental investment policy or strategy, the Company may make such change without shareholder approval and will disclose any such material changes in the then current prospectus. As matters of fundamental policy, the following apply: (i) each of the Funds may borrow from banks up to 10% of the current value of its net assets for temporary purposes only in order to meet redemptions, and these borrowings may be secured by the pledge of up to 10% of the current value of its net assets (but investments may not be purchased by the California Tax -Free Money Market Fund or the Money Market Fund while any such outstanding borrowing exists and investments may not be purchased by the U.S. Treasury Money Market Fund while any such outstanding borrowing in excess of 5% of its net assets exists) ; (ii) only the California Tax -Free Money Market Fund may make loans of portfolio securities in accordance with its investment policies; and (iii) none of the Funds may purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Fund's investment in that industry would exceed 25% of the current value of such Fund's total assets, provided that there is no limitation with respect to investments in (a) U.S. Government obligations (which includes U.S. Treasury Securities), (b) obligations of domestic banks (for purpose of this restriction, domestic bank obligations do not include obligations of U.S. branches of foreign banks or obligations of foreign branches of U.S. banks) , and (c) with respect to the California Tax -Free Money Market Fund, municipal securities ( for the purpose of this restriction, private activity bonds shall not be deemed municipal securities if the payments of principal and interest on such bonds are the ultimate responsibility of non -governmental users) . With respect to fundamental investment restriction (ii) above, the California Tax -Free Money Market Fund does not intend to make loans of its portfolio securities during the coming year. In addition, as a matter of non -fundamental investment policy, the California Tax -Free Money Market Fund may invest up to 5% of its net assets in when -issued securities. See "Investment Restrictions" and "Additional Permitted Investment Activities" in the SAI. 7 r �'` n n ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS The Board of Directors, in addition to supervising the actions of the investment adviser, administrator and distributor, as set forth below, decides upon matters of general policy. Investment Adviser Pursuant to Advisory Contracts, each of the Funds is advised by Wells Fargo Bank, 420 Montgomery Street, San Francisco, California 94104, a wholly owned subsidiary of Wells Fargo & Company. Wells Fargo Bank, one of the largest banks in the United States, was founded in 1852 and is the oldest bank in the western United States. As of April 1, 1996 Wells Fargo Bank and its affiliates provided investment advisory services for approximately $56 billion of assets of individuals, trusts, estates and institutions. Wells Fargo Bank is the investment adviser to other separately managed portfolios of the Company and serves as investment adviser or sub -adviser to five other registered open-end management investment companies, each of which consist of several separately managed investment portfolios. The Advisory Contracts provide that Wells Fargo Bank shall furnish to the Funds investment guidance and policy direction in connection with the daily portfolio management of the Funds. Pursuant to the Advisory Contracts, Wells Fargo Bank furnishes to the Board of Directors periodic reports on the investment strategy and performance of each Fund. For its services under the Advisory Contracts, Wells Fargo Bank is entitled to receive monthly advisory fees at the annual rates of 0.45% of the average daily net assets of the California Tax -Free Money Market Fund and 0.25% of the average daily net assets of each of the Money Market Fund and the U.S. Treasury Money Market Fund. From time to time, Wells Fargo Bank may waive such fees in whole or in part. In this regard, Wells Fargo Bank has agreed to waive its fees, through at least the current fiscal year, to the extent Total Fund Operating Expenses for Class A Shares of the Money Market Fund or the U.S. Treasury Money Market Fund would exceed 0.70% of average daily net assets. Any such waiver will reduce expenses of the Fund involved and, accordingly, have a favorable impact on the performance of such Fund. For the year ended December 31, 1995, Wells Fargo Bank received 0.45%, 0.25% and 0.24% of the average daily net assets of the California Tax -Free Money Market Fund, Money Market Fund and U.S. Treasury Money Market Fund, respectively, as compensation for its services as investment adviser. Purchase and sale orders of the securities held by each of the Funds may be combined with those of other accounts that Wells Fargo Bank manages, and for which it has brokerage placement authority, in the interest of seeking the most favorable overall net results. When Wells Fargo Bank determines that a particular security should be bought or sold for any of the Funds and other accounts managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those transaction costs among the participants equitably. From time to time, each of the Funds, to the extent consistent with its investment objective, policies and restrictions, may invest in securities of companies with which Wells Fargo Bank has a lending relationship. Morrison & Foerster LLP, counsel to the Company and special counsel to Wells Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank and its affiliates may perform the services contemplated by the Advisory Contracts and this Prospectus without violation of the Glass- Steagall Act. Such counsel has pointed out, however, that there are no controlling judicial or administrative : interpretations or decisions and that future judicial or administrative interpretations of, or decisions relating to, present federal or state statutes, including the Glass-Steagall Act, and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as future changes in such statutes, regulations and judicial or administrative decisions or interpretations, could prevent such entities from continuing to perform, in whole or in part, such services. If any such entity were prohibited from performing any such services, it is expected that new agreements would be proposed or entered into with another entity or entities qualified to perform such services. Sponsor, Administrator and Distributor Stephens, 111 Center Street, Little Rock, Arkansas 72201, has_entered into an agreement with each of the Funds under which Stephens acts as administrator for the Funds. For providing these administrative services, Stephens is entitled to receive a monthly fee from each Fund at the annual rate of 0.10% of its average daily net assets. For each of the California Tax -Free Money Market Fund and the U.S. Treasury Money Market Fund, such annual rate shall decrease to 0.05% of such average daily value of net assets of the Fund in excess of $200 million. From time to time, Stephens may waive fees from any or all of the Funds in whole in part. Any such waiver will reduce expenses of the Fund involved and, accordingly, have a favorable impact on the performance of such Fund. The Administration Agreements between Stephens and the Funds state that Stephens shall provide as administrative services, among other things, (i) general supervision of the operation of the Funds, including coordination of the services performed by the Funds' investment adviser, transfer agent, custodian, independent auditors and legal counsel; (ii) general supervision of regulatory compliance matters, including, the compilation of information for documents such as reports to, and filings with, the SEC and state securities commissions, and preparation of proxy statements and shareholder reports for the Funds; and (iii) general supervision of the compilation of data required for the preparation of periodic reports distributed to the Company's officers and Board of Directors. Stephens also furnishes office space and certain facilities required for conducting the business of the Funds and pays the compensation of the Company's Directors, officers and employees who are affiliated with Stephens. Stephens, as the principal underwriter of the Funds within the meaning of the 1940 Act, has entered into a Distribution Agreement with the Company pursuant to which Stephens has the responsibility for distributing shares of the Funds. Stephens bears the cost of printing and mailing prospectuses to potential investors and any advertising expenses incurred by it in connection with the distribution of shares, subject to the terms of the distribution plans described below. In addition, Stephens has established a non -cash compensation program, pursuant to which broker/dealers or financial institutions that sell shares of the Funds may earn additional compensation in the form of trips to sales seminars or vacation destinations, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise. Stephens is a full service broker/dealer and investment advisory firm. Stephens and its predecessor have been providing securities and investment services for more than sixty years. Additionally, they have been providing discretionary portfolio management services since 1983. It currently manages investment portfolios for pension and profit sharing plans, individual investors, foundations, insurance companies and university endowments. 47 r f r) rN DISTRIBUTION PLANS The Company's Board of Directors has adopted a Distribution Plan on behalf of each Fund. Under the Plan for the California Tax -Free Money Market Fund, the Fund may defray all or part of the cost of preparing and printing prospectuses and other promotional materials and of delivering prospectuses and those materials to prospective shareholders of the Fund, by paying on an annual basis up to the greater of $100,000 or 0.05% of the Fund's average daily net assets. The Plan for the California Tax -Free Money Market Fund provides only for the reimbursement of actual expenses. Under the Plans for the Class A Shares of the Money Market Fund and the Class A Shares of the U.S. Treasury Money Market Fund, Stephens is entitled to receive, as compensation for distribution -related services, a monthly fee at an annual rate of up to 0.25% of each Fund's average daily net assets attributable to Class A Shares. The actual fee payable to Stephens is determined, within such limit, from time to time by mutual agreement between the Company and Stephens, and may not exceed the maximum amount payable under the Rules of Fair Practice of the National Association of Securities Dealers, Inc. Stephens may enter into selling agreements with one or more selling agents under which such agents may receive compensation for distribution -related services from Stephens, including, but not limited to, commissions or other payments to such agents based on the average daily net assets of the Class A Shares of the Money Market Fund and/or the Class A Shares of the U.S. Treasury Money Market Fund attributable to them. Stephens may retain any portion of the total distribution fee payable under the Plans for these Funds to compensate it for distribution -related services provided by it or to reimburse it for other distribution -related expenses. Each of the Funds may participate in joint distribution activities with any of the other funds or portfolios of the Company, in which event, expenses reimbursed out of the assets of one of the Funds may be attributable, in part, to the distribution -related activities of the other funds or another portfolio. Generally, the expenses attributable to joint distribution activities will be allocated among the Funds and the other portfolios of the Company in proportion to their relative net asset sizes, although the Board of Directors may allocate such expenses in any other manner that it deems fair and equitable. DETERMINATION OF NET ASSET VALUE Net asset value per share of each Fund is determined by Wells Fargo Bank on each day that the Exchange is open for trading. The net asset value of a share of a class of the Money Market Fund and the U.S. Treasury Money Market Fund is the value of total net assets attributable to such class divided by the number of outstanding shares of that class. The value of net assets per class is determined daily by adjusting the net assets per class at the beginning of the day by the value of each class's shareholder activity, net investment income and net realized and unrealized gains or losses for that day. Net investment income is calculated each day for each class by attributing to each class a pro rata share of daily income and common expenses, and by assigning class -specific expenses to each class as appropriate. The net asset value per share of the California Tax Free Money Market Fund is determined by dividing the value of the total assets of the Fund less all of its liabilities by the total number of outstanding shares of the Fund. The net asset value per share of each Fund is determined as of 12:00 noon and 4:00 p.m. (New York time) . Each of the Funds uses the amortized cost method to value its portfolio securities and attempts to maintain a constant net asset value of $1.00 per share. The amortized cost method involves valuing a Ito] r r.r10 n �..: w J k? security at its cost and amortizing any discount or premium over the period until maturity, regardless of the impact of fluctuating interest rates on the market value of the security. Performance Data From time to time, the Company may advertise yield information with respect to a class of shares of the Funds. Yield information will be based on the historical earnings and performance of a class of shares of a Fund and should not be considered representative of future performance. From time to time, each of the Funds may advertise its current yield and its effective yield for a class of shares. The California Tax -Free Money Market Fund also may advertise its current tax -equivalent yield and its effective tax -equivalent yield. Current yield for each class of shares of a Fund will be computed by dividing its net investment income per share of a class of shares earned during a specified period by its net asset value per share on the last day of such period and annualizing the result. The current yield of each class of shares of a Fund will show the annualized income per share generated by an investment in such a class of shares of the Fund over a stated period. The current tax -equivalent yield of the California Tax -Free Money Market Fund will be calculated in a similar manner, but will assume that a stated income tax rate has been applied to non- exempt income to derive the tax-exempt portion of this Fund's yield. The effective yield and effective tax - equivalent yield are calculated similarly but, when annualized, the income earned, or the tax -equivalent income assumed to have been earned, per share of a class of shares will be assumed to have been reinvested. The effective yield and effective tax -equivalent yield will be slightly higher than the current yield and current tax -equivalent yield, respectively, because of the compounding effect of this assumed reinvestment. Additional information about the performance of each Fund is contained in the Annual Report for each Fund. The Annual Report may be obtained free of charge by calling the Company at 800-552-9612. PURCHASE OF SHARES Shares of any of the Funds may be purchased on any day the Exchange is open for trading through Stephens, the Transfer Agent, or any authorized broker/dealer or financial institution with which Stephens has entered into agreements. Such broker/dealers or financial institutions are responsible for the prompt transmission of purchase, exchange or redemption orders, and may independently establish and charge additional fees to their clients for such services, other than services related to purchase orders, which would reduce the clients' overall yield or return. The Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day ( each, a "Holiday") . When any Holiday falls on a Saturday, the Exchange usually is closed the preceding Friday, and when any Holiday falls on a Sunday, the Exchange usually is closed the following Monday. In most cases, the minimum initial purchase amount for shares of any of the Funds is $1,000. The minimum initial purchase amount is $100 for shares purchased through the Systematic Purchase Plan. The minimum subsequent purchase amount is generally $100. The minimum initial or subsequent purchase amount requirements may be waived or lowered for investments effected on a group basis by certain entities and their employees, such as pursuant to a payroll deduction or other accumulation plan. In addition, the minimum initial purchase amount does not apply to investors who purchase shares of the California Tax - Free Money Market Fund or Class A Shares of the Money Market Fund and U.S. Treasury Money Market Fund as customers of a financial institution which has established a cash sweep arrangement with respect to such Funds. The Company reserves the right to reject any purchase order. All funds will be invested in full and fractional shares. Checks will be accepted for the purchase of any Fund's shares subject to collection at 11 full face value in U.S. dollars. Inquiries concerning purchases may be directed to the Company at (800) 572-7797 or at the address on the front cover of the Prospectus. The Company reserves the right to reject any purchase order. All funds will be invested in full and fractional shares. Checks will be accepted for the purchase of either Fund's shares subject to collection at full face value in U.S. dollars. Shares of the Funds are offered continuously at the net asset value next determined after a purchase order is effective. No sales load is imposed. Account Applications for shares of any of the Funds will become effective when an investor's bank wire order or check is converted into federal funds. If payment is transmitted by the Federal Reserve Wire System, the Account Application will become effective upon receipt. In addition, if investors, with the prior approval of the Company, notify the Company at or before 12:00 noon (New York time) on any business day that they intend to wire federal funds to purchase shares of any of the Funds, the Account Application will be executed at the net asset value per share determined at 12:00 noon (New York time) the same day. Wire transmissions may, however, be subject to delays of several hours, in which event the effectiveness of the order will be delayed. Payments transmitted by a bank wire other than the Federal Reserve Wire System may take longer to be converted into federal funds. A salesperson or any other person or entity entitled to receive compensation for selling or serviciiig shares of any of the Funds may receive different compensation with respect to one class of shares over another. When payment for shares of any of the Funds is by a check that is drawn on any member bank of the Federal Reserve System, federal funds normally become available to the Fund on the business day after the day the check is deposited. Checks drawn on a non-member bank or a foreign bank may take substantially longer to be converted into federal funds and, accordingly, may delay the execution of an order. By investing in shares of any of the Funds, you appoint the Transfer Agent, as agent, to establish an open account to which all shares purchased will be credited, together with any dividends and capital gain distributions that are paid in additional shares. See "Dividends and Distributions." Stock certificates for the Funds will not be issued. Shares of any of the Funds may be purchased by any of the methods described below. Initial Purchases of Fund Shares by Wire 1. Telephone toll free (800) 572-7797. Give the name of the Fund and Class of shares in which the investment is to be made, the name (s) in which the shares are to be registered, the address and social security number (or tax identification number, where applicable) of the person or entity in whose name (s ) the shares will be registered, dividend payment election, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. An account number will be assigned. 12 v _� 0 0 2. Instruct the wiring bank, which may charge a separate fee, to transmit the specified amount in federal funds ($1,000 or more) to: Wells Fargo Bank, N.A. San Francisco, California Bank Routing Number: 121000248 Wire Purchase Account Number: 4068-000462 Attention: Overland Express ( designate Fund and Class, if any) Account Name (s) : ( name (s) in which to be registered) Account Number: (as assigned by telephone) 3. A completed Account Application should be mailed, or sent by telefacsimile with the original subsequently mailed, to the following address immediately after the funds are wired and must be received and accepted by the Transfer Agent before an account can be opened: Wells Fargo Bank, N.A. Overland Express Shareholder Services P.O. Box 63084 San Francisco, California 94163 Telefacsimile: 1-415-781-4082 4. Share purchases are effected at the public offering price next determined after the Account Application is received and accepted. Initial Purchases of Fund Shares by Mail 1. Complete an Account Application. Indicate the services to be used. 2. Mail the Account Application and, subject to limited exceptions, a check for $1,000 or more, payable to "Overland Express ( designate Fund and Class, if any) " at its mailing address set forth above. Additional Purchases Additional purchases of $100 or more may be made by instructing the Funds' Transfer Agent to debit an approved account designated in your Account Application, by wire by instructing the wiring bank to transmit the specified amount as directed above for initial purchases, or by mail with a check payable to "Overland Express ( designate Fund and Class, if any) " sent to the above address. Write the Fund account number on the check and include the detachable stub from a Statement of Account or a letter providing the account number. Systematic Purchase Plan The Company's Systematic Purchase Plan provides you with a convenient way to establish and add to your existing accounts on a monthly basis. If you elect to participate in this plan, specify an amount ($100 or more) to be withdrawn automatically by the Transfer Agent on a monthly basis from an approved bank account designated in your Account Application (an "Approved Bank Account") . The Transfer Agent withdraws and uses this amount to purchase shares of the designated Fund on or about the fifth business day of each month. The Transfer Agent requires a minimum of ten (10) business days to implement your Systematic Purchase Plan purchases. There are no additional fees charged for participating in this plan. 13 You may change the investment amount, the date on which your Systematic Purchase is effected, suspend purchases or terminate your participation in the Systematic Purchase Plan at any time by providing written notice to the Transfer Agent at least five (5) business days prior to any scheduled transaction. An election will be terminated automatically if your Approved Bank Account balance is insufficient to make a scheduled withdrawal, or if either your Approved Bank Account or your Fund account is closed. Purchases through Authorized Broker / Dealers and Financial Institutions Purchase orders for Shares of any of the Funds placed through broker/dealers and financial institu- tions by 12:00 noon (New York time) on any business day that the Exchange is open for trading, including orders for which payment is to be made from free cash credit balances in securities accounts, generally will be executed on the same day the order is placed if notice is provided to the Transfer Agent by 12:00 noon (New York time) and federal funds are received by the Transfer Agent before the close of business. Purchase orders that are received by a broker/dealer or financial institution after 12:00 noon (New York time) on any business day that the Exchange is open for trading or that are not received by the Transfer Agent before the close of business, generally will be executed on the next business day following the day the order is placed. The broker/dealer or financial institution is responsible for the prompt transmission of purchase orders to the Transfer Agent. A broker/dealer or financial institution that is involved in a purchase transaction may charge separate account, service or transaction fees. Financial institutions may be required to register as dealers pursuant to applicable state securities laws, which may differ from federal law and any interpretations expressed herein. EXCHANGE PRIVILEGES Shares of any of the Funds may be exchanged for shares of another Fund or for Class A Shares of any other investment portfolio of the Company in an identically registered account (provided that shares of the investment portfolio to be acquired are registered for sale in your state of residence) at respective net asset values if the shares being acquired carry no sales load or the shares being exchanged were acquired in exchange for