CADRE INSTITUTIONAL INVESTORS TRUST
LIQUID ASSET FUND
ANNUAL REPORT
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<PAGE>
TRUSTEES AND OFFICERS
William T. Sullivan, Jr. Donald E. Gray, Jr. C.G.F.M.
Chairman and Trustee Trustee
David L. Boyle C. Roderick O'Neil
Trustee Trustee
Martin G. Flanigan William J. Reynolds
Treasurer Trustee
Russell E. Galipo William M. Sullivan, Esq.
Trustee Secretary
Harvey A. Fein Dr. Don I. Tharpe
Trustee Trustee
INVESTMENT ADVISOR/ADMINISTRATOR/TRANSFER AGENT
Cadre Financial Services, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
DISTRIBUTOR
Cadre Securities, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
CUSTODIAN
US Bank
US Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
757 Third Avenue
New York, New York 10017
LEGAL COUNSEL
Schulte, Roth & Zabel
900 Third Avenue
New York, New York 10022
2
<PAGE>
CIIT CHAIRMAN'S ANNUAL REPORT LETTER
- --------------------------------------------------------------------------------
It has been an exciting year indeed for the Cadre Institutional Investors Trust
Liquid Asset Fund (the "Fund"), including the introduction of a Master/Feeder
structure for the Fund and new Internet based functionality. In addition, the
Fund has continued to maintain an attractive rate of return versus industry
averages, while maintaining safety of principal and liquidity as our cornerstone
objectives.
In order to grow the Fund to meet our clients' various investment needs, the
Board of Trustees authorized the creation of a Master/Feeder structure through
the introduction of the U.S. Government Money Market Portfolio, a master
portfolio through which the Liquid Asset Fund, now a feeder series, can invest.
In addition, the Board has authorized the offering of a new series of the Fund,
called the Institutional Cash Fund, which is also a feeder series and will be
available to shareholders shortly. By creating the Master/Feeder arrangement, we
should be able to offer more competitive rates of return since shareholders will
be able to choose the investment vehicle that more precisely meets their
individual investment needs.
Several significant technology enhancements were provided through Cadre
Financial Services, Inc., our investment advisor and administrator. Topping the
list is our new Internet information service called COMPASS. This enhancement
brings Internet functionality to the Fund and enables shareholders to look at
historical rates and Fund information, check account balances, view daily and
monthly statements, and review transaction history and wiring instructions.
Ultimately, this Internet tool will enable shareholders to perform account
transfers and record deposits directly online.
During 1998, we also took steps to enhance our custodian bank relationship and
changed our banking relationship by appointing U.S. Bank of Minneapolis as the
Fund's new custodian bank. Although a change of custodian has occurred, we will
continue to maintain local cash management banks in each state our Fund is
offered. By maintaining cost controls we hope to continue offering competitive
returns to our shareholders.
Throughout 1998, the Trustees monitored the Year 2000 readiness of its various
service providers. Your Trustees continue to exercise diligent oversight of its
contractors' testing results and contingency arrangements throughout 1999. In
addition, Cadre will provide you with updated Year 2000 Readiness Disclosure
reports throughout the year, which are also available on Cadre's web site,
www.ambac-cadre.com. Cadre will also issue a final readiness report in December
1999.
Finally, on behalf of the Cadre Institutional Investors Trust Liquid Asset Fund
Board of Trustees, we thank you for your continued support and confidence in our
ability to continue to develop and improve our product offerings that will
permit your entity to "maximize" its income potential while maintaining safety
of principal, liquidity, and yield.
William T. Sullivan, Jr.