shares on which an equivalent sales load was paid. Otherwise, applicable sales loads or sales load differentials will be charged on an exchange. You may exchange shares by writing the Transfer Agent as indicated below under Redemption by Mail, or by calling the Transfer Agent or your authorized broker/dealer or financial institution, unless you have elected not to authorize telephone exchanges in your Account Application (in which case you may subsequently authorize such telephone exchanges by completing a Telephone Exchange Authorization Form and submitting it to the Transfer Agent in advance of the first such exchange) . The Transfer Agent's telephone number for exchanges is (800) 572-7797. Procedures applicable to redemption of the Funds' shares also are applicable to exchanging shares, except that, with respect to an exchange transaction between accounts registered in identical names, no signature guarantee is required unless the amount being exchanged exceeds $25,000. The Company reserves the right to limit the number of times shares may be exchanged between portfolios, or to reject in whole or in part any exchange request into a fund when management believes that such action would be in the best interest of the fund's other shareholders, such as when management believes that such action would be appropriate to protect such fund against disruptions in portfolio management resulting from frequent 14 transactions by those seeking to time market fluctuations. Any such rejection will be made by management on a prospective basis only, upon notice to the shareholder given not later than 10 days following such shareholder's most recent exchange. The Company reserves the right to modify or discontinue exchange privileges at any time. Under SEC rules, 60 days prior notice of any amendments or termination of exchange privileges will be given to shareholders, except under certain extraordinary circumstances. The exchange privilege is not an option or a right to purchase shares, but is permitted under the current policies of the respective Funds and portfolios of the Company. A capital gain or loss for federal income tax purposes may be realized upon an exchange, depending upon the cost or other basis of shares exchanged. Telephone redemption or exchange privileges are made available to you automatically upon opening an account, unless you specifically decline such privileges. These privileges authorize the Transfer Agent to act on telephone instructions from any person representing himself or herself to be the investor and reasonably believed by the Transfer Agent to be genuine. The Company will require the Transfer Agent to employ reasonable procedures, such as requiring a form of personal identification, to confirm that instructions are genuine. If the Transfer Agent does not follow such procedures, the Company and the Transfer Agent may be liable for any losses attributable to unauthorized or fraudulent instructions. Neither the Company nor the Transfer Agent will be liable for following telephone instructions reasonably believed to be genuine. REDEMPTION OF SHARES Shares may be redeemed at their next determined net asset value after receipt of a request in proper form by the Transfer Agent directly or through any authorized broker/dealer or financial institution. The Company does not charge for redemption transactions. However, a broker/dealer or financial institution that is involved in a redemption transaction may charge separate account, service or transaction fees. Redemption orders for shares of any of the Funds received by an authorized broker/dealer or financial institution on any day that the Fund is open and received by the Transfer Agent before 12:00 noon ( New York time) on the same day will be executed at the net asset value determined at 12:00 noon on that day. Redemption orders for any of the Funds received by authorized broker/dealers or financial institutions on any day that the Fund is open and received by the Transfer Agent after 12:00 noon (New York time) will be executed at the net asset value determined at 12:00 noon on the next day that the Fund is open. Redemption proceeds ordinarily will be remitted within seven days after the order is received in proper form, except proceeds may be remitted over a longer period to the extent permitted by the SEC under extraordinary circumstances. If an expedited redemption is requested, redemption proceeds will be distributed only if the check used for investment is deemed to be cleared for payment by your bank, currently considered by the Company to be a period of ten (10) days after investment. The redemption proceeds, of course, may be more or less than cost. Payment of redemption proceeds may be made in securities, subject to regulation by some state securities commissions. Redemption by Mail 1. Write a letter of instruction. Indicate the dollar amount or number of shares to be redeemed. Refer to your Fund account number and provide either a social security number or a tax identification number ( where applicable) . 15 r r n !� 'i 2. Sign the letter in exactly the same way the account is registered. If there is more than one owner of the shares, all must sign. 3. If shares to be redeemed have a value of $5,000 or more or redemption proceeds are to be made to someone other than yourself at your address of record, the signature(s) must be guaranteed by an "eligible guarantor institution," which includes a commercial bank that is a member of the FDIC, a trust company, a member firm of a domestic stock exchange, a savings association, or a credit union that is authorized by its charter to provide a signature guarantee. Signature guarantees by notaries public are not acceptable. Further documentation may be requested from corporations, administrators, executors, personal represent- atives, trustees or custodians. 4. Mail the letter to the Transfer Agent at the mailing address set forth under "Purchase of Shares — Initial Purchases of Fund Shares by Wire." Unless other instructions are given in proper form, a check for the proceeds of redemption will be sent to your address of record. Systematic Withdrawal Plan The Company's Systematic Withdrawal Plan provides a way for you to have shares redeemed from your accounts and the proceeds distributed to you on a monthly basis. You may elect to participate in this plan if you have a shareholder account valued at $10,000 or more as of your date of the election to participate and are not also a participant in the Company's Systematic Purchase Plan at any time while participating in this plan. To participate in the plan you must specify an amount ($100 or more) to be distributed by check to your address of record or deposited in your Approved Bank Account. The Transfer Agent redeems sufficient shares and mails or deposits the proceeds of the redemption as instructed on or about the fifth business day prior to the end of each month. There are no additional fees charged for participating in this plan. It may take up to ten (10) days to establish your participation in the Systematic Withdrawal Plan. You may change the withdrawal amount, suspend withdrawals or terminate your participation in the Systematic Withdrawal Plan at any time by providing written notice to the Transfer Agent at least five (5) business days prior to any scheduled transaction. An election will be terminated automatically if your Fund account balance is insufficient to make a scheduled withdrawal or if your Fund account or Approved Bank Account is closed. Expedited Redemptions by Letter and Telephone If shares are not held in certificated form, you may request an expedited redemption of shares by letter or telephone (unless you have elected not to authorize telephone redemptions on your Account Application or other form that is on file with the Transfer Agent) on any day the Funds are open for business. See "Exchange Privileges" for additional information regarding telephone redemption privileges. To request expedited redemption by telephone call the Transfer Agent at (800) 572-7797. To request expedited redemption by mail, mail the expedited redemption request to the Transfer Agent at the mailing address set forth under "Purchase of Shares — Initial Purchases of Fund Shares by Wire." 16 Upon request, proceeds of expedited redemptions of $5,000 or more will be wired or credited to your Approved Bank Account or wired to an authorized broker/dealer or financial institution designated in your Account Application. The Company reserves the right to impose charges for wiring redemption proceeds. When proceeds of an expedited redemption are to be paid to someone other than yourself, to an address other than that of record, or to a bank, broker/dealer or other financial institution that has not been predesignated, the expedited redemption request must be made by letter and the signature (s) on the letter must be guaranteed, regardless of the amount of the redemption. If an expedited redemption request is received by the Transfer Agent by 12:00 noon (New York time) on a day the Funds are open for business, the redemption proceeds will be transmitted to your bank or predesignated broker/dealer or financial institution on the same day ( assuming the investment check has cleared as described above) , absent extraordinary circumstances. A check for proceeds of less than $5,000 will be mailed to your address of record, except that, in the case of investments in the Company that have been effected through broker/dealers, banks and other institutions that have entered into special arrangements with the Company, the full amount of the redemption proceeds may be transmitted by wire or credited to a designated account. Redemptions Through Authorized Broker / Dealers and Financial Institutions Unless you have made other arrangements, and have informed the Transfer Agent of such arrange- ments, proceeds of redemptions made through authorized broker/dealers and financial institutions will be credited to your account with such broker/dealer or institution. You may request a check from the broker/dealer or financial institution or may elect to retain the redemption proceeds in your account. The broker/dealer or financial institution may benefit from the use of the redemption proceeds prior to the clearance of a check issued to you for such proceeds or prior to disbursement or reinvestment of such proceeds on your behalf. The proceeds of redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for federal and state income tax purposes. Due to the high cost of maintaining small accounts, the Company reserves the right to redeem accounts that fall below $1,000. Prior to such a redemption, you will be notified in writing and permitted 30 days to make additional investments to raise the account balance to the applicable minimum. 17 DIVIDENDS AND DISTRIBUTIONS Each of the Funds intends to declare as a dividend substantially all of its net investment income for each class at the close of each business day to shareholders of record at 12:00 noon (New York time) on the day of declaration. Shares purchased will begin earning dividends on the day the purchase order settles and shares redeemed will earn dividends through the day prior to the date of redemption. Net investment income for a Saturday, Sunday or holiday will be declared as a dividend to shareholders of record at 12:00 noon ( New York time) on the previous business day. Dividends of each Fund declared in, and attributable to, any month will be paid early in the following month. Shareholders of any of the Funds who redeem shares prior to a dividend payment date will be entitled to all dividends declared but unpaid prior to redemption on such shares on the next dividend payment date. Net capital gains of each class of each Fund, if any, will be distributed annually (or more frequently to the extent permitted to avoid imposition of the 4% excise tax described in the SAI or in order to maintain the net asset value of the Fund's shares at $1.00 per share) . Dividends and/or capital gain distributions paid by each of the Funds will be invested in additional shares of the same Fund at net asset value and credited to your account on the payment date or, at your election, paid by check. Dividend checks and Statements of Account will be mailed approximately three business days after the payment date. The net investment income of the Money Market Fund and the U.S. Treasury Money Market Fund available for distribution to the holders of the Class A Shares will be reduced by the amount of the distribution -related expenses payable under the Plans. There may be certain other differences in fees (e.g. transfer agent fees) between Class A Shares and Institutional Shares of the Money Market Fund and the U.S. Treasury Money Market Fund that would affect their relative dividends. Dividend and Distribution Options When you fill out an Account Application, you can choose from three dividend and distribution options: A. The Automatic Reinvestment Option provides for the reinvestment of dividends and capital gain distributions in additional shares of the same class of each Fund. Dividends and distributions declared in a month are reinvested at net asset value early in the following month. You are assigned this option automatically if you make no choice on your Account Application. B. The Automatic Clearing House Option permits you to have dividends and capital gain distributions deposited in your Approved Bank Account. In the event your Approved Bank Account is closed, and such distribution is returned to the Funds' dividend disbursing agent, the distribution will be reinvested in your Fund account at the net asset value next determined after the distribution has been returned. Your Automatic Clearing House Option will be converted to the Automatic Reinvest- ment Option. C. The Check Payment Option allows you to receive a check for a dividend or capital gain distribution, which is mailed either to the designated address, or your Approved Bank Account, early 18 lJ in the month following declaration. If the U.S. Postal Service cannot deliver such checks, or if such checks remain uncashed for six months, those checks will be reinvested in your Fund account at the net asset value next determined after the earlier of the date the checks have been returned to the dividend disbursing agent or the date six months after the payment of such dividend or distribution. Your Check Payment Option will be converted to the Automatic Reinvestment Option. The Company takes reasonable efforts to locate investors whose checks are returned or uncashed after six months. The Company forwards moneys to the dividend disbursing agent so that it may issue investors dividend checks under the Check Payment Option. The dividend disbursing agent may benefit from the temporary use of such moneys until these checks clear. TAXES Each Fund intends to qualify as a regulated investment company under Subchapter M of the Code, as long as such qualification is in the best interest of each Fund's shareholders. Each Fund will be treated as a separate entity for tax purposes and thus the provisions of the Code applicable to regulated investment companies generally will be applied to each Fund, rather than to the Company as a whole. In addition, net capital gains, net investment income, and operating expenses will be determined separately for each Fund. By complying with the applicable provisions of the Code, the Funds will not be subject to federal income taxes with respect to net investment income and net realized capital gains distributed to their respective shareholders. Each Fund intends to pay out substantially all of its net investment income and net realized capital gains (if any) for each year. Dividends from taxable investment income (which includes net short- term capital gains, if any) declared and paid by each Fund will be taxable as ordinary income to its shareholders. Whether you take such dividend payments and capital gain distributions in cash or have them automatically reinvested in additional shares, they will be taxable. Generally, such dividends and distribu- tions are taxable to shareholders at the time they are paid. However, such dividends and distributions declared payable in October, November and December and made payable to shareholders of record in such a month are treated as paid and are thereby taxable as of December 31, provided that such dividends and distributions are actually paid no later than January 31 of the following year. You may be eligible to defer the tax on such dividends and distributions on shares of a Fund held under a qualified tax -deferred retirement plan. The Funds' dividends will not qualify for the dividends -received deduction allowed to corporate shareholders. The California Tax -Free Money Market Fund's shareholders will not be subject to federal income taxes on any Fund dividends attributable to interest from tax-exempt securities. However, dividends attributable to interest from taxable securities, and capital gain distributions (if any) will be taxable to shareholders, regardless of whether such dividends and distributions are paid in cash or reinvested in Fund shares. In addition, as long as the California Tax -Free Money Market Fund complies with applicable provisions of the California Revenue and Taxation Code, it will be entitled to pay its shareholders dividends that are exempt from California personal income tax. The Funds will inform you by January 31 of each year of the amount and nature of dividends and capital gain distributions. You should keep all statements you receive to assist in your personal recordkeep- ing. The Company is required by federal law to withhold, subject to certain exemptions, at a rate of 31% on taxable dividends, capital gain distributions, and redemption proceeds (including proceeds from exchanges) 19 r r,np paid or credited to individual shareholders of the Funds, if a shareholder has not complied with IRS regulations or if a correct taxpayer identification number, certified when required, is not on file with the Company or the Transfer Agent. In connection with this withholding requirement, you will be asked to certify on your Account Application that the social security or taxpayer identification number you provide is correct and that you are not subject to 31% backup withholding for previous underreporting to the IRS. Foreign shareholders may be subject to different tax treatment, including a withholding tax. See "Federal Income Taxes — Foreign Shareholders" in the SAI. The foregoing discussion regarding dividends, distributions and taxes is based on tax laws and regulations which were in effect as of the date of this Prospectus and summarizes only some of the important federal tax considerations generally affecting the Funds and their shareholders. It is not intended as a substitute for careful tax planning; you should consult your tax advisor with respect to your specific tax situation as well as with respect to state and local taxes. In addition, the Funds do not make any representation of their corporate shareholders and recommend that such shareholders consult their tax advisors. Further federal income tax considerations are discussed in the SAI for each Fund. CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT Wells Fargo Bank has been retained to act as the Funds' custodian and transfer and dividend disbursing Agent. Wells Fargo Bank performs the custodial services at its address above and transfer and dividend disbursing agency activities at 525 Market Street, San Francisco, California 94105. 20 r r ORGANIZATION AND CAPITAL STOCK The Company, an open-end, management investment company, was incorporated in Maryland on April 27, 1987. The authorized capital stock of the Company consists of 20,000,000,000 shares having a par value of $.001 per share. The Company currently offers the following series of shares, each representing an interest in one of the following funds — the Asset Allocation, California Tax -Free Bond, California Tax - Free Money Market, Money Market, Municipal Income, National Tax -Free Institutional Money Market, Overland Sweep, Short -Term Government -Corporate Income, Short -Term Municipal Income, Strategic Growth, U.S. Government Income, U.S. Treasury Money Market and Variable Rate Government Funds. The Board of Directors may, in the future, authorize the issuance of shares of capital stock representing additional series or investment portfolios. All shares of the Company have equal voting rights and will be voted in the aggregate, and not by series or class, except where voting by series or class is required by law or where the matter involved affects only one series or class. The Company may dispense with the annual meeting of shareholders in any fiscal year in which it is not required to elect Directors under the 1940 Act; however, shareholders are entitled to call a meeting of shareholders for purposes of voting on removal of a Director or Directors. A more detailed statement of the voting rights of shareholders is contained in the SAI. All shares of the Company, when issued, will be fully paid and nonassessable. In addition to the Class A Shares, the Money Market Fund and the U.S. Treasury Money Market Fund each offers an Institutional Class of Shares. The Institutional Shares, which require a minimum initial investment of at least $150,000, are not subject to fees imposed under the Distribution Plans ( Rule 12b-1 fees) applicable to Class A Shares. For more information about this class of shares, or to obtain a current prospectus for the Institutional Shares, please call the Company at (800) 552-9612. 21 r'rA0 �1 �_ .' OVERLAND EXPRESS FUNDS, INC. c/o Overland Express Shareholder Services, Wells Fargo Bank, N.A. Post Office Box 63084, San Francisco, California 94163 FOR PERSONAL SERVICE PLEASE CALL YOUR INVESTMENT ADVISOR OR 1-800-572-7797 OVERLAND EXPRESS ® Account Application page 1 of 5 Overland Express Funds, Inc. 1. Account Registration ❑ New Account ❑ Additional Investment or change to Account # ❑ INDIVIDUAL 1. Individual - Use line 1 1 First Name Initial Last Name Soc. Security No. ❑ JOINT OWNERS 2. Joint Owner (Only one Soc. Security No. is Use lines 1 & 2 First Name Initial Last Name required for Joint Owners) Joint Tenancy with right of survivorship is presumed unless Tenancy in Common is indicated: O Tenants in Common ❑ TRANSFER TO MINORS Use line 3 ❑ TRUST* Use Line 4 ❑ ORGANIZATION* Use line 5 ADDRESS: Number and Street Citv 3. Uniform Transfer to Minors 4. Trust Name Trustee(s) Custodian's Name ( only one) Minor's Name (only one) Minor's State of Residence Minor's Soc. Security No. (If you would like Trustee's name included in registration.) Trust ID Number Please attach title page, the page (s) allowing investment in a mutual fund ( "powers page") and signature page, and complete Section 6, "Authorization for Trusts and Organizations." 5. Organization Name *Complete "Authorization for Trusts and Organizations" ( Section 6) . Telephone Numbers: ( DAY) - (Area Code) Tax I.D. No. Apartment No. State Zip Code — ( EVENING) - -_ ( Area Code) (CONTINUED) rr �-) OVERLAND EXPRESS ° Account Application page 2 of 5 Overland Express Funds, Inc. 2. Investment Instructions ( Minimum initial investment: $1,000. ) INVESTMENT AMOUNT: ❑ OVERLAND EXPRESS CALIFORNIA TAX-FREE MONEY MARKET $ ❑ OVERLAND EXPRESS MONEY MARKET FUND — CLASS A $ ❑ OVERLAND EXPRESS U.S. TREASURY MONEY MARKET FUND — CLASS A $ METHOD OF PAYMENT: ❑ Debit bank account designated in Section 3. ❑ Check attached ( payable to Overland Express Funds, Inc.) ❑ Funds have been wired to Overland Express SETTLEMENT ARRANGEMENTS: ( Check only one if applicable) ❑ Automatic debit/ credit of an account with a bank that has been authorized by the Transfer Agent. (If you check this box, your initial and/or subsequent purchases and redemptions can be settled through the bank account you designate in Section 3.) Please attach a voided check or deposit slip and fill in bank account information in Section 3. ❑ Bank wire instructions. (if you check this box, redemptions can be settled by wire through the bank account you designate in Section 3. Some banks impose fees for wires; check with your bank to determine policy. The Company reserves the right to impose a charge for wiring redemption proceeds.) Please attach a voided check or deposit slip and fill in bank account information in Section 3. SYSTEMATIC PURCHASE PLAN: ❑ I hereby authorize you to systematically withdraw from the bank account designated in Section 3 the following amount to purchase shares of the Fund. I understand and agree that the designated account will be debited on or about the fifth business day of each month to effect the Fund purchase and that such monthly investments shall continue until my written notice to cancel has been received by you at least five (5) business days prior to the next scheduled Fund purchase. Monthly Investment Amount: $ (minimum $100) Name of Fund SYSTEMATIC WITHDRAWAL PLAN: ❑ I hereby authorize you to systematically redeem a sufficient number of shares from my Overland Express account and to distribute the amount specified below by check to the registration address set forth in Section 1 or the bank account designated in Section 3. 1 understand and agree that the redemption of shares and mailing or depositing of proceeds will occur on or about the fifth business day prior to the end of each month and that such monthly payments shall continue until my written notice to cancel has been received by you at least five (5) business days prior to the next scheduled withdrawal. Monthly Withdrawal Amount: $ (minimum $100) Name of Fund ❑ Mail check to registration set forth in Section 1. ❑ Distribute funds to bank account designated in Section 3. (CONTINUED) OVERLAND EXPRESS'& Account Application page 3 of 5 Overland Express Funds, Inc. 3. Bank Account Information Bank Name Address City State Zip Bank Account Number Bank Routing Number 4. Telephone Instructions (Do NOT check this box if you wish to authorize telephone instructions.) ❑ If this box is checked, you are NOT authorized to honor my telephone instructions for purchase of additional Fund shares, redemptions of Fund shares and exchanges of shares between Funds. If this box is not checked, I understand that telephone instructions will be effected by debiting /crediting the account designated in Section 3 (if approved) and that if a designated account has not been authorized and approved, a check or wire transfer will be required for a purchase and a check will be sent for a redemption. 5. Distributions (Do NOT check boxes if you want reinvestment.) All dividends and capital gain distributions will be automatically reinvested in shares of the Fund unless otherwise indicated: OVERLAND EXPRESS CALIFORNIA TAX-FREE MONEY MARKET FUND: Pay dividends and capital gain distributions by ❑ mailing check to the registration address set forth in Section 1 or by ❑ crediting amounts to the bank account designated in Section 3 OVERLAND EXPRESS MONEY MARKET FUND — CLASS A: Pay dividends and capital gain distributions by ❑ mailing check to the registration address set forth in Section 1 or by ❑ crediting amounts to the bank account designated in Section 3 OVERLAND EXPRESS U.S. TREASURY MONEY MARKET FUND — CLASS A: Pay dividends and capital gain distributions by ❑ mailing check to the registration address set forth in Section 1 or by ❑ crediting amounts to the bank account designated in Section 3 (CONTINUED) � of)n44 OVERLAND EXPRESS Account Application page 4 of 5 Overland Express Funds, Inc. 16. Authorization for Trusts and Organizations (if Applicable.) I Corporations, Trusts, Partnerships or Other Organizations must complete this section. Registered Owner is a: ❑ Trust ❑ Corporation, Incorporated Association ❑ Partnership ❑ Other: ( such as Non -Profit Organization, Religious Organization, Sole Proprietorship, Investment Club, Non -incorporated Association, etc.) The following named persons are currently officers /trustees /general partners /other authorized signatories of the Registered Owner; this(these) Authorized Person (s) is(are) currently authorized under the applicable governing document to act with full power to sell, assign or transfer securities of Overland Express Funds, Inc. for the Registered Owner and to execute and deliver any instrument necessary to effectuate the authority hereby conferred: Name Title Specimen Signature Overland Express Funds, Inc., Stephens Inc. and Wells Fargo Bank, N.A. may, without inquiry, act upon the instruction of ANY PERSON (S) purporting to be (an) Authorized Person (s) as named in the Authorization Form last received by you, and shall not be liable for any claims, expenses ( including legal fees) or losses resulting from acting upon any instructions reasonably believed to be genuine. FOR CORPORATIONS AND INCORPORATED ASSOCIATIONS: 1, , Secretary of the above -named Registered Owner, do hereby certify that at a meeting on at which a quorum was present throughout, the Board of Directors of the corporation /the officers of the association duly adopted a resolution, which is in full force and effect and in accordance with the Registered Owner's charter and by-laws, which resolution: (1) empowered the above -named Authorized Person (s) to effect securities transactions for the Registered Owner on the terms described above; (2) authorized the Secretary to certify, from time to time, the names and titles of the officers of the Registered Owner and to notify you when changes in the office occur; and (3) authorized the Secretary to certify that such a resolution has been duly adopted and will remain in full force and effect until you receive a duly executed amendment to the Authorization Form. Witness my hand on behalf of the corporation /association on this .day of FOR ALL OTHER ORGANIZATIONS: (CONTINUED) Secretary ( Signature Guarantee or Corporate Seal is Required) ,19— Certifying Trustee, General Partner, or Other OVERLAND EXPRESS ° Account Application page 5 of 5 Overland Express Funds, Inc. 7. Signature, Tax Information & Certification U.S. CITIZEN OR RESIDENT 1 understand that the Federal Government requires Overland Express Funds, Inc. to withhold and pay to the Internal Revenue Service 31% from all interest, dividends, capital gains distributions and proceeds from redemptions UNLESS I have provided a certified taxpayer identification (Social Security or Employer Identification) number and certify in the Withholding Status below that I am NOT subject to backup withholding. The taxpayer identification number I provided in Section 1 will be the number under which any taxable earnings will be reported to the IRS. WITHHOLDING STATUS: Unless I indicate that I am subject to backup withholding by checking the box below, certify that 1) 1 have NOT been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends, OR 2) 1 have been notified by the IRS that I am no longer subject to backup withholding: ❑ 1 am currently subject to backup withholding. NON-RESIDENT ALIEN (In order to claim this exemption, ALL owners on the account must be non-resident aliens and sign below.) I am not a U.S. citizen or resident (nor is this account held by a foreign corporation, partnership, estate or trust) and my permanent address is: Country: By signing below, 1 (we) certify, under penalties of perjury, that I (we) have full authority and legal capacity to purchase shares of the Fund and affirm that I (we) have received a current prospectus and agree to be bound by its terms and further certify that 1) the correct taxpayer identification number has been provided in Section 1 of this Application and that the Withholding Status information, above, is correct OR 2) all owners are entitled to claim non- resident alien status. Investors should be aware that the failure to check the box under "Telephone Instructions" above means that the telephone exchange and redemption privileges will be provided. A shareholder would bear the risk of loss in the event of the fraudulent use of the pre -authorized redemption or exchange privileges. Please see "Exchange Privileges" and "Redemption of Shares" in the Prospectus for more information on these privileges. X Individual (or Custodian) date X Joint Owner (if any) date X Corporate Officer or Trustee date Title of Corporate Officer or Trustee DEALER INFORMATION Dealer Name Representative's Last Name SIGNATURE GUARANTEE: NOT REQUIRED WHEN ESTABLISHING NEW ACCOUNTS. Required only if establishing privileges in Block 2 on an existing account. Signature Guarantee may be provided by an "eligible guarantor institution," which includes a commercial bank, trust company, member firm of a domestic stock exchange, savings association, or credit union that is authorized by its charter to provide a signature guarantee. AFFIX SIGNATURE GUARANTEE STAMP Signature Guaranteed By Branch ID # Rep ID # Rep Phone # X Authorized signature of Broker/Dealer Title date r rnr IL J OVERLAND Telephone: (800) 552-9612 EXPRESS"' Stephens Inc. — Sponsor, Administrator and Distributor Wells Fargo Bank — Investment Adviser to the CIT Master Portfolio, Transfer and Dividend Disbursing Agent and Custodian of the Fund and the CIT Master Portfolio Overland Express Funds, Inc. (the "Company") is an open-end, series investment company. This Prospec- tus contains information about one of the Company's funds — the Overland Sweep Fund (the "Fund"). The Fund's investment objective is to provide investors with a high level of current income, while preserving capital and liquidity. The Fund seeks to achieve its investment objective by investing all of its assets in the Cash Investment Trust Master Portfolio (the "CIT Master Portfolio"), a professionally managed diversified portfolio having the same investment objective as the Fund and offered by Master Investment Trust (the "Trust"), a professionally managed, open-end investment company. As a result, the performance of the Fund will correspond directly with the investment experience of the CIT Master Portfolio. The CIT Master Portfolio seeks to achieve this investment objective by investing in high -quality, short-term instruments. Wells Fargo Bank, N.A. ( "Wells Fargo Bank") serves as the investment adviser of the CIT Master Portfolio, and serves as the transfer and dividend disbursing agent and custodian for the Fund and the CIT Master Portfolio. Stephens Inc. ( "Stephens") serves as the sponsor and administrator of the Fund and the CIT Master Portfolio and serves as the distributor of Fund shares and of CIT Master Portfolio interests. Shares of the Fund are offered only to customers of certain financial institutions that have entered into Shareholder Servicing Agreements with the Company on behalf of the Fund ( "Servicing Agents") . Servicing Agents will automatically invest, or "sweep," customer funds into shares of the Fund. As further described below, Wells Fargo Bank will serve as a Servicing Agent, and will receive certain fees pursuant to a Shareholder Servicing Agreement. Wells Fargo Bank also has entered into a Selling Agreement with Stephens pursuant to which it will receive certain fees. This Prospectus sets forth concisely the information a prospective investor should know before investing in the Fund. A Statement of Additional Information ("SAI") dated May 1, 1996, containing additional and more detailed information about the Fund, has been filed with the Securities and Exchange Commission (the "SEC") and is hereby incorporated by reference into this Prospectus. The SAI is available without charge and can be obtained by writing the Company at P.O. Box 63084, San Francisco, CA 94163 or by calling the Company at (800) 552-9612. The Fund and the CIT Master Portfolio seek to maintain a net asset value of $1.00 per share; however, there is no assurance that this objective will be achieved. Investors should read this Prospectus carefully and retain it for future reference. FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED BY, WELLS FARGO BANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. WELLS FARGO BANK IS THE INVESTMENT ADVISER TO THE CIT MASTER PORTFOLIO. STEPHENS, WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR AND DISTRIBUTOR FOR THE FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS DATED MAY 11 1996 rrnp,I �_: V J `I --, Table Of Contents Page Prospectus Summary............................................................ ii Summary of Expenses.................................................................... iv FinancialHighlights...................................................................... vi Investment Objective and Policies......................................................... 1 Management of the Fund and the CIT Master Portfolio ..................................... 4 Determination of Net Asset Value, Dividends and Distributions ............................. 9 Purchase and Redemption of Shares ....................................................... 10 DistributionPlan......................................................................... 11 Custodian, Transfer and Dividend Disbursing Agent and Servicing Agents ................... 11 Taxes.................................................................................... 12 Organization and Capital Stock............................................................ 14 i 0 4 S PROSPECTUS SUMMARY The Company, as an open-end management investment company, provides a convenient way for you to invest in portfolios of securities selected and supervised by professional management. The following provides information about the Fund and the CIT Master Portfolio. Q. What Is The Investment Objective Of The Fund And The CIT Master Portfolio? A. The Fund seeks to provide investors with a high level of current income, while preserving capital and liquidity. The Fund seeks to achieve its investment objective by investing all of its assets in the CIT Master Portfolio, which has the same investment objective as the Fund. Both the Fund and the CIT Master Portfolio seek to maintain a stable net asset value of $ 1.00 per share. As with all mutual funds, there is no assurance that the Fund will achieve its investment objective. See "Investment Objective and Policies." Q. What Are Permissible Investments? A. The Fund invests all of its assets in the CIT Master Portfolio, a professionally managed portfolio of the Trust, an open-end investment company. The CIT Master Portfolio invests in high -quality, short-term instruments including obligations of the U.S. Government, its agen- cies, or instrumentalities ( including government -sponsored enterprises), certain short-term debt obligations of U.S. banks and the U.S. branches of foreign banks, high -quality commercial paper, and certain repurchase agreements and floating- and variable -rate instruments. See "Investment Objective and Policies." Q. Who Manages My Investments? A. Wells Fargo Bank, as investment adviser to the CIT Master Portfolio, manages the investments of the Fund in the CIT Master Portfolio. The Company has not retained the services of a separate investment adviser for the Fund because the Fund invests all of its assets in the CIT Master Portfolio. Wells Fargo Bank also provides the Fund and the CIT Master Portfolio with transfer agency, dividend disbursing agency and custodial services. In addition, Wells Fargo Bank is a Selling Agent and a Servicing Agent with respect to the Fund. Stephens is the Sponsor, Administrator and Distributor for the Company and the Trust. See "Management of the Fund and the CIT Master Portfolio." Q. What Are Some Of The Potential Risks Associated With An Investment In The Fund? A. Shares of the Fund and the CIT Master Portfolio are not guaranteed or insured against loss of principal or interest, although certain of the CIT Master Portfolio's debt instruments may be insured or guaranteed as to repayment of principal and/or the payment of interest. Although both the Fund and the CIT Master Portfolio seek to maintain a stable net asset value of $ 1.00 per share, there is no assurance that they will be able to do so. See "Investment Objective and Policies." ii rIrnr,ma t, 11 0 Q. How May I Purchase Shares? A. Shares of the Fund may be purchased on any day the Fund is open through a Servicing Agent, that has entered into a Shareholder Servicing Agreement with the Company. There is no sales load for purchasing shares of the Fund. There is no minimum initial purchase or subsequent purchase amount applicable to Fund Shares. See "Purchase and Redemption of Shares." Q. How Will I Receive Dividends? A. Dividends on shares of the Fund are declared daily each Business Day (as defined below) and are paid in cash monthly. See "Determination of Net Asset Value, Dividends and Distributions." Q. How May I Redeem Shares? A. Shares may be redeemed on any day the Fund is open for trading upon request to a Servicing Agent. Proceeds of redemptions are credited to the Servicing Agent's shareholder account with the Fund. The Fund imposes no charge for redeeming its shares. See "Purchase and Redemp- tion of Shares." iii SUMMARY OF EXPENSES Annual Operating Expensesl (as a percentage of average net assets) Management Fees ( after waivers and reimbursements ) 2.................................. 0.22% 12b-1 Fees............................................................................. 0.55 Total Other Expenses................................................................... 0.48 Total Operating Expenses (after waivers and reimbursements)2 .......................... 1.25% Example of Expenses 1 Year 3 Years 5 Years 10 Years You would pay the following expenses on a $1,000 investment in the Fund, assuming (1) a 5 % annual return and (2) redemption at the end of each time period indicated ....... $13 $40 $69 $151 Annual Fund Operating Expenses summarize expenses charged at the Fund and Master Portfolio levels. The percentages shown above under "Management Fees," and "Total Operating Expenses" are based on amounts incurred during the most recent year, restated to reflect voluntary fee waivers. The fee waivers are expected to continue to reduce expenses during the current year. Absent waivers, the percentage shown above under "Management Fees" and "Total Operating Expenses" would have been 0.25 % and 1.28 % , respectively. Long-term shareholders of the Fund could pay more in distribution related charges than the economic equivalent of the maximum front-end sales charges applicable to mutual funds sold by members of the National Association of Securities Dealers, Inc. ("NASD"). Stephens and Wells Fargo Bank each may elect, in its sole discretion, to otherwise waive its respective fees or reimburse such expenses. In this regard, Wells Fargo Bank has undertaken to waive a portion or all of its fees and/or reimburse the Fund or the CIT Master Portfolio, to the extent the total operating expenses exceed 1.25 % , but only to the extent of its fees. Any such fee waivers or expense reimbursements would reduce the total expenses of the Fund. There can be no assurance that such waivers or reimbursements will continue. The purpose of the foregoing table is to assist you in understanding the various costs and expenses that an investor in the Fund will bear directly or indirectly. There are no sales loads or redemption fees charged by the Fund. You may, however, be separately charged other fees by Servicing Agents for services related to those provided under Shareholder Servicing Agreements. The Example of Expenses is a hypothetical example which illustrates the expenses associated with a $1,000 investment over the periods shown, based on the expenses in the table above and an assumed annual rate of return of 5%. This rate of return should not be considered an indication of the actual or expected performance of the Fund. In addition, the Example should not be considered a representation of past or future expenses; actual expenses and returns may be greater or lesser than those shown. 1v With regard to the combined fees and expenses of the Fund and CIT Master Portfolio, the Board of Directors of the Company has considered whether various costs and benefits of investing all the Fund's assets in the CIT Master Portfolio rather than directly in portfolio securities would be more or less than if the Fund invested in portfolio securities directly and believes that 'the Fund should achieve economic efficiencies by investing in the CIT Master Portfolio. Additionally, the Board of Directors has determined that the aggregate fees assessed by the Fund and the CIT Master Portfolio should be less than those expenses that the Directors believe would be incurred had the Fund invested directly in the securities held by the CIT Master Portfolio. See "Management of the Fund and the CIT Master Portfolio," "Custodian, Transfer and Dividend Disbursing Agent and Servicing Agents," "Distribution Plan" and "Purchase and Redemption of Shares" for more complete descrip- tions of the various costs and expenses applicable to investors in the Fund. In addition, if the Fund were to change its fundamental investment strategy and no longer invest in the CIT Master Portfolio, these expenses may change. v r r in r � FINANCIAL HIGHLIGHTS The following information has been derived from the Financial Highlights in the Fund's 1995 annual financial statements. The financial statements are incorporated by reference into the SAI and have been audited by KPMG Peat Marwick LLP, independent auditors, whose report dated Febru- ary 14, 1996 also is incorporated by reference in the SAI. This information should be read in conjunction with the Fund's 1995 annual financial statements and the notes thereto. The SAI has been incorporated by reference into this Prospectus. OVERLAND SWEEP FUND For a Share Outstanding as Shown Period Year Ended Year Ended . Year Ended Year Ended Ended December 31, December 31, December 31, December 31, December 31, Net asset value, beginning of period ........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations: Net investment income ............. 0.05 0.03 0.02 0.03 0.01 Less Distributions: Dividends from net investment income .......................... (0.05) (0.03) (0.02) (0.03) (0.01) Net asset value, end of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total return ( not annualized): ..... 4.80 % 3.11 % 1.97% 2.31 % 0.93 % Ratios/supplemental data: Net assets, end of period (000) .... $ 1,209,183 $ 812,559 $ 528,072 $ 253,617 $ 14,010 Number of shares outstanding, end of period (000) ............. 1,209,183 812,559 528,072 253,628 14,010 Ratios to average net assets ( annualized) * * : Ratio of expenses to average net assets( 1 ) ......................... 1.25 % 1.25 % 1.25 % 1.24 % 1.23 % Ratio of net investment income to average net assets(2) ............. 4.70% 2.92% 1.67% 2.20% 3.46% (1) Ratio of expenses to average net assets prior to waived fees and reimbursed expenses ...... 1.28 % 1.33 % 1.31 % 1.51 % 6.92 % (2) Ratio of net investment income to average net assets prior to waived fees and reimbursed expenses ..................... 4.67 % 2.84 % 1.61 % 1.93 % (2.23) % * The Fund commenced operations on October 1, 1991. * * These ratios include expenses charged to the CIT Master Portfolio. Prior year ratios have been adjusted for comparability purposes. ►E rrnP:� t. • -A `► ` o t 1 INVESTMENT OBJECTIVE AND POLICIES Set forth below is a description of the investment objective and related policies of the Fund and the CIT Master Portfolio. As with all mutual funds, there can be no assurance that the Fund or the CIT Master Portfolio, which is a diversified portfolio, will achieve their investment objectives. Investment Objective The Fund's investment objective is to provide investors with a high level of current income, while preserving capital and liquidity. The Fund seeks to achieve its investment objective by investing all of its assets in the CIT Master Portfolio, which has the same investment objective as the Fund. Since the investment experience of the Fund will correspond directly to that of the CIT Master Portfolio, the following is a discussion of the various investments of and techniques employed by the CIT Master Portfolio, including the investment objective and policies of the CIT Master Portfolio. The CIT Master Portfolio seeks to achieve its investment objective by investing only in U.S. dollar -denominated "Eligible Securities" with remaining maturities not exceeding thirteen months, as defined in Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"); the CIT Master Portfolio seeks to maintain a dollar -weighted average portfolio maturity of 90 days or less. An Eligible Security is a security that is determined to present minimal credit risks and is rated in one of the two highest rating categories by the required number of nationally recognized statistical rating organizations or, if unrated, is determined by the investment adviser to be of comparable quality to such rated securities. These determinations are made by the investment adviser under guidelines adopted by the Trust's Board of Trustees, although in certain instances, the Board of Trustees must approve or ratify the CIT Master Portfolio's investments. The Board of Trustees of the Trust (or Wells Fargo Bank, under authority delegated to it as investment adviser to the CIT Master Portfolio) will determine on an ongoing basis that any Eligible Securities purchased present minimal credit risks. The CIT Master Portfolio and the Fund will endeavor to maintain a constant net asset value of $1.00 per share of the Fund. As with all mutual funds, there can be no assurance that this investment objective will be achieved. The Eligible Securities in which the CIT Master Portfolio may invest are: (i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities ( including government -sponsored enterprises) ("U.S. Government obligations"); (ii) negotiable certificates of deposit, fixed time deposits, bankers' acceptances or other short- term obligations of U.S. banks ( including foreign branches) that have more than $1 billion in total assets at the time of investment and are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation; (iii) commercial paper rated at the date of purchase Prime-1 by Moody's Investors Service, Inc. ("Moody's") or "A-1" or better by Standard & Poor's Ratings Group ("S&P"); r r n �-, •_ (iv) commercial paper unrated at the date of purchase but secured by a letter of credit from a U.S. bank that meets the above criteria for investment; (v) certain floating- and variable -rate instruments ( discussed below) ; (vi) certain repurchase agreements ( discussed below); and (vii) short-term, U.S. dollar -denominated obligations of domestic branches of foreign banks that at the time of investment have more than $10 billion, or the equivalent in other currencies, in total assets. Under the 1940 Act, the Fund and the CIT Master Portfolio are each classified as "diversified," even though, in the case of the Fund, all of its assets are invested in the CIT Master Portfolio. U.S. Government Obligations U.S. Government obligations include securities issued or guaranteed as to principal and interest by the U.S. Government and supported by the full faith and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of their maturity. Treasury bills, the most frequently issued marketable government securities, have a maturity of up to one year and are issued on a discount basis. U.S. Government obligations also include securities issued or guaranteed by federal agencies or instrumentalities, including government -sponsored enterprises. Some obligations of agencies or instrumentalities of the U.S. Government are supported by the full faith and credit of the United States or U.S. Treasury guarantees; others, by the right of the issuer or guarantor to borrow from the U.S. Treasury; still others, by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others, only by the credit of the agency or instrumentality issuing the obligation. In the case of obligations not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality, which may be privately owned, issuing or guaranteeing the obligation for ultimate repayment. There can be no assurance that the U.S. Government will provide financial support to its agencies or instrumentali- ties where it is not obligated to do so. In addition, U.S. Government obligations are subject to fluctuations in market value due to fluctuations in market interest rates. As a general matter, the value of debt instruments, including U.S. Government obligations, declines when market interest rates increase, and rises when market interest rates decrease. Certain types of U.S. Government obligations are subject to fluctuations in yield or value due to their structure or contract terms. Floating- and Variable -Rate Instruments Certain of the debt instruments in which the CIT Master Portfolio may purchase may bear interest at rates that are not fixed, but float or vary with, for example, changes in specified market rates or indices or at specified intervals. The CIT Master Portfolio may purchase certificates of participation in pools of floating- and variable -rate instruments purchased from banks and other financial institutions. The CIT Master Portfolio may invest in floating- and variable -rate instruments even if they carry stated maturities in excess of thirteen months, upon compliance with certain conditions of the SEC, in which case such instruments will be treated, in accordance with these conditions, as having maturities not exceeding thirteen months. K r r 6� I Wells Fargo Bank, as investment adviser to the CIT Master Portfolio, monitors on an ongoing basis the ability of an issuer of a demand instrument to pay principal and interest on demand. Events occurring between the time the CIT Master Portfolio elects to demand payment on a floating- or variable -rate instrument and the time payment is due may affect the ability of the issuer to make payment when due, and unless such demand instrument permits same -day settlement, such events may affect the CIT Master Portfolio's ability to obtain payment at par. Demand instruments whose demand feature is not exercisable within seven days may be treated as liquid, provided that an active secondary market exists. Repurchase Agreements The CIT Master Portfolio may enter into repurchase agreements wherein the seller of a security to the CIT Master Portfolio agrees to repurchase that security from the CIT Master Portfolio at a mutually agreed -upon time and price. The period of maturity is usually quite short, often overnight or a few days, although it may extend over a number of months. The CIT Master Portfolio may enter into repurchase agreements only with respect to U.S. Government obligations and other securities that are permissible investments for the CIT Master Portfolio. All repurchase agreements will be fully collateralized at 102% based on values that are marked to market daily. The maturities of the underlying securities in a repurchase agreement transaction may be greater than twelve months. However, the term of any repurchase agreement on behalf of the CIT Master Portfolio will always be less than twelve months. If the seller defaults and the value of the underlying securities has declined, the CIT Master Portfolio may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, the CIT Master Portfolio's disposition of the security may be delayed or limited. The CIT Master Portfolio may not enter into a repurchase agreement with a maturity of more than seven days if, as a result, more than 10% of the market value of the CIT Master Portfolio's total net assets would be invested in repurchase agreements with maturities of more than seven days, restricted securities and/or illiquid securities. The CIT Master Portfolio will enter into repurchase agreements only with primary broker/dealers and commercial banks that meet guidelines established by the Board of Trustees of the Trust and that are not affiliated with Wells Fargo Bank. The CIT Master Portfolio, subject to the conditions described above, may participate in pooled repurchase agreement transactions with other funds advised by Wells Fargo Bank. Letters of Credit Certain of the debt obligations, certificates of participation, commercial paper and other short- term obligations which the CIT Master Portfolio is permitted to purchase may be backed by an unconditional and irrevocable letter of credit of a bank, savings and loan association or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer. Letter of credit -backed investments must, in the opinion of Wells Fargo Bank, be of investment quality comparable to other permitted high -quality investments of the CIT Master Portfolio. 3 �_ � ►10 The Fund's investment objective and its investment policy of investing all of its assets in the CIT Master Portfolio, as set forth above, are fundamental. Accordingly, they may not be changed without approval by the vote of the holders of a majority of the Fund's outstanding voting securities, as described under "Capital Stock" in the SAI. If the Company's Board of Directors determines, however, that the Fund's investment objective can best be achieved by a substantive change in a non - fundamental investment policy or strategy, the Company may make such change without shareholder approval and will make appropriate disclosure of any such material change in the Fund's prospectus. The investment objective of the CIT Master Portfolio may not be changed without approval of a majority vote of the investors in the CIT Master Portfolio. The classification of the Fund and the CIT Master Portfolio as "diversified" may not be changed, in the case of the Fund, without the approval of the Fund's shareholders, or, in the case of the CIT Master Portfolio, without the approval of a majority vote of the investors in the CIT Master Portfolio. In addition, as a matter of fundamental policy, the CIT Master Portfolio ( and the Fund) may borrow from banks up to 10% of the current value of its net assets only for temporary purposes in order.to meet redemptions, and these borrowings may be secured by the pledge of up to 10% of the current value of its net assets ( but investments may not be purchased while any such outstanding borrowing in excess of 5% of its net assets exists) . As a matter of fundamental policy, neither the CIT Master Portfolio nor the Fund may invest more than 25% of its assets (i.e., concentrate) in any particular industry, excluding U.S. Government obligations and obligations of domestic banks. ( Foreign branches of U.S. banks and domestic branches of foreign banks are not domestic banks for purposes of this exclusion.) As a matter of non -fundamental policy, the CIT Master Portfolio ( and the Fund) may invest up to 10% of the current value of its net assets in repurchase agreements having maturities of more than seven days, illiquid securities, and fixed time deposits that are subject to withdrawal penalties and that have maturities of more than seven days, provided that this restriction does not affect the Fund's ability to invest a portion or all of its assets in the CIT Master Portfolio. MANAGEMENT OF THE FUND AND THE CIT MASTER PORTFOLIO The Company has retained the services of Stephens as administrator and distributor• for the Fund, but has not retained the services of an investment adviser for the Fund since the Company seeks to achieve the investment objective of the Fund by investing all of the Fund's assets in the CIT Master Portfolio. The Company's Board of Directors supervises the actions of the Fund's administra- tor and distributor, as set forth below, and decides upon matters of general policy. As noted above, the Fund may withdraw its investment in the CIT Master Portfolio only if the Board of Directors of the Company determines that it is in the best interests of the Fund and its shareholders to do so. Upon any such withdrawal, the Board of Directors of the Company would consider what action might be taken, including the investment of all the assets of the Fund in another pooled investment entity having the same investment objective as the Fund or the hiring of an investment adviser to manage the Fund's assets in accordance with the investment policies described above with respect to the CIT Master Portfolio. 4 The Trust, on behalf of the CIT Master Portfolio, has retained the services of Wells Fargo Bank as investment adviser to the CIT Master Portfolio, and Stephens as administrator and distributor of the CIT Master Portfolio. The Board of Trustees of the Trust is responsible for the general management of the Trust and supervising the actions of Wells Fargo Bank and Stephens in these capacities. Additional Information regarding the Officers and Directors of the Company and the Officers and Trustees of the Trust is included in the Funds' SAI under "Management." Structure of the Fund and the CIT Master Portfolio The Fund is a feeder fund in a master/feeder structure, which means that it invests all of its assets in the CIT Master Portfolio, which has the same investment objective as the Fund. The Trust is organized as a trust under the laws of the State of Delaware. See "Organization and Capital Stock." In addition to selling its shares to the Fund, the CIT Master Portfolio may sell its shares to other mutual funds or qualified investors. Such other mutual funds and other qualified investors may have different expenses and, accordingly, may experience different investment returns and yields com- pared with the Fund. Information regarding additional options, if any, for investing in shares of the CIT Master Portfolio is available from Stephens and may be obtained by calling (800) 643-9691. The Company's Board of Directors believes that if other investors invest their assets in the CIT Master Portfolio, certain economic efficiencies may be realized with respect to the CIT Master Portfolio. For example, fixed expenses that otherwise would have been borne solely by the Fund would be spread across a potentially larger asset base provided by more than one fund investing in the CIT Master Portfolio. The Fund and any other entities investing in the CIT Master Portfolio are each liable for all obligations of the Master Portfolio. The risk of the Fund incurring financial loss on account of such liability, however, is limited to circumstances in which both inadequate insurance exists and the Trust itself is unable to meet its obligations. Accordingly, the Company's Board of Directors believes that neither the Fund nor its shareholders will be adversely affected by reason of investing the Fund's assets in the CIT Master Portfolio. However, if a mutual fund or other investor withdraws its investment from the CIT Master Portfolio, the economic efficiencies (e.g., spreading fixed expenses across a larger asset base) that the Company's Board believes may be available through investment in the CIT Master Portfolio may not be fully achieved. In addition, given the relatively novel nature of the master/feeder structure, accounting and operational difficulties, although unlikely, could occur. The Fund may withdraw its investments in the CIT Master Portfolio only if the Company's Board of Directors determines that such action would be in the best interests of the Fund and its shareholders. Upon such withdrawal, the Board would consider alternative investments, including investing all of the Fund's assets in another investment company with the same investment objective as the Fund or hiring an investment adviser to manage the Fund's assets in accordance with the investment policies described in this section with respect to the CIT Master Portfolio. For a description of the management and expenses of the Fund and the CIT Master Portfolio, see "Investment Adviser" and "Sponsor, Administrator and Distributor." The investment objective and other fundamental policies of the Fund or the CIT Master Portfolio cannot be changed without approval by the holders of a majority, as defined in the 1940 Act, of the Fund's or CIT Master Portfolio's, as applicable, outstanding voting securities. Whenever 5 the Fund, as a CIT Master Portfolio interestholder, is requested to vote on matters pertaining to any fundamental policy of the Master Portfolio, the Company will hold a meeting of the Fund's shareholders to consider such matters, and the Fund's votes will be cast in proportion to the votes received from Fund shareholders. The Fund will vote those Fund shares for which it receives no voting instructions in the same proportion as the votes received from Fund shareholders. In addition, certain policies of the CIT Master Portfolio that are non -fundamental could be changed by vote of a majority of the Trust's Trustees without interestholder vote. If the CIT Master Portfolio's investment objective or fundamental or non -fundamental policies are changed, the Fund could subsequently change its objective or policies to correspond to those of the CIT Master Portfolio, or the Fund could redeem its CIT Master Portfolio interests and either seek a new investment company with a matching objective in which to invest or it could retain its own investment adviser to manage the Fund's portfolio in accordance with its investment objective. In the latter case, the Fund's inability to find a substitute investment company in which to invest or equivalent management services could ad- versely affect shareholders' investments in the Fund. The Fund will provide shareholders with 30 days' written notice prior to the implementation of any change in the investment objective of the Fund or the CIT Master Portfolio, to the extent possible. See "Investment Objective and Policies" for additional information regarding the Fund's and the CIT Master Portfolio's investment objectives and policies. Additional information regarding the Officers and Directors/Trustees of the Company and the Trust is located in the Fund's SAI under "Management." Investment Adviser Pursuant to an Advisory Contract, the CIT Master Portfolio is advised by Wells Fargo Bank, 420 Montgomery Street, San Francisco, California 94104, a wholly owned subsidiary of Wells Fargo & Company. Wells Fargo Bank, one of the largest banks in the United States, was founded in 1852 and is the oldest bank in the western United States. As of April 1, 1996, Wells Fargo Bank and its affiliates provided investment advisory services for approximately $56 billion of assets of individuals, trusts, estates and institutions. Wells Fargo Bank is the investment adviser to other separately managed portfolios of the Company and the Trust and serves as investment adviser or sub -adviser to four other registered open-end management investment companies, each of which consists of several separately managed investment portfolios. The Advisory Contract with the Trust on behalf of the CIT Master Portfolio provides that Wells Fargo Bank shall furnish to the CIT Master Portfolio investment guidance and policy direction in connection with the daily portfolio management of the CIT Master Portfolio. Pursuant to the Advisory Contract, Wells Fargo Bank furnishes to the Board of Trustees of the Trust periodic reports on the investment strategy and performance of the CIT Master Portfolio. For its services under the Advisory Contract with the Trust, Wells Fargo Bank is entitled to receive a monthly advisory fee at the annual rate of 0.25 % of the average daily net assets of the CIT Master Portfolio. For the year ended December 31, 1995 Wells Fargo Bank was paid at the annual rate of 0.22% of the average daily net assets of the Fund as compensation for its services as investment adviser. From time to time, Wells Fargo Bank may waive such fees in whole or in part. In this regard, Wells Fargo Bank has undertaken to waive a portion or all of its fees and/or reimburse the Fund or the CIT Master Portfolio, to the extent the Fund's total operating expenses exceed 1.25% At of the Fund's average daily net assets, but only to the extent of its fees. Any such waiver.will reduce expenses of the CIT Master Portfolio and, accordingly, have a favorable impact on the performance of the CIT Master Portfolio and, in turn, the Fund. Purchase and sale orders of the securities held by the CIT Master Portfolio may be combined with those 'of other accounts that Wells Fargo Bank manages or advises, and for which it has brokerage placement authority, in the interest of seeking the most favorable overall net results. When Wells Fargo Bank determines that a particular security should be bought or sold for the CIT Master Portfolio and other accounts managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those transaction costs among the participants equitably. From time to time, the CIT Master Portfolio, to the extent consistent with its investment objective, policies and restrictions, may invest in securities of companies with which Wells Fargo Bank has a lending relationship. Morrison & Foerster LLP, counsel to the Company and the Trust and special counsel to Wells Fargo Bank, has advised the Company, the Trust and Wells Fargo Bank that Wells Fargo Bank and its affiliates may perform the services contemplated by the Advisory Contract and this Prospectus without violation of the Glass-Steagall Act. Such counsel has pointed out, however, that there are no controlling judicial or administrative interpretations or decisions and that future judicial or adminis- trative interpretations of, or decisions relating to, present federal or state statutes, including the Glass-Steagall Act, and regulations relating to the permissible activities of banks and their subsidiar- ies or affiliates, as well as future changes in such statutes, regulations and judicial or administrative decisions or interpretations, could prevent such entities from continuing to perform, in whole or in part, such services. If any such entity were prohibited from performing any such services, it is expected that new agreements would be proposed or entered into with another entity or entities qualified to perform such services. Sponsor, Administrator and Distributor Stephens, 111 Center Street, Little Rock, Arkansas 72201, has entered into agreements with the Company and the Trust under which Stephens acts as administrator for the Fund and the CIT Master Portfolio, respectively. For providing administrative services, Stephens is entitled to receive from each of the Fund and the CIT Master Portfolio a monthly fee at the annual rate of 0.025% of its respective average daily net assets. From time to time, Stephens may waive its fees from the Fund or the CIT Master Portfolio in whole or in part. Any such waivers will reduce expenses of the Fund and/or of the CIT Master Portfolio and, accordingly, have a favorable impact on the performance of the Fund and/or the CIT Master Portfolio. The respective Administration Agreements with the Fund and the CIT Master Portfolio state that Stephens shall provide as administrative services, among other things, (i) general supervision of the operation of the Fund and the CIT Master Portfolio, including coordination of the services performed by the investment adviser (in the case of the CIT Master Portfolio), transfer agent, shareholder servicing agents (in the case of the Fund), custodian, independent auditors and legal counsel; (ii) general supervision of regulatory compliance matters, including the compilation of information for documents such as reports to, and filings with, the SEC and state securities commissions; and preparation of proxy statements and shareholder or investor reports for the Fund and the CIT Master Portfolio, as applicable; and (iii) general supervision of the compilation of data required for the preparation of periodic reports distributed to the Company's officers and Board of Directors and the 7 Trust's officers and Board of Trustees. Stephens also furnishes office space and certain facilities required for conducting the business of the Fund and the CIT Master Portfolio and pays the compensation of the directors, officers and employees of the Company and of the Trust who are affiliated with Stephens. Stephens, as the principal underwriter of the Fund within the meaning of the 1940 Act and in accordance with a plan of distribution ("Plan"), has entered into a Distribution Agreement with the Company pursuant to which Stephens has the responsibility for distributing shares of the Fund. The Distribution Agreement provides that Stephens shall act as agent for the Fund for the sale of its shares. See "Distribution Plan" below. Stephens is a full service broker/dealer and investment advisory firm. Stephens and its predeces- sor have been providing securities and investment services for more than sixty years, including discretionary portfolio management services since 1983. Stephens currently manages investment portfolios for pension and profit sharing plans, individual investors, foundations, insurance compa- nies and university endowments. The Advisory Contract and the Administration Agreements with the CIT Master Portfolio and the Fund provide that if, in any fiscal year, the total aggregate expenses of the CIT Master Portfolio and the Fund incurred by, or allocated to, the CIT Master Portfolio and the Fund ( excluding taxes, interest, brokerage commissions and other portfolio transaction expenses, expenditures that are capitalized in accordance with generally accepted accounting principles, extraordinary expenses and amounts accrued or paid under a Plan) exceed the most restrictive expense limitation applicable to the Fund imposed by the securities laws or regulations of the states in which the Fund's shares are registered for sale, Wells Fargo Bank and Stephens shall waive their fees and reimburse expenses proportionately under the Advisory Contract and the Administration Agreements, respectively, for the fiscal year to the extent of the excess, or reimburse the excess, but only to the extent of their respective fees. In this regard, Wells Fargo Bank has undertaken to waive a portion or all of its fees and/or reimburse expenses to the Fund and the CIT Master Portfolio, to the extent the total operating expenses exceed 1.25% of average daily net assets, but only to the extent of its fees. The Advisory Contract and the Administration Agreements further provide that the total expenses shall be reviewed monthly so that, to the extent the annualized expenses for such month exceed the most restrictive applicable annual expense limitation, the monthly fees under the Advisory Contract and the Administration Agreements shall be reduced as necessary. Currently, the most stringent applica- ble state expense ratio limitation is 2.50% of the first $30 million of the Fund's average net assets for its current fiscal year, 2% of the next $70 million of such assets, and 1.50% of such assets in excess of $100 million. Except for the expenses borne by Wells Fargo Bank and Stephens, the Company and the Trust bear all costs of their respective operations, including advisory (in the case of the CIT Master Portfolio) , shareholder servicing (in the case of the Fund) , transfer agency, custody and administra- tion fees; payments pursuant to any Plan (in the case of the Fund); fees and expenses of independent auditors and legal counsel, and any extraordinary expenses. Expenses attributable to the Fund and/or the CIT Master Portfolio are charged against the respective assets of the Fund and/or the CIT Master Portfolio. DETERMINATION OF NET ASSET VALUE, DIVIDENDS AND DISTRIBUTIONS Net asset value per share for the Fund is determined by Wells Fargo Bank on each day that the Fund is open for trading ( "Business Day") . The net asset value per share of the Fund is determined by dividing the value of the total assets of the Fund (i.e., the value of its investments in the CIT Master Portfolio and other assets) less all of its liabilities by the total number of outstanding shares of the Fund. The net asset value of the Fund is determined as of 12:00 noon and 4:00 p.m. ( New York time) . It is anticipated that the net asset value of each share of the Fund will remain constant at $1.00, although no assurance can be given that the Fund will maintain a stable net asset value on a continuing basis. The CIT Master Portfolio uses the amortized cost method to value its portfolio securities. The amortized cost method involves valuing a security at its cost and amortizing any discount or premium over the period until maturity, generally without regard to the impact of fluctuating interest rates on the market value of the security. The net investment income of the CIT Master Portfolio is determined, declared and paid as a dividend once each Business Day as of 12:00 noon ( New York time) . All the net investment income of the CIT Master Portfolio so determined is allocated pro rata among the Fund and the other investors in the CIT Master Portfolio at the time of such determination. For this purpose, the net investment income of the CIT Master Portfolio ( from the time of the immediately preceding determination thereof) consists of (i) all income accrued, less the amortiza- tion of any premium, on the assets of the CIT Master Portfolio, less (ii) all actual and accrued expenses of the CIT Master Portfolio determined in accordance with generally accepted accounting principles. Interest income includes discount earned ( including both original issue and market discount) on discount paper accrued ratably to the date of maturity and any net realized gains or losses on the assets of the CIT Master Portfolio. The net investment income of the Fund, as defined below, is determined at the same time and on the same days as the net investment income of the CIT Master Portfolio is determined. All the Net Income of the Fund so determined is declared as a dividend to shareholders of record at the time of such determination. Net Income for a Saturday, Sunday or Holiday (as defined below) will be declared as a dividend to shareholders of record as of 12:00 noon ( New York time) on the previous Business Day. Dividends of the Fund declared in, and attributable to, any month will be paid in cash once a month, early in the following month. Shareholders of the Fund who redeem shares prior to a dividend payment date will be entitled to all dividends declared but unpaid prior to redemption on such shares on the next dividend payment date. For this purpose, the net investment income of the Fund ( from the time of the immediately preceding determination thereof) consists of (i) all income accrued on the assets of the Fund (i.e., the Fund's share of the net investment income of the CIT Master Portfolio) , less (ii) all actual and accrued expenses of the Fund determined in accordance with generally accepted accounting principles. Since the net investment income of the Fund is declared as a dividend each time the Net Income of the Fund is determined, the net asset value per share of the Fund is expected to remain constant at $1.00 per share immediately after each such determination and dividend declaration. I r C1t. V r y I Performance Data From time to time, the Company may advertise yield information with respect to shares of the Fund. Yield information is based on the historical earnings and performance of the Fund and should not be considered representative of future performance. From time to time, the Fund may advertise its current yield and/or its effective yield. Current yield for the Fund is computed by dividing its net investment income per share earned during a specified period by its net asset value per share on the last day of such period and annualizing the result. The current yield of the Fund will show the annualized income per share generated by an investment in the Fund over a stated period. The effective yield is calculated similarly but, when annualized, the income earned per share will be assumed to have been reinvested. The effective yield will be slightly higher than the current yield because of the compounding effect of this assumed reinvestment. Additional information about the performance of the Fund is contained in the Annual Report for the Fund. The Annual Report may be obtained free of charge by calling the Company at 800-552-9612. PURCHASE AND REDEMPTION OF SHARES Shares of the Fund are offered exclusively to customers of Servicing Agents who have entered into a Shareholder Servicing Agreement with the Company on behalf of the Fund. However, other open-end investment companies that offer their shares to the public, including other series of the Company, also may invest all or substantially all of their assets in the CIT Master Portfolio. Accordingly, there may be other investment companies through which public investors can invest indirectly in the CIT Master Portfolio. The fees charged by such other investment companies may be higher or lower than those charged by the Fund, which may reflect, among other things, differences in the nature and level of the services and features offered by such companies to their shareholders. The Shareholder Servicing Agreements contemplate that customers of a Servicing Agent will have entered into agency agreements with such Servicing Agent whereby the Servicing Agent is authorized to invest certain amounts maintained by the customer in an account with the Servicing Agent in shares of the Fund through a single account in the name of the Servicing Agent on behalf of its customers. Fund shares are offered continuously at the net asset value next determined after a purchase order is received by the Servicing Agent. The Servicing Agent is responsible for the prompt transmission of the purchase order to the Fund. The net asset value is expected to remain constant at $ 1.00. No sales load is imposed. Shares of the Fund may be purchased on any day the Fund is open. The Fund is open on the same days as the New York Stock Exchange (the "Exchange"). Currently, the Exchange is closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day ( each, a "Holiday") . When any Holiday falls on a Saturday, the Exchange usually is closed the preceding Friday, and when any Holiday falls on a Sunday, the Exchange is usually closed the following Monday. There is no minimum initial or subsequent purchase amount applicable to Fund shares. The Company reserves the right to reject any purchase order for shares of the Funds. All amounts accepted will be invested in full and fractional shares. Inquiries regarding purchases and redemp- 10 tions may be directed to the Company at (800) 572-7797 or at the address on the front cover of the Prospectus. Shares may be redeemed at their next determined net asset value after the Servicing Agent has received a redemption order. The Servicing Agent is responsible for the prompt transmission of the redemption order to the Fund. The Company makes no charge for redemption transactions. Proceeds of redemptions will be credited to the Servicing Agent's shareholder account with the Fund. DISTRIBUTION PLAN The Company's Board of Directors has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act on behalf of the Fund, and shareholder approval has been obtained with respect to the Plan. Under the Plan and pursuant to the Distribution Agreement, the Fund pays Stephens, as compensation for distribution -related services, a monthly fee at the annual rate of up to 0.55% of the average daily net assets of the Fund or the maximum amount payable under applicable laws, regulations and rules, whichever is less. The actual fee payable to Stephens is determined, within the applicable limit, from time to time by mutual agreement between the Company and Stephens. Stephens may enter into selling agreements with one or more Selling Agents under which such agents may receive compensation for distribution -related services from Stephens, including, but not limited to, commissions or other payments to such agents based on the average daily net assets of Fund shares attributable to them. Stephens may retain any portion of the total distribution fee payable under the Distribution Agreement to compensate it for distribution -related services provided by it or to reimburse it for other distribution -related expenses. Since the fee payable to Stephens under the Distribution Agreement is not based upon the actual expenditures of Stephens, the expenses of Stephens ( which may include overhead expenses) may be more or less than the fees received by it under the Distribution Agreement. The Plan contemplates further that, to the extent any fees payable pursuant to a Shareholder Servicing Agreement ( discussed below) are deemed to be for distribution -related services, rather than shareholder services, such payments are approved and payable pursuant to the Plan. Stephens has entered into a Selling Agreement with Wells Fargo Bank, pursuant to which Wells Fargo Bank will receive periodic payments based on the average daily net assets of Fund shares attributable to its customers. CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND SERVICING AGENTS Wells Fargo Bank has been retained to act as the custodian and transfer and dividend disbursing agent for the Fund and the CIT Master Portfolio. Wells Fargo Bank's principal place of business is 420 Montgomery Street, San Francisco, California 94104, and its transfer and dividend disbursing agency activities are managed at 525 Market Street, San Francisco, California 94105. The Company has entered into a Shareholder Servicing Agreement on behalf of the Fund with Wells Fargo Bank, and may enter into such Shareholder Servicing Agreements with one or more other financial institutions which desire to act as Servicing Agents. Pursuant to each such Shareholder Servicing Agreement, the Servicing Agent, as agent for its customers, will, among other things: 11 automatically invest cash balances maintained in customer accounts with the Servicing Agent into the Fund, and redeem shares out of the Fund, in the amounts specified pursuant to agency agreements between the Servicing Agent and its customers; maintain a single shareholder account for the benefit of its customers with the Fund; provide subaccounting services to monitor and account for its customers' beneficial ownership of shares of the Fund held in the Servicing Agent's shareholder account; answer customer inquiries regarding account status and history, purchases and redemptions of shares of the Fund, Fund yield and certain other matters pertaining to the Fund or the CIT Master Portfolio; assist its customers in designating and changing account designations and addresses; process Fund purchase and redemption transactions; forward and receive funds in connection with purchases or redemptions of shares of the Fund; provide periodic statements showing a customer's subaccount balance; furnish ( either separately or on an integrated basis with other reports sent to a customer by the Servicing Agent) monthly statements and confirmations of purchases and redemp- tions of Fund shares in the Servicing Agent's shareholder account on behalf of the customer; forward to its customers proxy statements, annual reports, updated prospectuses and other communications from the Fund or the CIT Master Portfolio to shareholders of the Fund as required; receive, tabulate and forward to the Company proxies executed by or on behalf of its customers with respect to meetings of shareholders of the Fund; and provide such other related services, and necessary personnel and facilities to provide all 'of the shareholder services contemplated by the Shareholder Servicing Agreement, in each case, as the Company or a customer of the Servicing Agent may reasonably request. All purchases and redemptions are effected through Stephens as the Fund's Distributor. For providing these services, each Servicing Agent is entitled to receive a fee from the Fund, which may be paid periodically, of up to 0.35%, on an annualized basis, of the average daily net assets of the Fund represented by shares owned of record by the Servicing Agent on behalf of its customers, or an amount which, when considered in conjunction with amounts payable pursuant to the Fund's Distribution Agreement, equals the maximum amount payable to the Servicing Agent under applicable laws, regulations or rules, whichever is less. A Servicing Agent also may impose certain conditions on its customers, subject to the terms of this Prospectus, in addition to or different from those imposed by the Fund, such as requiring a minimum initial investment or the payment of additional fees for additional services offered to the customer. The -exercise of voting rights and the delivery to customers of shareholder communications will be governed by the customers' agency agreements with the Servicing Agent. The Servicing Agent has agreed to forward to its customers who are shareholders of the Fund appropriate prior written disclosure of any fees that it may charge them directly and to provide written notice at least 15 days prior to imposition of any transaction fees. TAXES The Company intends to continue to qualify the Fund as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as long as such qualification is in the best interest of the Fund's shareholders. The Fund will be treated as a separate entity from the other portfolios of the Company for tax purposes and thus the provisions of the Code applicable to regulated investment companies generally will be applied to the Fund separately, rather than to the Company as a whole. In addition, net capital gains, if any, net investment income and 12 operating expenses will be determined separately for the Fund. By complying with the applicable provisions of the Code, the Fund will not be subject to federal income taxes with respect to net investment income and net capital gains distributed to its shareholders. The Fund intends to pay out substantially all of its net investment income and net capital gains (if any) for each year. Generally, dividends and capital gain distributions are taxable to recipient shareholders when paid. However, such dividends and distributions of capital gains declared payable as of a record date in October, November or December of any calendar year are deemed to have been distributed by the Fund and received by its shareholders on December 31 of that calendar year if the dividend is actually paid in the following January. Such dividends will, accordingly, be taxable to the recipient shareholders in the year in which the record date falls. The Fund seeks to qualify as a regulated investment company by investing all of its assets in the CIT Master Portfolio. The CIT Master Portfolio will be treated as a non -publicly traded partnership rather than as a regulated investment company or a corporation under the Code and, as such, shall not be subject to federal income tax. As a non -publicly traded partnership, any interest, dividends, gains and losses of the CIT Master Portfolio shall be deemed to have been "passed through" to the Fund ( and other investors) in proportion to the Fund's ownership interest in the CIT Master Portfolio. If the CIT Master Portfolio were to accrue but not distribute any interest, dividends or gains, the Fund would be deemed to have realized and recognized its proportionate share of such income, regardless of whether or not such income has been distributed by the Master Portfolio. However, the CIT Master Portfolio will seek to minimize recognition by the Fund and other investors of interest, dividends and gains without a corresponding distribution. Dividends from net investment income ( including net short-term capital gains, if any) declared and paid by the Fund will be taxable as ordinary income to the Fund's shareholders. Shareholders of record will receive information for tax purposes following the end of each calendar year. No part of the distributions to shareholders of the Fund is expected to qualify for the dividends -received deduction allowed to corporate shareholders. The Company is required to withhold, subject to certain exemptions, at a rate of 31 % on dividends, capital gain distributions, and redemption proceeds paid or credited to individual shareholders of the Fund if a correct taxpayer identification number, certified when required, is not on file with the Company or the Transfer Agent. The foregoing discussion is based on tax laws and regulations which were in effect as of the date of this Prospectus and summarizes only some of the important federal income tax considerations generally affecting the Fund and its shareholders. It is not intended as a substitute for careful tax planning; you should consult your tax advisor with respect to your particular tax situation as well as the state and local tax status of investments in shares of the Fund. Further federal income tax considerations are discussed in the SAI. 13 r r.r)P � ORGANIZATION AND CAPITAL STOCK The Company was incorporated in Maryland on April 27, 1987. The authorized capital stock of the Company consists of 20,000,000,000 shares having a par value of $.001 per share. Currently, the Company offers the following series of shares, each representing an interest in one of the following funds — the Asset Allocation, California Tax -Free Bond, California Tax -Free Money Market, Money Market, Municipal Income, National Tax -Free Institutional Money Market, Overland Sweep, Short - Term Government -Corporate Income, Short -Term Municipal Income, Strategic Growth, U.S. Govern- ment Income, U.S. Treasury Money Market and Variable Rate Government Funds. The Board of Directors may, in the future, authorize the issuance of other series of capital stock. All shares of the Company, when issued, will be fully paid and nonassessable. The Trust was established on August 14, 1991, as a Delaware business trust. The Trust is a "series fund", which is a mutual fund divided into separate portfolios. The Trust currently offers eight portfolios, including the CIT Master Portfolio. The Trust's Declaration of Trust permits the Board of Trustees to issue beneficial interests in its separate series to investors based on their proportionate investments in such series. All shares of the Company have equal voting rights and will be voted in the aggregate, and not by series or class, except where voting by series or class is required by law or where the matter involved affects only one series or class. The Company may dispense with the annual meeting of shareholders in any fiscal year in which it is not required to elect Directors under the 1940 Act; however, shareholders are entitled to call a meeting of shareholders for purposes of voting on removal of a Director or Directors of the Company. In addition, whenever the Fund is requested to vote on matters pertaining to the CIT Master Portfolio, the Company will hold a meeting of the Fund's shareholders and will cast its vote as instructed by Fund shareholders. The Directors of the Company will vote shares for which they receive no voting instructions in the same proportion as the shares for which they do receive voting instructions. A more detailed statement of the voting rights of shareholders is contained in the SAI. 14 r. rrlrn Sponsor, Administrator and Distributor of the Fund and the CIT Master Portfolio Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Investment Adviser to the CIT Master Portfolio; Transfer and Dividend Disbursing Agent and Custodian of the Fund and the CIT Master Portfolio Wells Fargo Bank, N.A. P.O. Box 63084 San Francisco, California 94163 Legal Counsel Morrison & Foerster LLP 2000 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Independent Auditor KPMG Peat Marwick LLP Three Embarcadero Center San Francisco, California 94111 NOT FDIC INSURED For more information about the Fund, simply call (800) 552-9612, or write: Overland Express Funds, Inc. c/o Overland Express Shareholder Services Wells Fargo Bank, N.A. P.O. Box 63084 San Francisco, California 94163 80P 5/96 rE`t�f�^� �.°ja44 Q" •c9 F OZ •ef V I`I OF INVESTMENT ADVISORY BOARD Meeting Date: TITLE: March 12, 1997 Transmittal of Treasury Report for January 31, 1997 BACKGROUND: Business Session Item No. B Attached please find the Treasury Report for January, 1997. RECOMMENDATION: Review, Receive and File the Treasury Report of January 31, 1997. W-� �- a O'L� ohn M. Falconer, Finance Director TO: FROM: SUBJECT: DATE: MEMORANDUM La Quinta City Council John Falconer, Finance Director/Treasurer Treasurer's Report for January 31, 1997 March 3, 1997 Attached is the Treasurer's Report for the month ending January 31, 1997. This report is submitted to the City Council each month after a reconciliation of accounts is accomplished by the Finance Department. Cash and Investments: Increase of $1,042,280. due to the net effect of revenues in excess of expenditures. State Pool: ICMA: Increase of $3,868,044. due to interest earned, the receipt of tax increment and transfers to and from the cash and investment accounts. No change. U.S. Treasury Bills, Notes and Securities: Increase of $2,954,156. due to the net purchase of 1 U.S. Treasury Bill, 1 U.S. Government Security and the sale of 1 U.S. Treasury Bill. Mutual Funds: Decrease of $925,991. due to the net effect of transfers from investment to cash, debt service payment and interest earned. Total increase in cash balances $6,938,489. I certify that this report accurately reflects all pooled investments and is in compliance with the California Government Code; and is in conformity with the City Investment policy. As Treasurer of the City of La Quinta, I hereby certify that sufficient investment liquidity and anticipated revenues are available to meet the pools expenditure requirements for the next six months. The City of La Quinta used the Wall Street Journal and Wells Fargo Monthly Custodian Report to determine the fair market value of investments at month end. U7V3 % ohn M. Falconer Date Finance Director/Treasurer z 0 F U LL w w f7 z a N F- z w H co w Z F 0 !0 E 7 E E c m N W a N 7 E y N 7v E N C C C C C C C C Z Z z z Z Z Z Z W r0i c O A 16y U' c c d � c o«� o vOi U v a� U U °� ¢ o uwi L U LL LL `m ` m o `o v c y � c N N Q Z N N N N T N rn'0 M C N •7 T N N CD v O v O v v v v j v w >,HE O N U yVy o (0 C C C Q(D'O �� (AN y N� O L L O o 0 d N Q O x N L Q `a L- C O �C�pp O _D +O a Q� raU_ c II II o z C o N v1 1 IV I Z O m o. 'A L m c o 0 o a o l' c r Q c LO tO $ � c`°o Q L rn z o ao ch Z L (n O GO O CO N N CO c0 O C? 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Ol � pp M (Y) C A If��Go Imo- ti GOvO to `� Imo- M v7 CO CO N M N (fl 0 N W 04 e� N CN .. op M O x N F- C C CW F- 7 N -� O O ~ N C a.cg CL. -w0a H L O N N >. l0 'a 0(� O O pN M U COL V N m m N N M N � � � M M C C- f- CITY OF LA QUINTA CITY CITY RDA RDA FA BALANCE SHEET 01/31197 FIXED LONG TERM FIXED LONG TERM FINANCING LONG TERM GRAND CITY ASSETS DEBT RDA ASSETS DEBT AUTHORITY DEBT TOTAL ASSETS: POOLED CASH 1,477,201.10 9,879,856.20 11,357,057.30 LQRP INVESTMENT IN POOLED CASH 290,000.00 290,000.00 INVESTMENT T-BILL/NOTES & OTHEq 12,925,768.87 12,925,768.67 LQRP CASH 12,471.85 12.471.85 BOND REDEMPTION CASH 728.17 8,888.56 9,616.73 BOND RESERVE CASH 513,162.35 513,162.35 BOND PROJECT CASH 12,446,897.26 730,884.84 13,177,782.10 BOND ESCROW CASH 2,527.42 2,527.42 PETTY CASH 1,000.00 1,600.00 ICMA DEFERRED COMPENSATION 593,838.92 593,838.92 CASH S INVESTMENT TOTAL 14,997,806.69 23,145,643.25 739,773.40 3§,883,223.34 INVESTMENT IN LAND HELD FOR RESALE 86,319.85 86,319.85 ACCOUNTS RECEIVABLE 8.969.64 65,100.23 74,069.87 PREMIUM/DISCOUNT ON INVESTMENT LQRP-ACCOUNTS RECEIVABLE 10,656.57 10,656.57 INTEREST RECEIVABLE LOAN/NOTES RECEIVABLE 2,531,312.25 2,531,312.25 DUE FROM OTHER AGENCIES DUE FROM OTHER GOVERNMENTS DUE FROM OTHER FUNDS 551,038.04 551,038.04 DUE FROM RDA 6,048,957.20 6,048,957.20 INTEREST ADVANCE -DUE FROM RDA 957,751.62 957,751.62 NSF CHECKS RECEIVABLE 1,769.15 1,769.15 ACCRUED REVENUE TRAVEL ADVANCES 730.00 730•00 EMPLOYEE ADVANCES PREPAID EXPENSES RECEIVABLE TOTAL 7,018,177.61 3,158,107.09 10,176,284.70 WORKER COMPENSATION DEPOSIT RENT DEPOSITS UTILITY DEPOSITS 75.00 75.00 MISC. DEPOSITS 2,100.00 2,100.00 DEPOSITS TOTAL 2,175.00 2,175.00 GENERAL FIXED ASSETS 15,895,015.00 11,438,745.05 27,333,760.05 AMOUNT AVAILABLE TO RETIRE UT DEBT 2,340,653.00 2,340,653.00 AMOUNT TO BE PROVIDED FOR L/f DEBT 298,816.00 90,565,659.78 8,790,000.00 99,654,475.78 TOTAL OTHER ASSETS 15,895,015.00 298,816.00 11,438,745.05 92,906,312.78 8,790,000.00 129,328,888.83 TOTAL ASSETS 22,018,159.30 15,895,015.00 298,816.00 26,390,070.19 11,438,745.05 92,906,312.78 739 773.40 8,790,000.00 178.476.891.72 LIABILITY ACCOUNTS PAYABLE 537,209.22 474,033.11 1,011,242.33 DUE TO OTHER AGENCIES 493,040.00 493•040•00 DUE TO OTHER FUNDS 551,038.04 551,038.04 INTEREST ADVANCE -DUE TO CITY ACCRUED EXPENSES PAYROLL LIABILITIES 67.073.78 67,073.78 STRONG MOTION INSTRUMENTS 438.81 438.81 FRINGE TOED LIZARD FEES 0.40 0•40 SUSPENSE (2,706.47) (2,706.47) DUE TO THE CITY OF LA QUINTA PAYABLES TOTAL 1,095,055.74 1,025,071.15 2,120,126.89 ENGINEERING TRUST DEPOSITS 88,040.17 88,040.17 SO. COAST AIR QUALITY DEPOSITS ' ARTS IN PUBLIC PLACES DEPOSITS 131,796.82 131,796.82 LQRP DEPOSITS 13,230.00 13,230.00 DEVELOPER DEPOSITS 284,348.35 284,348.35 MISC. DEPOSITS 843.15 843.15 AGENCY FUND DEPOSITS 1,164,540.55 1,184,540.55 ICMA-DEFERRED COMP DEPOSITS 593,838.92 593,838.92 TOTAL DEPOSITS 2,263,407.96 13,230.00 2,276,637.96 DEFERRED REVENUE OTHER LIABILITIES TOTAL COMPENSATED ABSENCES PAYABLE 298,816.00 298,818.00 DUE TO THE CITY OF LA QUINTA 7,006,710.03 7,006,710.03 DUE TO COUNTY OF RIVERSIDE 11,925,575.00 11,925,575.00 DUE TO C.V. UNIFIED SCHOOL DIST. 11,797,387.75 11,797,367.75 DUE TO DESERT SANDS SCHOOL DIST. 1,278,660.00 1,276,880.00 BONDS PAYABLE 60,9W,000.00 8,790,000.00 69,690,000.00 TOTAL LONG TERM DEBT 298,818.00 92,906,312.78 8,790,000.00 101,995,128.78 TOTAL LIABILITY 3,358,463.70 298,816.00 1,038,301.15 92,906,312.78 8,790,000.00 106,391,893.63 EQUITY -FUND BALANCE 18,659,695.60 15,895,015.00 25,351,769.04 11,438,745.05 739,773.40 72,084,998.09 TOTAL LIABILITY A EQUITY 22 018 159.30 15,895,015.00 298,816.00 26 390 07019 11,438,745.05 92 906 312.78 739 773.40 8,790,000.00 178,476 891.72 U rY Qum& OF TNT INVESTMENT ADVISORY BOARD Business Session No. C Meeting Date: March 12, 1997 TITLE: Fiscal Year 1997/98 Investment Policies BACKGROUND: Pursuant to State Legislation the City investment policies must be approved on an annual basis by the City Council. This approval is done in June of each year. In order to meet this June deadline, the current investment policies have been attached for any changes or updates that may be considered appropriate. RECOMMENDATION: Commence review of the Investment policies for approval by City Council in June 1997. yJ—o—hnM. Falconer, Finance Director CITY OF LA QUINTA Investment Policy Table of Contents Section Topic Paae Executive Summary 2 1 General Purpose 4 II Investment Policy 4 III Scope 4 IV Objectives 5 ► Safety ► Liquidity ► Yield V Prudence 6 VI Delegation of Authority 6 VII Conflict of Interest 7 Vill Authorized Financial Dealers and Institutions 7 ► Broker/Dealers ► Financial Institutions IX Authorized Investments and Diversification 9 X Investment Pools 9 XI Collateralization 9 XII Safekeeping and Custody 10 Xill Interest Earning Distribution Policy 10 XIV Maximum Maturities 10 XV Internal Controls 11 XVI Benchmark 12 XVII Reporting Standards 12 XVIII Investment of Bond Proceeds 13 XIX Investment Advisory Board - City of La Quinta 13 XX Investment Policy Adoption 14 Appendices Authorized Investments and Diversification 15 Municipal Code Ordinance 2.70 - Investment Advisory Board 16 Municipal Code Ordinance 3.08 - Investment of Moneys and Funds 17 Listing of Approved Financial Institutions 19 Broker/Dealer Questionnaire and Certification 20 Investment Pool Questionnaire 24 Segregation of Major Investment Responsibilities 28 Glossary 29 1 City of La Quinta Investment Policy Executive Summary The general purpose of this Investment Policy is to provide the rules and standards users must follow in investing funds of the City of La Quinta. It is the policy of the City of La Quinta to invest all public funds in a manner which will provide a diversified portfolio with maximum security while meeting daily cash flow demands and the highest investment return in conformity to all state and local statutes. This Policy applies to all cash and investments of the City of La Quinta, La Quinta Redevelopment Agency and the La Quinta Financing Authority, hereafter referred in this document as the "City". The primary objectives, in order of priority, of the City of La Quinta's investment activity shall be: Safety of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. The investment portfolio shall be designed with the objective of attaining a market rate of return or yield throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. Authority to manage the City of La Quinta's investment portfolio is derived from the City Ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish and implement written procedures for the operation of the City's investment program consistent with the Investment Policy. The Treasurer shall establish and implement a system of internal controls to maintain the safety of the portfolio. In addition, the internal control system will also insure the timely preparation and accurate reporting of the portfolio financial information. The adequacy of these controls will be reviewed and reported on annually by an independent auditor. 2 Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance to a reasonable person of questionable or improper influence. The City of La Quinta maintains a listing of financial institutions which are approved for investment purposes. All Broker/Dealers and financial institutions selected by the Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The Treasurer will be permitted to invest only in City approved investments up to the maximum allowable percentages and, where applicable, through the bid process requirements. Authorized investment vehicles and related maximum portfolio positions are listed in Appendix - Authorized Investments and Diversification. At least two bids will be required of investments in government securities. Collateral ization will be required for Certificates of Deposit in excess of $100,000. Collateral will always be held by an independent third party with whom the City of La Quinta has a current custodial agreement. Evidence of ownership must be supplied to the City and retained by the City Treasurer. The City of La Quinta shall require that each individual investment have a maximum maturity of two years unless specific approval is authorized by the City Council. In addition, the City's investment in the State Local Agency Investment Fund (LAIF) is allowable as long as the average maturity does not exceed two years, unless specific approval is authorized by the City Council. The City's investment in Money Market Mutual funds is allowable as long as the average maturity does not exceed 60 days. The City of La Quinta will use the six month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. The Investment Policies shall be adopted by resolution of the La Quinta City Council on an annual basis, The Investment Policies will be adopted before the end of June of each year. This Executive Summary is an overall review of the City of La Quinta Investment Policies. Reading this summary does not constitute a complete review which can only be accomplished by reviewing all the pages. 3 City of La Quinta Statement of Investment Policy July 1, 1996 through June 30, 1997 Adopted by the City Council on June 18, 1996, amended November 5, 1996 GENERAL PURPOSE The general purpose of this document is to provide the rules and standards users must follow in administering the City of La Quinta cash investments. II INVESTMENT POLICY It is the policy of the City of La Quinta to invest public funds in a manner which will provide a diversified portfolio with safety of principal while meeting daily cash flow demands with the highest investment return . In addition, the Investment Policy will conform to all State and local statutes governing the investment of public funds. III SCOPE This Investment Policy applies to all cash and investments of the City of La Quinta, City of La Quinta Redevelopment Agency and the City of La Quinta Financing Authority, hereafter referred in this document as the "City' . These funds are reported in the City of La Quinta Comprehensive Annual financial Report (CAFR) and include: All funds within the following fund types: ► General ► Special Revenue ► Capital Project ► Debt Service ► Internal Service ► Trust and Agency ► Any new fund types and fund(s) that may be created. M IV OBJECTIVES The primary objective, in order of priority, of the City of La Quinta's investment activity shall be: 1. Safety Safety of principal is the foremost objective of the investment program. Investments of the City of La Quinta shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio in accordance with the permitted investments. The objective will be to mitigate credit risk and interest rate risk. A. Credit Risk Credit Risk - is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by: ► Limiting investments to the safest types of securities; ► Pre -qualifying the financial institutions, and broker/dealers, which the City of La Quinta will do business; and ► Diversifying the investment portfolio so that potential losses on individual securities will be minimized. B. Interest Rate Risk Interest Rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by: ► Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity; and ► By investing operating funds primarily in shorter -term securities. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore since all possible cash demands cannot be anticipated the portfolio should consist of securities with active secondary or resale markets. 5 3. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity with the following exce i n : ► A declining credit security could be sold early to minimize loss of principal; ► Liquidity needs of the portfolio require that the security be sold. V PRUDENCE The City shall follow the Uniform Prudent Investor Act as adopted by the State of California in Probate Code Sections 16045 through 16054.. Section 16053 sets forth the terms of a prudent person which are as follows: Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion, and intelligence excerise in the professional management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. VI DELEGATION OF AUTHORITY Authority to manage the City of La Quinta's investment portfolio is derived from the City Ordinance. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish written procedures for the operation of the investment program consistent with the Investment Policy. Procedures should include reference to safekeeping, wire transfer agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this Investment Policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. The City Manager or Assistant City Manager shall approve in writing all purchases and sales of investments prior to their execution by the City Treasurer. R VII CONFLICT OF INTEREST Investment responsibilities carry added duties of insuring that investments are made without improper influence or the appearance of improper influence. Therefore, the City Manager, Assistant City Manager, and the City Treasurer shall adhere to the State of California Code of Economic Interest and to the following: ► The City Manager, Assistant City Manager, and the City Treasurer shall not personally or through a close relative maintain any accounts, interest, or private dealings with any firm with which the City places investments, with the exception of regular savings, checking and money market accounts, or other similar transactions that are offered on a non-negotiable basis to the general public. Such accounts shall be disclosed annually to the City Clerk in conjunction with annual disclosure statements of economic interest. ► All persons authorized to place or approve investments shall report to the City Clerk kinship relations with principal employees of firms with which the City places investments. VIII AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City of La Quinta maintains a listing of financial institutions which are approved for investment purposes. In addition a list will also be maintained of approved broker/dealers selected by credit worthiness, who maintain an office in the State of California. 1. Broker/Dealers who desire to become bidders for investment transactions must supply the City of La Quinta with the following: ► Current audited financial statements ► Proof of National Association of Security Dealers Certification ► Trading resolution ► Proof of California registration ► Resume of Financial broker ► Completion of the City of La Quinta Broker/Dealer questionnaire which contains a certification of having read the City of La Quinta Investment Policy The City Treasurer shall evaluate the documentation submitted by the broker/dealer and independently verify existing reports on file for any firm and individual conducting investment related business. 7 The City Treasurer will also contact the following agencies during the verification process: ► National Association of Security Dealer's Public Disclosure Report File - 1-800-289-9999 ► State of California Department of Corporations 1-916-445-3062 All Broker/Dealers selected by the City Treasurer to provide investment services will be approved by the City Manager subject to City Council approval. The City Attorney will perform a legal review of the trading resolution/investment contract submitted by each Broker/Dealer. Each securities dealer shall provide monthly and quarterly reports filed pursuant to U.S. Treasury Department regulations. Each mutual fund shall provide a prospectus and statement of additional information. 2. Financial Institutions will be required to meet the following criteria in order to receive City funds for investment: A. Insurance - Public Funds shall be deposited only in financial institutions insured by the Federal Deposit Insurance Corporation B. Collateral - The amount of City of La Quinta deposits or investments not insured by agency of the federal government shall be 1 10% collateralized by securities' or 150% mortgages' market values of that amount of invested funds plus unpaid interest earnings. C. Size - The amount of City of La Quinta deposits or investments must be collateralized or insured by an agency of the federal government. D. Disclosure - Each financial institution maintaining invested funds in excess of $100,000 shall furnish corporate authorities a copy of all statements of resources and liabilities which it is required to furnish to the State banking or savings and loan commissioners as required by the California Financial Code. The City shall not invest in excess of $100,000 in banking institutions which do not disclose to the city a current listing of securities pledged for collateralization in public monies. IX AUTHORIZED INVESTMENTS AND DIVERSIFICATION The City Treasurer will be permitted to invest in the investments listed in the Appendix entitled - Authorized Investments and Diversification. X INVESTMENT POOLS There are three (3) types of investment pools: 1) state -run pools, 2) pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee i.e. County Pool; and 3) pools that are operated for profit by third parties. The City of La Quinta has an investment with the State of California's Treasurers Office Local Agency Investment Fund commonly referred to as LAIF. LAIF was organized in 1977 through State Legislation Section 16429.1, 2 and 3. Each LAIF account is restricted to a maximum investable limit of $20 million. In addition, LAIF will provide quarterly market value information to the City of La Quinta. On an annual basis the City Treasurer will submit the Investment Pool Questionnaire to LAIF. Also, prior to opening any new Investment Pool account, which would require City Council approval, the City Treasurer will require the completion of the Investment Pool Questionnaire. The City does not have an investment with any other Investment Pool - County Pools or Third Party Pools. XI COLLATERALIZATION Collateralization will be required for Certificates of Deposits. The type of collateral is limited to City authorized investments. 1. Certificates of Deposits under $100.000_. The City Treasurer may waive collateralization of a deposit that is federally insured. 2. Certificates of Deposit over $100.000, The amount not federally insured shall be 1 10% collateralized by securities or 150% mortgages market value of that amount of invested funds plus unpaid interest earnings. Collateral will always be held by an independent third party with whom the City of La Quinta has a current custodial agreement. Evidence of ownership must be supplied to the City of La Quinta and retained by the City Treasurer. 0 XII SAFEKEEPING AND CUSTODY All security transactions of the City of La Quinta shall be conducted on a delivery - versus - payment (DVP) basis. Securities will be held by a third party custodian designated by the City Treasurer and evidenced by safekeeping receipts. Deposits and withdrawals of money market mutual funds and LAIF shall be made directly to the entity and not to an investment advisor. Money market mutual funds and LAIF shall also operate on a DVP basis to be considered for investment. XIII INTEREST EARNING DISTRIBUTION POLICY Interest earnings is generated from pooled investments and specific investments. 1 . Pooled Investments - It is the general policy of the City to pool all available operating cash of the City of La Quinta, La Quinta Redevelopment Agency and La Quinta Financing Authority and allocate interest earnings, in the following order, as follows: A. Payment to the General Fund of an amount equal to the total annual bank service charges as incurred by the general fund for all operating funds as included in the annual operating budget. B. Payment to the General Fund of a management fee equal to 5% of the annual pooled cash fund investment earnings. C. Payment to each fund of an amount based on the average computerized daily cash balance included in the common portfolio for the earning period. 2. Specific Investments - Specific investments purchased by a fund shall incur all earnings and expenses to that particular fund. XIV MAXIMUM MATURITIES The City of La Quinta shall require that each individual investment have a maximum maturity of two years unless specific approval is authorized by the City Council. In addition, the City's investment in the State Local Agency Investment Fund (LAIF) is allowable as long as the average maturity does not exceed two years, unless specific approval is authorized by the City Council. The City's investment in Money Market Mutual funds is allowable as long as the average maturity does not exceed 60 days. 10 XV INTERNAL CONTROLS The City Treasurer shall establish a system of internal controls to accomplish the following objectives: ► Safeguard assets; ► The orderly and efficient conduct of its business, including adherence to management policies; ► Prevention or detection of errors and fraud; ► The accuracy and completeness of accounting records; and, ► Timely preparation of reliable financial information. While no internal control system, however elaborate, can guarantee absolute assurance that the City's assets are safeguarded, it is the intent of the City's internal control to provide a reasonable assurance that management of the investment function meets the City's objectives. The internal controls shall address the following: a. Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. b. Separation of transaction authority from accounting and record kee�g. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. C. Custodial safekeeping. Securities purchased from any bank or dealer including appropriate collateral (as defined by State Law) shall be placed with an independent third party for custodial safekeeping. d. Avoidance of physical delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. e. Clear delegation of authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities as outlined in the Segregation of Major Investment Responsibilities appendices. 11 f. Written confirmation or telephone transactions for investments and wire transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and the safekeeping institution has a list of authorized signatures. Fax correspondence must be supported by evidence of verbal or written follow-up. g. Development of a wire transfer agreement with the City's bank and third party custodian. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. In addition to the System of Internal Controls developed by the City, the Internal Controls shall be reviewed annually by the independent auditor. The independent auditors management letter comments pertaining to cash and investments, if any, shall be directed to the City Manager who will direct the City Treasurer to provide a written response to the independent auditors letter. This response will also be directed to the City's Investment Advisory Board for their action. XVI BENCHMARK The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles commensurate with the investment risk constraints and the cash flow needs of the City. Return on investment is of least importance compared to safety and liquidity objectives. The City of La Quinta will use the six month U.S. Treasury Bill as a benchmark when measuring the performance of the investment portfolio. XVII REPORTING STANDARDS SB564 section 3 requires a quarterly report to the Legislative Body of Investment activities. The City of La Quinta has elected to report the investment activities to the City Council on a monthly basis through the Treasurers Report. The City Treasurer shall submit a monthly Treasurers Report to the City Council and the Investment Advisory Board that includes all investments under the authority of the Treasurer. 12 The Treasurers Report shall consist of a narrative of significant changes in cash balances and the following: ► Changes in investments from the previous month; ► A certification statement from the City Treasurer; ► Purchases and sales of investments; ► Cost to market value comparisons of all investments by authorized investment category, except for LAIF which will be provided quarterly; ► Comparison of actual holdings to Investment Policy maximums; ► Twenty four (24) months history of cash and investments for trend analysis; ► Balance Sheet. XVIII INVESTMENT OF BOND PROCEEDS The City's investment policy shall govern bond proceeds and bond reserve fund investments. California Code Section 5922 (d) governs the investment of bond proceeds and reserve funds in accordance with bond indenture provisions which shall be structured in accordance with the City's investment policy. Arbitrage Requirement The US Tax Reform Act of 1986 requires the City to perform arbitrage calculations as required and return excess earnings to the US Treasury from investments of proceeds of bond issues sold after the effective date of this law. This arbitrage calculations may be contracted with an outside source to provide the necessary technical assistance to comply with this regulation. Investable funds subject to the 1986 Tax Reform Act will be kept segregated from other funds and records will be kept in a fashion to facilitate the calculations. The City's investment position relative to the new arbitrage restrictions is to continue pursuing the maximum yield on applicable investments while ensuring the safety of capital and liquidity. It is the City's position to continue maximization of yield and to rebate excess earnings, if necessary. XIX INVESTMENT ADVISORY BOARD - CITY OF LA QUINTA The Investment Advisory Board (IAB) consists of seven members of the community that have been appointed by and report to the City Council. The IAB meets on a monthly basis to 1) review account statements and verifications to ensure accurate reporting as they relate to an investment activity, 2) monitor compliance with existing Investment Policy and Procedures, and 3) review and make recommendations concerning investment policy and procedures investment contracts and investment consultants. 13 The appendices include City of La Quinta Ordinance 2.70 entitled Investment Advisory Board Provisions. XX INVESTMENT POLICY ADOPTION On an annual basis, the Investment policies will be initially reviewed by the Investment Advisory Board and the City Treasurer. The Investment Advisory Board will forward the Investment policies, with any revisions, to the City Manager and City Attorney for their review and comment. A joint meeting will be held with the Investment Advisory Board, City Manager, City Attorney, and City Treasurer to review the Investment policies and comments, prior to submission to the City Council for their consideration. The Investment Policies shall be adopted by resolution of the City of La Quinta City Council on an annual basis. The Investment Policies will be adopted before the end of June of each year. 14 g' a 3• to A W N O to 3�3`� 3 �° 3 � H ��� K ^' ,3nm m CL 7 `'� N, S 7 S w tD Cr a N CD O t0 w tT _A . w to A $ j w 3 K ° v g er s = m o o6o �8 w N c3 c C' < O T 2 :aN=-!Mo Ln CD` 0 mtn9U)"�3. 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C CL a a B mn ° to m 14 03 D tOcD t3D o m m: �w m07nC mWFm= vn R:�gy tww3mNo O 3 0 3 3O =3mr=Z��3 ow0O° c m oD <aF3Xi 3 CD c 5 � oo o o w 30 �2Nn cn o'33mcew33w^ o nto _WO CL OR fm � OZN.N m- 0 a ° _ -n�m Wr--too w030CD "mfA c c TD p x�Da�N 0K3 03 °: a °U),< o Q a— 3 O_ > 3NTOOO 0 to Cz3 o3 r1 Z� > 0— CL 3 o tr"D c D to 0 Do O _ m C N CL (DD CL m m m g' 3 3 w 3 3t0 m X 3m co 0 Oa.A m a w o y y w W K m a<i uNi 'o m n O� o. 3 v o * CL?R * T y c N O o c 0 O 0 0 O - 0 3 0 c ao o_ to "" o o' a0o to o' 0 o 0 o' o 0 o' 3 (A 11 30Z cy Q _ O tp' O 7' • . �j O - O &. 3 0 3" j 3 -n iT o X 3 y m 0 D 9tan _ w nEr o oar 0 a C N _ 11 II A II II II � II II n o cKD tKD m m 3• lu am S. 3 D m• D W to p_ 0 o Q w -n v n mto 3 a a 9. n n o ci o f m3 0 s c s c y, E»+ 25 n v 0' 3 3- W n N N 3 0 � v� 3� CL a CL o ((gip N 3 � m to g 3 3. ur m to 0 N 6f to c 7 Bt ym X 3 C 3 Chapter 2.70 INVESTMENT ADVISORY BOARD PROVISIONS Sections: 2.70.010 General Rules Regarding Appointment and Terms. 2.70.020 Board meetings and compensation. 2.70.030 Board functions. 2.70.010 General rules regarding appointment and terms. Except as set out below, see Chapter 2.06 for General Provisions. The Investment Advisory Board (the "board") is a standing board composed of seven (7) members from the public that are appointed by city council. La. Quinta residency is preferred, but not a requirement for board members. Recruitment for members may be advertised outside of the city". Background in the investment field and/or related experience is preferred. Background information will be required and potential candidates must agree to a background check and verification. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or at any time if a change in circumstances warrants, each board member will provide the City Council with a disclosure statement which identifies any matters on the board. Such matters may include, but are not limited to, changes in employment, changes in residence, or changes in clients. The Board members will serve for two year staggered terms beginning on July 1 of every other year, commencing July 1, 1993. Initially, two members will be appointed for two year terms and three members will be appointed for one year terms. These initial appointments will start their yearly calculations from July 1, 1993. 2.70.020 Board meetings and compensation. Board members will be reimbursed for meeting and related expenses at an amount of fifty dollars ($50) per meeting. Initially, the Board should meet once a month, but this schedule may be extended to quarterly meetings upon the concurrence of the Board and the City Council. The specific meeting dates will be determined by the Board members and meetings may be called for on an as needed basis. 2.70.030 Board functions. The Board will annually elect a Chairperson and Vice -chairperson at the first meeting held after each June 30. The following are functions of the Board that are to be addressed at each meeting: (1) review account statements and verifications to ensure accurate reporting as they relate to an investment activity; (ii) monitor compliance with existing Investment policy and procedures; and (iii) review and make recommendations concerning investment policy and procedures, investment contracts, and investment consultants. The Board will report to City council after each meeting either in person or through correspondence at a regular City Council meeting. 16 Chapter 3.08 INVESTMENT OF MONEYS AND FUNDS Sections: 3.08.010 Investment of city moneys and deposit of securities. 3.08.020 Authorized investments. 3.08.030 Sales of securities. 3.08.040 City bonds. 3.08.050 Reports. 3.08.060 Deposits of securities. 3.08.070 Trust fund administration. 3.08,010 Investment of city moneys and deposit of securities. Pursuant to, and in accordance with, and to the extent allowed by, Sections 53607 and 53608 of the Government Code, the authority to invest and reinvest moneys of the city, to sell or exchange securities, and to deposit them and provide for their, safekeeping, is delegated to the city treasurer. (Ord. 2 § 1 (part), 1982) 3.08.020 Authorized investments. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to purchase, at their original sale or after they have been issued, securities which are permissible investments under any provision of state law relating to the investing of general city funds, including but not limited to Sections 53601 and 53635 of the Government Code, as said sections now read or may hereafter be amended, from moneys in his custody which are not required for the immediate necessities of the city and as he may deem wise and expedient, and to sell or exchange for other eligible securities and reinvest the proceeds of the securities so purchased. (Ord. 2 § 1 (part), 1982) 3.08.030 Sales of Securities. From time to time the city treasurer shall sell the securities in which city moneys have been invested pursuant to this chapter, so that the proceeds may, as appropriate, be applied to the purchase for which the original purchase money may have been designated or placed in the city treasury. (Ord. 2 § I (part), 3.08.040 City bonds. Bonds issued by the city and purchased pursuant to this chapter may be canceled either in satisfaction of sinking fund obligations or otherwise if proper and appropriate; provided, however, that the bonds may be held uncancelled and while so held may be resold. (Ord. 2 § 1 (part), 1982) 17 3.08.050 Reports. The city treasurer shall make a monthly report to the city council of all investments made pursuant to the authority delegated in this chapter. (Ord. 2 § 1 (part), 1982) 3.08.060 Deposits of securities. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to deposit for safekeeping, the securities in which city moneys have been invested pursuant to this chapter, in any institution or depository authorized by the terms of any state law, including but not limited to Section 53608 of the Government Code as it now reads or may hereafter be amended. In accordance with said section, the city treasurer shall take from the institution or depository a receipt for the securities so deposited and shall not be responsible for the securities delivered to and receipted for by the institution or depository until they are withdrawn therefrom by the city treasurer. (Ord. 2 § 1 (part), 1982 3.08.070 Trust fund administration. Any departmental trust fund established by the city council pursuant to Section 36523 of the Government Code shall be administered by the city treasurer in accordance with Section 36523 and 26524 of the Government code and any other applicable provisions of law. (Ord. 2 § 1 (part), 1982) LISTING OF APPROVED FINANCIAL INSTITUTIONS 1. Banking Services - Wells Fargo Bank 2. Custodian Services - Wells Fargo Bank Institutional Trust 3. Deferred Compensation - International City/County Management Association Retirement Corporation 4. Broker/Dealer Services - Merrill Lynch, Indian Wells, CA Dean Witter, Newport Beach, CA Smith Barney, Newport Beach, CA 5. Government Pool - State of California Local Agency Investment Fund City of La Quinta Account La Quinta Redevelopment Agency 6. Bond Trustees - 1991 City Hall Revenue Bonds - First Trust 1991 RDA Project Area 1 - First Trust 1992 RDA Project Area 2 - First Trust 1994 RDA Project Area 1 - First Trust 1995 RDA Project Area 1 & 2 - First Trust No Changes to this listing may be made without City Council approval. W� BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1. Name of Firm: 2. Address: 3. 9 Telephone: ( ) Broker's Representative to the City (attach resume): Name: Title: Telephone:) ) 5. Manager/Partner-in-charge (attach resume): Name: Title: Telephone: 6. List all personnel who will be trading with or quoting securities to City employees (attach resume) Name: Title: Telephone: ( ) ( ) 7. Which of the above personnel have read the City's investment policy? 8. Which instruments are offered regularly by your local office? (Must equal 100%) % U.S. Treasuries % BA's % Commercial Paper % CD's % Mutual Funds % Agencies (specify): % Repos % Reverse Repos % CMO's % Derivatives % Stocks/Equities % Other (specify) : 20 9. References -- Please identify your most directly comparable public sector clients in our geographical area. Entity Contact Telephone ( ) Client Since Entity Contact Telephone Client Since 10. Have any of your clients ever sustained a loss on a securities transaction arising from a misunderstanding or misrepresentation of the risk characteristics of the instrument? If so, explain. 11. Has your firm or your local office ever been subject to a regulatory or state/ federal agency investigation for alleged improper, fraudulent, disreputable or unfair activities related to the sale of securities? Have any of your employees been so investigated? If so, explain. 12. Has a client ever claimed in writing that y9ju were responsible for an investment loss? Yes No If yes, please provide action taken Has a client ever claimed in writing that your firm was responsible for an investment loss? Yes No If yes, please provide action taken Do ova have any current, or pending complaints that are unreported to the NASD? Yes No If yes, please provide action taken 21 Does your firm have any current, or pending complaints that are unreported to the NASD? Yes No If yes, please provide action taken 13. Explain your clearing and safekeeping procedures, custody and delivery process. Who audits these fiduciary responsibilities? Latest Audit Report Date 14. How many and what percentage of your transactions failed. Last month? % $ Last year? % $ 15. Describe the method your firm would use to establish capital trading limits for the City of La Quinta. 16. Is your firm a member in the S.I.P.C. insurance program. Yes If yes, explain primary and excess coverage and carriers. No 17. What portfolio information, if any, do you require from your clients? 18. What reports and transaction confirmations or any other research publications will the City receive? 19. Does your firm offer investment training to your clients? Yes No 22 20. Does your firm have professional liability insurance. Yes No If yes, please provide the insurance carrier, limits and expiration date. 21. 22. Please list your NASD Registration Number Do you have any relatives who work at the City of La Quinta? Yes No If yes, Name and Department 23. Do you maintain an office in California. Yes No 24. Do you maintain an office in La Quinta or Riverside County? Yes No 25. Please enclose the following: • Latest audited financial statements. • Samples of. reports, transaction confirmations and any other research/publications the City will receive. • Samples of research reports and/or publications that your firm regularly provides to clients. • Complete schedule of fees and charges for various transactions. 'CERTIFICATION' I hereby certify that I have personally read the Statement of Investment Policy of the City of La Quinta, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of La Quinta. All sales personnel will be routinely informed of the City's investment objectives, horizons, outlooks, strategies and risk constraints whenever we are so advised by the City. We pledge to exercise due diligence in informing the City of La Quinta of all foreseeable risks associated with financial transactions conducted with our firm. By signing this document the City of La Quinta is authorized to conduct any and all background checks. Under penalties of perjury, the responses to this questionnaire are true and accurate to the best of my knowledge. Broker Representative Date Title Sales Manager and/or Managing Partner* Date Title 23 INVESTMENT POOL QUESTIONNAIRE Note: This Investment Pool Questionnaire was developed by the Government Finance Officers Association (GFOA). Prior to entering a pool, the following questions and issues should be considered. SECURITIES Government pools may invest in a broader range of securities than your entity invests in. It is important that you are aware of, and are comfortable with, the securities the pool buys. 1. Does the pool provide a written statement of investment policy and objectives? 2. Does the statement contain: a. A description of eligible investment instruments? b. The credit standards for investments? c. The allowable maturity range of investments? d. The maximum allowable dollar weighted average portfolio maturity? e. The limits of portfolio concentration permitted for each type of security? f. The policy on reverse repurchase agreements, options, short sales and futures? 3. Are changes in the policies communicated to the pool participants? 4. Does the pool contain only the types of securities that are permitted by your investment policy? INTEREST Interest is not reported in a standard format, so it is important that you know how interest is quoted, calculated and distributed so that you can make comparisons with other investment alternatives. Interest Calculations 1. Does the pool disclose the following about yield calculations: a. The methodology used to calculate interest? (Simple maturity, yield to maturity, etc.) b. The frequency of interest payments? c. How interest is paid? (Credited to principal at the end of the month, each quarter; mailed?) d. How are gains/losses reported? Factored monthly or only when realized? 24 REPORTING 1. Is the yield reported to participants of the pool monthly? (If not, how often?) 2. Are expenses of the pool deducted before quoting the yield? 3. Is the yield generally in line with the market yields for securities in which you usually invest? 4. How often does the pool report, and does that report include the market value of securities? SECURITY The following questions are designed to help you safeguard your funds from loss of principal and loss of market value. 1. Does the pool disclose safekeeping practices? 2. Is the pool subject to audit by an independent auditor? 3. Is a copy of the audit report available to participants? 4. Who makes the portfolio decisions? 5. How does the manager monitor the credit risk of the securities in the pool? 6. Is the pool monitored by someone on the board of a separate neutral party external to the investment function to ensure compliance with written policies? 7. Does the pool have specific policies with regards to the various investment vehicles? a. What are the different investment alternatives? b. What are the policies for each type of investment? 8. Does the pool mark the portfolio to its market value? 9. Does the pool disclose the following about how portfolio securities are valued: a. The frequency with which the portfolio securities are valued? b. The method used to value the portfolio (cost, current value, or some other method)? 25 OPERA TIONS The answers to these questions will help you determine whether this pool meets your operational requirements: 1. Does the pool limit eligible participants? 2. What entities are permitted to invest in the pool? 3. Does the pool allow multiple accounts and sub -accounts? 4. Is there a minimum or maximum account size? 5. Does the pool limit the number of transactions each month? What is the number of transactions permitted each month? 6. Is there a limit on transaction amounts for withdrawals and deposits? a. What is the minimum and maximum withdrawal amount permitted? b. What is the minimum and maximum deposit amount permitted? 7. How much notice is required for withdrawals/deposits? 8. What is the cutoff time for deposits and withdrawals? 9. Can withdrawals be denied? 10. Are the funds 100% withdrawable at anytime? 11. What are the procedures for making deposits and withdrawals? a. What is the paperwork required, if any? b. What is the wiring process? 12. Can an account remain open with a zero balance? 13. Are confirmations sent following each transaction? STA TEMENTS It is important for you and the agency's trustee (when applicable), to receive statements monthly so the pool's records of your activity and holding are reconciled by you and your trustee. 26 1. Are statements for each account sent to participants? a. What are the fees? b. How often are they passed? c. How .are they paid? d. Are there additional fees for wiring funds (what is the fee)? 2. Are expenses deducted before quoting the yield? QUESTIONS TO CONSIDER FOR BOND PROCEEDS It is important to know (1) whether the pool accepts bond proceeds and (2) whether the pool qualifies with the U.S. Department of the Treasury as an acceptable commingled fund for arbitrage purposes. 1. Does the pool accept bond proceeds subject to arbitrage rebate? 2. Does the pool provide accounting and investment records suitable for proceeds of bond issuance subject to arbitrage rebate? 3. Will the yield calculation reported by the pool be acceptable to the IRS or will it have to be recalculated? 4. Will the pool accept transaction instructions from a trustee? 5. Are you allowed to have separate accounts for each bond issue so that you do not commingle the interest earnings of funds subject to rebate with funds not subject to regulations? 27 SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES Function Responsibilities Develop formal Investment Policy City Treasurer Recommend modifications to Investment Policy Investment Advisory Board Review formal Investment Policy and recommend City Manager and City Council action City Attorney Adopt formal Investment Policy City Council Review Financial Institutions & Select Investments City Treasurer Approve investments City Manager or Assistant City Manager Execute investment transactions City Treasurer Confirm wires, if applicable City Manager or Accounting Supervisor Record investment transactions in City's accounting records Accounting Supervisor Investment verification - match broker confirmation to City investment records Account Technician Reconcile investment records - to accounting records and bank statements - to Treasurers Report of investments Account Technician Security of investments at City Vault Security of investments Outside City Third Party Custodian Review internal control procedures External Auditor �C3 X61*4f_13'1 The purpose of this glossary is to provide the reader of the City of La Quinta investment policies with a better understanding of financial terms used in municipal investing. AGENCIES: Federal agency securities ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): Short-term credit arrangements to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the drafts at its maturity. An acceptance is a high-grade negotiable instrument. Acceptances are purchased in various denominations for 30, 60 or 90 days, but no longer than 270 days. The interest is calculated on a 360-day discount basis similar to treasury bills. Local agencies may not invest more than 40% of their surplus money in bankers acceptances. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD):. Time deposits of a bank or savings and loan. They are purchased in various denominations with maturities ranging from 30 to 360 days. The interest is calculated on a 360-day, actual - day month basis and is payable monthly. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMMERCIAL PAPER: S h o r t- t e r m unsecured promissory notes issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation, IBM, Bank America, etc. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of La Quinta. It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance -related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. 29 DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. 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. The following is a listing: 1. FNMAs (Federal National Mortgage Association) - Used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well as those guaranteed by the Veterans Administration. They are issued in various maturities and in minimum denominations of $10,000. Principal and Interest is paid monthly. 2. FHLBs (Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and mortgage - lending institutions. They are issued irregularly for various maturities. The minimum denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at maturity. The bonds are issued with various maturities and carry semi-annual coupons. Interest is calculated on a 360- day, 30-day month basis. 3. FLBs (Federal Land Bank Bonds) - Long- term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. The minimum denomination is $1,000. They carry semi-annual coupons. Interest is calculated on a 360- day, 30 day month basis. 4. FFCBs (Federal Farm Credit Bank) - Debt instruments used to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with three- and six- month maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly liquid. 30 5. FICBs (Federal Intermediate Credit bank Debentures) - Loans to lending institutions used to finance the short-term and intermediate needs of farmers, such as seasonal production. They are usually issued monthly in minimum denominations of $3,000 with a nine - month maturity. Interest is payable at maturity and is calculated on a 360-day, 30-day month basis. 6. FHLMCs (Federal Home Loan Mortgage Corporation) - a government sponsored entity established in 1970 to provide a secondary market for conventional home mortgages. Mortgages are purchased solely from the Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies of the United States Government. They are issued for various maturities and in minimum denominations of $10,000. Principal and Interest is paid monthly. Other federal agency issues are Small Business Administration notes (SBAs), Government National Mortgage Association notes (GNMAs), Tennessee Valley Authority notes (TVAs), and Student Loan Association notes (SALLIE- MAEs). FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open -market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: the central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FMHM mortgages. The term "passthroughs" is often used to describe Ginnie Maes. 31 LAIF (Local Agency Investment Fund) - A special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $ 5,000, in multiples of $1,000 above that, with a maximum balance of $20,000,000 for any agency. The City is restricted to a maximum of ten transactions per month. It offers high liquidity because deposits can be converted to cash in 24 hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly. The State retains an amount for reasonable costs of making the investments, not to exceed one -quarter of one percent of the earnings. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase --reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer -lender to liquidate the underlying securities in the vent of default by the seller - borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable MONEY MARKET: The market in which short-term debt instruments I(bills, commercial paper, banders' acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO: Collection of all cash and securities under the direction of the City Treasurer, including Bond Proceeds. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity an depositions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) - registered securities broker -dealers, banks and a few unregulated firms. 32 RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO): A repurchase agreement is a short-term investment transaction. Banks buy temporarily idle funds from a customer by selling U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date. Repurchase agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal funds and the maturity of the repo. Some banks will execute repurchase agreements for a minimum of $100,000 to $500,000, but most banks have a minimum of $1,000,000. REVERSE REPURCHASE AGREEMENTS - A reverse repurchase agreement is the opposite of a repurchase agreement. The City loans a security to a bank in exchange for cash. The City agrees to pay off the loan with interest on a future date. 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. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE '15C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMAS, SLMA, etc.) And Corporations which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative -based returns) into their debt structure, Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the Shape of the yield curve. SURPLUS FUNDS: Section 53601 of the California Government Code defines surplus funds as any money not required for immediate necessities of the local agency. The City has defined immediate neccesities to be payment due within one week. TREASURY BILLS: Issued weekly with maturity dates up to one year. They are issued and traded on a discount basis with interest figured on a 360-day basis, actual number of days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid security. TREASURY BONDS: Long-term coupon - bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. 33 TREASURY NOTES: Medium -term coupon - bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker - dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. UNIFORM PRUDENT INVESTOR ACT: The State of California has adopted this Act. The Act contains the following sections: duty of care, diversification, review of assets, costs, compliance determinations, delegation of investments, terms of prudent investor rule, and application. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par of plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. 34 oz U OF TNT INVESTMENT ADVISORY BOARD Business Session Item No. D Meeting Date: March 12, 1997 TITLE: CMTA Conference - April 14 - 18, 1997 Palm Springs, California BACKGROUND: The Annual California Municipal Treasurers Association Conference will be held April 14 - 18 in Palm Springs. Account No. 101-151-637-000 Travel and Training contains $500.00 for two Investment Advisory Board Members and $250.00 for Staff. Last year Board Members Lewis and Osborne attended the conference. Attached please find the registration material and conference outline. RECOMMENDATION: Select up to two members to attend the CMTA Conference. M S" ohn M. Falconer, Finance Director Coisference Name (Please print) Mailing address Name you prefer on badge Title City CMTA 38th Annual Conference Registration April 14-18, 1997 Marquis Hotel, Palm Springs Please use separate form for each registrant State Zip Phone Spouse/Guest Name City/Firm You must be a current CMTA member to register. If you need to verify that your membership is current, please contact Mark Prestwich at CMTA's Sacramento office (916) 658-8249. Is this the first CMTA conference that you have attended? (yes or no) Would you like a vegetarian menu? (yes or no) Your guest? (yes or no) REGISTRATION FEE: BADGE IS REQUIRED FOR ADMISSION TO ALL PROGRAM ACTIVITIES Pre -Conference Seminar - Active and Government Associates Only AMOUNT Pre -Conference Seminar Only Before 4/ 1 /97 @ $65 $ Pre -Conference Seminar (if attending conference) Before 4/1/97 @ $40 $ Conference: Active Members and Government Associates Before 3/17/97 $190 $ Before 4/ 1 /97 @ $215 $ At Conference @ $240 $ Second Registrant from City/Agency Before 3/17/97 @ $140 $ Before 4/ 1 /97 @ $165 $ At Conference @ $240 $ Commercial Associate Members Before 3/17/97 @ $325 $ Before 4/ 1 /97 @ $350 $ At Conference @ $380 $ Guest Meals (see below) $ TOTAL ENCLOSED $ Make check Payable to: CMTA 1997 Conference City of Palm Springs P.O. Box 2743 Palm Springs, CA 92263 Registration fee includes ONE ticket for all meals listed below. Additional meals for spouse/guest must be purchased at the following prices: Wed.Thurs.Fri. Breakfast x$15 each Wednesday Lunch x$25 Thursday Lunch x$25 Thursday Installation Banquet x$50 Total Enclosed Past Presidents' Raffle The Past Presidents's Raffle will be held during the conference. All proceeds are pledged to CMTA Educational Fund. We invite all attending members to bring a prize for the raffle. Past President Adair Most is the coordinator of this event. If you have a prize for the raffle let her know by calling (619) 955-5060. Suggested Dress: Casual business attire for the seminar and dressy/coat and tie for the banquet. Refund Policy: Advance registrants unable to attend this conference will receive a refund of the registration fee, less $25.00 processing charge by submitting a written request to CMTA at the above address or fax at (619)322-8320 by April 7, 1997 ace to WoQ 'fi;I>10 0 '0 i Conference Annual Conference Schedule April 14-18, 1997 Marquis Hotel Palm Springs Monday, April 14, 1997 1:15 to 5:00 PM ♦Investment Overview • Legal Investments - What are They? • Exploration of How Each Investment Vehicle Works • Possible Risks of Legal Investments ♦Legal Duties and Code of Ethics for Treasurers • Legal Requirements and Obligations • Practical Illustrations Tuesday, April 15, 1997 8:00-12:00 Noon ♦Divers fication • What Does the Concept Really Mean? • Examples of Effective Diversified Portfolios ♦ The Internet and City Use . • The City of Concord's Hand Page • Applications for Treasury Management ♦Do's and Dont -s of Issuing Bonds • The Complete Process of Issuing Bonds • Saving Money by Being Smart Wednesday Aril 16, 1997 9:00-5:00 PM ♦Business Session ♦Economic Outlook - U.S. and California ♦ Certification Awards #Long Term Debt Alternatives ♦ California Debt and Investment Advisory Commission Update ♦Investment Pools Thursday, Apria 17, 1997 9:00-4:15 PM ♦ Concurrent Sessions • Tax Revenue Audits • Economic Development/Business Retention Programs • Assessment District Update/Proposition 218 • GASB Update • Evaluating the Credit Worthiness of Investments • Developing a Good RFP for Banking Services • Investment Policies and Reporting • CMTA Training Seminar Preview • Nuts and Bolts Sessions ♦Keynote Luncheon Speaker. Dr. James E. Melton Friday, April 18, 1997 8:30-12:00 Noon ♦Personal Financial Planning ♦Round Table Discussions • Internal Controls • LAIF • Certification • Electronic Banking • Deferred Compensation 'J& •c op v � OF TNT INVESTMENT ADVISORY BOARD Meeting Date: TITLE: March 12, 1997 Month End Cash Report - February 1997 BACKGROUND: Correspondence & Written Material Item A This cash report is not a complete Treasury Report (exclude petty cash, deferred compensation and fiscal agent balances, ) but would report in a timely fashion selected cash balances. RECOMMENDATION: Information item only. -1 M G w-'A' J hn M. Falconer, Finance Director City of La Quinta Month End Cash Report - See Footnote February 28, 1997 Wells Fargo Wells Fargo Wells Fargo City RDA Description Checking Housing Money Market LAIF LAIF Investments Total Beginning Balance - 2/27/97 (1,031,327.44) 37,756.65 304,216.53 2,864,488.57 4,845,138.84 12,973,618.23 19,993,891.38 Deposits Daily Deposit 368,907.89 368,907.89 Transfers 0.00 Disbursements 0.00 Ending Balance per books (1,031,327.44) 37,756.65 673,124.42 2,864,488.57 4,845,138.84 12,973,618.23 20,362,799.27 _ Add Back - Accts Pay Chks - #28222-28326 319,626.27 319,626.27 Adjusted Balance (711,701.17) 37,756.65 673,124.42 2,864,488.57 4,845,138.84 12,973,618.23 20,682,425.54 Estimated Interest Accruals November 27,083.40 27,083.40 December 43,152.55 43,152.55 January February 22,804.00 24,867.00 18,521.00 19,921.00 57,098.01 59,855.04 98,423.01 104,643.04 Adjusted Balances after accruals (711.701.17 37 756.65 673 124.42 2 912 159.57 1 4,883,580.84 13 160 807.23 20 955 727.54 Investment Class 1 (820.10) 1 7,795,740.41 13,160,807.23 �20,955,727.54 Percentages __ -0.0039% 37.2010% 62.8029% 100.00% Footnotes: The following report is a special purpose report which has been prepared at the request of the Investment Advisory Board. This report was created because the Finance Department cannot prepare the Treasurers report for the month end before the 2nd Wednesday of each month (e.g. June report for the July meeting). As a result, the IAB does not receive the Treasurers Report until approximately 1 112 months after the date of the report (e.g. June report for the August meeting). The report is prepared on a monthly basis from the Daily Cash Report. The purpose of this report is for staff to project daily cash needs and invest excess cash. This report does not include all investments of the City, RDA and Financing Authority. Specifically excluded from this report are the Petty Cash , Deferred Compensation, and Fiscal Agent accounts. These accounts are included in the Treasurers Report. In addition, the percentage numbers in this report are for information only. These percentages should not be used to compare the maximum allowable percentages allowed in the investment policy because this report does not include all investments and is not prepared from the reconciled book balances. �a� •c o• o � z V � OF INVESTMENT ADVISORY BOARD Meeting Date: TITLE: March 12, 1997 Request for Proposals for Audit Services BACKGROUND: Correspondence & Written Material Item B Attached please find a draft copy of the Request for Proposals for Audit Services for your review. The Request for Proposal will be discussed at the March 18, 1997 City Council meeting. RECOMMENDATION: Information item only. hn M. Falconer, Finance Director DRAFT REQUEST FOR PROPOSAL OF AUDITING SERVICES The City of La Quinta is soliciting proposals for auditing services for the next three fiscal years, which begins July 1, 1996 and ends June 30, 1999. The enclosed "Request for Proposal" outlines the scope of the engagement, information required, evaluation criteria, and other relevant information. If your firm would like to consider this engagement, we invite your response due no later than 5 p.m. on April 18, 1997. A selection committee of two council members and two finance staff members will evaluate, select, and recommend proposals to the City Council. The City Council will make the final decision on award of the contract. Additional information may be obtained by contacting: John J. Risley Accounting Supervisor City of La Quinta (619) 777-7055 Proposers must submit five (5) copies of their proposals in one sealed envelope by no later than 5:00 p.m., April 18, 1997 to the following address: City of La Quinta Finance Department - Audit Proposal P.O. Box 1504 La Quinta, Ca. 92253 Sincerely, John Falconer Finance Director F H -11IM2 AUDIT EXPECTATIONS The City of La Quinta (City) annually issues a Comprehensive Annual Financial Report (CAFR). The La Quinta Redevelopment Agency (Agency) and the La Quinta Financing Authority (FA) issue annually a Component Unit Financial Report (CUFR). The City may receive Community Development Block Grant money and or other financial assistance from the federal government and as such may issue a Single Audit Report. The City, Agency, and FA expect an audit opinion for each of their financial reports to fairly represent their financial position and conform with generally accepted accounting principles. The City, Agency, and FA expect the audit of each of their financial reports to be conducted in accordance with generally accepted auditing standards. Further, the Agency expects its CUFR to comply with all laws and regulations pertaining to redevelopment agencies. The City expects the Single Audit to be conducted in accordance with O.M.B. Circular A-128 and related correspondence. The City of La Quinta requests a full scope audit of all City, Agency, and FA funds and account groups in accordance with generally accepted auditing standards. Audit services are desired for the City, Agency, and FA on an annual basis as set forth above. Proposals should include separate quotes for the City and its component units. The City's accounting personnel will provide assistance to the audit firm during the course of the audit. Cooperation may be expected in answering questions, preparing schedules or working papers, and preparing confirmations. The City would expect only reasonable requests of assistance from the auditing firm. DESCRIPTION OF FUNDS The City of La Quinta use the following fund types and account groups in its financial structure: Number Fund Type/Account Group of Individual Funds General Fund 1 Special Revenue Funds 16 Debt Service Funds 3 Capital Project Funds 3 Internal Service Funds 1 Expendable Trust Funds 1 Agency Funds 12 General Fixed Assets Account Group 2 General Long Term Debt Account Group 3 REPORTS and CONSIDERATIONS - The independent audit firm shall produce the following financial reports by no later than November 20" of each year: City CAFR - 70 copies Agency CUFR - 50 copies FA CUFR - 20 copies Single Act Audit - 3 copies Management Letter - 1 copy - A management letter shall be prepared as part of the audit that includes disclosures of material and non -material weaknesses in internal control, disclosures of violations of finance related legal and contracted provisions, and auditor recommendations for financial and program management improvements. - Working papers shall be retained by the contractor for a minimum of three years after the conclusion of the engagement unless notified otherwise in writing by the Finance Director. The audits are subject to review by federal and state agencies and other individuals designated by the City Manager or Finance Director. In.addition, the firm shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. - The independent audit firm is expected to meet at least once each year with the City Council to discuss the City, Agency, and FA financial statements, management letter and other relevant subjects. - The independent audit firm is expected to keep the City and Agency staff abreast of new developments affecting municipal finance and reporting, impact on accounting and reporting should the State of California impose state -mandated procedures, impacts of Government Accounting Standards Board disclosure requirements, required changes in grant procedures and the like. - The City expects that the professional staff provided by the independent audit firm will be fully qualified with the appropriate experience, and that answers and guidance given will be provided by partner/manager (supervisor and above) not seniors and juniors. - Included in the fee proposal shall be an additional 40 hours of partner/manager time budgeted for research and assistance to City and Agency staff concerning accounting and other technical matters each year. The topic areas might include tax questions, the review of bond documents, cost allocation programs, employee benefit programs, and cash flow projections. It must be understood that these hours are above and beyond the professional times associated with the audit. EVALUATION AND SELECTION PROCESS Prior to submission deadline questions may be directed to: John J. Risley Accounting Supervisor City of La Quinta P.O. Box 1504 La Quinta, CA 92253 619/777-7105 Proposer must submit five copies of the audit proposal to the City of La Quinta Finance Department in a single sealed envelope_ Deadline for submission is 5:00 P.M. April 18, 1997. The evaluation process consists of the following steps: 1. The proposals will be evaluated and rated by a selection committee consisting of two Council members and two Finance staff members based on the technical qualifications and approach of the proposer. Final proposals will be selected from those organizations and ranked based on their technical qualifications, approach and price score. 2. The finalists may be required to make an oral presentation to staff and the City Council. Selection of the successful proposal will be at the sole discretion of the City Council and Agency Board. It is expected the City Council and Agency will conduct its review and make a selection on or before May 6, 1997. THE CITY COUNCIL REQUESTS THAT ONCE PROPOSALS HAVE BEEN SUBMITTED, NO UNSOLICITED CONTACT OR DISCUSSIONS CONCERNING THESE PROPOSALS BE MADE PRIOR TO THE EVALUATION OF ALL PROPOSALS. QUALIFICATIONS AND APPROACH As stated in the evaluation process, the proposal will first be examined relative to their technical qualifications and approach to the audit. Each organization's proposal should include at a minimum, the following information as is deemed necessary: (please number each item as listed below) 1) Names and qualifications of the specific individuals who would be assigned to this audit engagement. Please outline their relevant education and government auditing experience. 2) Description of any specialized skills, training, or, background in public finance that members of the engagement team possess. 3) Description of experience of assigned individuals in auditing relevant agencies such as Redevelopment Agencies. 4) Description of engagement team's experience in auditing and reviewing financial statements receiving GFOA and CSMFO awards. 5) List of all current and former municipal audit clients, within 5 years, including Redevelopment Agencies in the Southern California area indicating reference, type(s) of services preformed, dates and length of service for each. 6) Description of local office's workplan and deliverable report. The proposal should include types of audit programs, use of statistical sampling and additional components of the audit report. 7) The City has a P.C. base file server LAN utilizing Novell 4.1 operating software. The City uses MiraSoft's ForFund 2.1 software which runs on Windows 95 as most of the City software does. Describe your firm's data processing experience and capabilities. 8) Description of engagement team's experience and capabilities to assist in governmental bond reporting. 9) Sample of type of management letter usually issued. 10) Description of any regulatory action taken against your organization or local office. 11) Indicate the location of the office in which the audit team will be based. The municipal audit experience referenced in item 5 must come from that office. FEE It is the City's and Agency's normal policy to solicit bids for audit services no less that once every three years, subject to annual review. Accordingly, your proposal should encompass the three-year time span. The proposal should indicate the fee for each of the three years. The City and Agency request a statement of maximum cost be made for the annual audit as set forth in AUDIT EXPECTATIONS and REPORTS AND CONSIDERATIONS to include, in addition to "normal audit requirements," up to 40 hours each year of partner/manager time answering accounting questions raised by the City and Agency. All other expenses including typing, clerical, printing services, travel, mileage and miscellaneous expenses should be included in the total audit fee. The City requests that the proposal also include a schedule of rates by professional staff classifications. The schedule should reflect rates for audit services and for consulting services. It should also reflect the anticipated distribution of hours per staff classification. Please itemize fees for the City, Agency, Financing Authority, and partner/manager hours. The maximum annual fee will remain fixed for the three years covered by the audit engagement agreement. Below is listed the cost of the City's audit for the last two years: 1994-95 1995-96 Audit of all funds and account groups of the City, including preparation and word processing of City financial statements, single audit, and Issuance of management letter. $131193 $131523 Financial and compliance audit of the Redevelopment Agency. 101810 117080 Financial and compliance audit of the Financing Authority. 11662 1,704 Total fee $25,665 $26,307 The City may include in the Audit Agreement an option to extend the audit service for an additional two years beyond the three years ending June 30, 1999. In this case, each year of the two year option price could not increase by more than the average increase of the prior three years. INSURANCE Before signing a contract or commencing work on this project, the contractor shall provide proof that the following insurance requirements are in place. Please indicate if your firm would be able to provide proof of the below City insurance requirement. a. Worker's Compensation as required by law. b. Professional Liability in the amount of $1,000,000. Each policy of insurance required by this section shall provide for no less than 30 days advance notice to the City prior to cancellation. Each policy shall be endorsed to waive all right of subrogation against the City of La Quinta by reason of any payment made for claims under the above coverage. OTHER INFORMATION Please list any other pertinent information you would like the City/Agency to consider in making our selection. We encourage you, if interested, to contact John Risley to obtain additional data which would enable you to evaluate the scope of your operations so that you may formulate a proposal. Any financial information you may need to review is available in the Finance Department. CITY OF LA QUINTA BACKGROUND The City of La Quinta encompasses approximately 31 square miles, has a residential population of slightly more than 18,000, and is located in the Coachella Valley approximately 25 miles east of Palm Springs, Ca. Incorporated in 1982, governed by a Charter, the City is operated under a City Council/City Manager form of government. Four City Council members are elected at large to serve four year terms. The Mayor is elected serving a two year term to be the City Council administrative head. The Mayor/City Council also serve as Agency members. The City and Agency have automated much of the finance and budget activities and have been in place for several years. This department currently consists of: Finance Director John Falconer Accounting Supervisor John J. Risley Senior Management Asst. Pamela LiCalsi Financial Services Asst. Geniene D. Croft Account Technician Sharon Christiansen Account Technician Patsy Parker Account Clerk Missy Mendoza Secretary Debbie DeRenard The City contracts for some services to its residents and businesses including police, fire and refuse disposal. As of June 30, 1996, City employment totaled approximately 70 employees. Enclosed are copies of the City's, Agency's, and Financing Authority audited financial statements for the 1995-96 fiscal year. RFP Distribution List for Professional Auditing Services Conrad & Associates Attn: Michael A. Harrison, CPA 1100 Main Street Irvine, CA 92714 (714) 474-2020 Deloitte & Touche Attn: Yves Pinkowitz, CPA 695 Town Center Drive, Ste. Costa Mesa, CA 92626 (909) 436-7128 Lund & Guttry Attn: Gary Dack, CPA P.O. Box 2714 Palm Springs, CA 92263 (619) 325-5561 McGladry & Pullen Attn: Rod LeMond, CPA 1200 303 Vanderbilt Way, Ste. 200 San Bernardino, CA 92408-3519 (909) 386-7000 Ernst & Young Attn: Sally Anderson, CPA 3750 University Ave., Ste. 600 Riverside, CA 92501 (909) 682-5500 KPMG Peat Marwick Attn: Margaret McBride, CPA 650 Town Center Drive Center Tower, Ste. 1000 Costa Mesa, CA 92626 (909) 850-4300 Calderon, Jaham & Osborn Attn: Thomas J. Saiz, CPA P.O. Box 1039 El Centro, CA 92244 (909) 352-6022 Varinek, Trine, Day & Co. Attn: Kevin Pulliam P.O. Box 4407 Rancho Cucamonga, Ca. Moreland & Associates Attn: Michael Moreland, CPA 610 Newport Center Dr., Ste.840 Newport Beach, CA 92660 (909) 760-9788 Price Waterhouse Attn: Ken Melton, CPA 3403 Tenth Street, Ste. 800 Riverside, CA 92501 (909) 684-9411 Thomas, Bigbie & Smith Attn: Rich Teman, CPA 4201 Brockton Ave., Suite 100 Riverside, Ca. 92501 Maryanov, Madsen, Gordon & Campbell Attn: Bob Baltes 74-774 Hwy. 111, Suite A 91729-4407 Indian Wells, Ca. 92210 (619) 568-0032 J.M. Gambill 69-730 Hwy. 111, Suite 17 Rancho Mirage, Ca. 99270 (619) 321-5200 Lance, Soil & Lunghard Attn: Mile Chu 7200 S. Greenleaf Ave. Whittier, Ca. 90602 Gelfand Rennert & Feldman 431 S. Palm Canyon Dr., Suite 104 Palm Springs, Ca. 92262 (619) 325-5095 Charles Z. Fedak & Co. CPA's 6081 Orange Avenue Cypress, Ca. 90630 (714) 527-1818 INVESTMENT ADVISORY BOARD Meeting Date: TITLE: March 12, 1997 Update on Board/Commissions Handbook BACKGROUND: Correspondence & Written Material Item C At the meeting of February 12, 1997, the Board/Commissions Handbook was agendized and discussed. Several questions were raised that required further research by Staff. Attached is the information requested. RECOMMENDATION: Information item only. �44,4L,. hn M. Falconer, Finance Director 4 4aQuArw MEMORANDUM TO: John M. Falconer, Finance Director FROM: Britt W. Wilson, Management Assistant, City Manager's Office 6Vv DATE: March 5, 1997 RE: Clarification of Commissioner/Board Member Handbook section(s) regarding minutes/records Pursuant to our conversation, I discussed the questions regarding minutes and the Handbook with the City Clerk that were raised by the Investment Advisory Board at their February 12t" meeting. You had indicated the ambiguity between pages 17 and 18 regarding summary vs. detailed minutes. According to the City Clerk, there are three types of minutes: action, summary, and verbatim. For purposes of official minutes, and consistent with the Handbook, the City utilizes summary minutes. Those summary minutes can be "detailed" without necessarily being verbatim minutes. Although I understand the confusion the word "detailed" has raised, the minutes for any commission, board or committee should be summary minutes. You also indicated there was a need for clarification on the Handbook statements regarding sound recording devices for the purpose of taking minutes. According to the City Clerk's Office, the current Records Retention Policy is to hold the tapes of the sound recordings until the minutes have been approved then they are to be given to the La Quinta Historical Society. Although the Historical Society has shown some interest in the tapes, they have not pursued/taken action for the City to be able to get the tapes to the Historical Society. The City Clerk's Office is currently working on a new Records Retention Policy which may be considered by the Council within the next several months. The Handbook indicates that the sound tapes can be used for minutes and "no other purpose". According to the City Clerk's Office, this clause is intended to eliminate the requirement that the tape be considered a public record for retention purposes, in which case, the tapes would have to be retained for a minimum of two years. Consequently, Section 54953.5 (b) of the Government Code (see attached) comes into play, allowing the City to destroy tapes 30 days after recording unless the Council adopts a policy otherwise. As previously stated, this issue will be taken up when the Council considers the overall records retention policy. In the meantime, tapes are available to public inspection and purchase as any other document and should be retained just as Council tapes are currently being retained. If you, or the IAB, have any other questions, please let me know. I'm sure the City Clerk's Office would also be happy to answer any questions. If you need any further information, please let me know. Attch. C. Mark Weiss, Assistant City Manager Saundra L. Juhola, City Clerk California Government Code Section 54953.5(b) Recording Meetings Any tape or film record of an open and public meeting made for whatever purpose by or at the direction of the local agency shall be subject to inspection pursuant to the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1), but, notwithstanding Section 34090, may be erased or destroyed 30 days after the taping or recording. Any inspection of a video or tape recording shall be provided without charge on a tape player made available by the local agency. Page 20