Chairman, President and Chief Executive Officer
Cadre Institutional Investors Trust
3
<PAGE>
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
The U.S. economy delivered another impressive performance over the last twelve
months. The economy expanded by 3.7% and the unemployment rate reached a level
lower than we have seen in two decades. Meanwhile, inflation was almost
non-existent. The strength of the economy is expected to lead to a Federal
budget surplus in 1998, this situation was almost unimaginable a few short years
ago. Overseas economies weakened dramatically during the year. Problems in our
own stock and bond markets began late Summer 1998 in response to the weakness
abroad. Weakness in overseas economies and the potential effects for the U.S.
caused the Federal Reserve to lower the overnight Fed funds level in September
and again in October from 5.5% to 5%
Short-term interest rates remained unusually stable during the year. The Federal
Reserve (Fed) maintained a 5.50% Fed Funds target during the first 11 months
before lowering it twice within three weeks of each other to 5%. The yield curve
(from overnight to one year) was flat at 5.50% during the first half of the year
and remains inverted as the market expects further reductions in rates.
Quality spreads widened sharply late in the period. The spread between 90 day
Treasury Bills and 90 day Agency discount notes on October 31, 1997 was 23bp.
The spread between the same security types on October 30, 1998 was 64bp. The
widening of spreads is the result of investor risk aversion and a "flight to
safety", rather than an actual deterioration in credit fundamentals.
Trouble in overseas economies have clearly caused a drag on our economy. Exports
have been declining since the beginning of 1998, with sales to Asia falling
dramatically. Offsetting some of this weakness was continued high levels of
employment, consumer confidence, and strong housing growth. Economies in Asia
and Latin America will have to begin to show stabilization before we will begin
to see an end to this drag.
Inflation has been running at an annual rate of about 1.5%. Risks to the low
inflation environment have included; high employment, wage gains, and work week
increases. Most of these have been offset by productivity gains and corporate
willingness to cut profits rather than raise prices in a competitive market.
Inflation should remain low over the next 12 months as a slower economy and
lower import prices combine to keep inflation pressures subdued.
The high performance economies of the past two years are not likely to be
repeated over the next year. Short-term interest rates are likely to trend lower
as the Federal Reserve continues to use monetary policy to offset weakness
stemming from both abroad, and domestic risk aversion. Inflation should remain
low in a slower economy. Overseas economies are going to take many years to
recover as their problems are severe. Money-market securities have regained
popularity for all investors especially those seeking safety, liquidity, and
prudent returns.
Cadre Financial Services, Inc.
4
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees of
Cadre Institutional Investors Trust Liquid Asset Fund:
We have audited the accompanying statement of assets and liabilities of Cadre
Institutional Investors Trust Liquid Asset Fund, including the portfolio of
investments, as of October 31, 1998, the related statements of operations for
the year then ended, the statements of changes in net assets and financial
highlights for the year then ended and for the year ended October 31, 1997.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Cadre
Institutional Investors Trust Liquid Asset Fund as of October 31, 1998, the
results of its operations for the year then ended, the changes in net assets and
financial highlights for the year then ended and for the year ended October 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick, LLP
- --------------------------
KPMG Peat Marwick LLP
New York, New York
December 11, 1998
4
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT DESCRIPTION MATURITY ON DATE VALUE
(000'S) MATURITY DATE OF PURCHASE (NOTE 2)
- ------- ------------- ----------- --------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 81.90%
<C> <S> <C> <C>
$ 5,000 Federal Farm Credit Bank 5.40% $4,999,249
Discount Notes
November 2, 1998
9,287 Federal Farm Credit Bank 5.22 9,216,588
Discount Notes
December 23, 1998
5,000 Federal Home Loan Bank 5.34 4,997,764
Discount Notes
November 4, 1998
5,000 Federal Home Loan Bank 5.03 4,976,849
Discount Notes
December 4, 1998
5,000 Federal Home Loan Bank 5.06 4,959,732
Discount Notes
December 28, 1998
7,657 Federal Home Loan Bank 4.74 7,581,228
Discount Notes
January 15, 1999
3,000 Federal Home Loan Mtge. Corp. 5.40 2,999,546
Discount Notes
November 2, 1998
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT DESCRIPTION MATURITY ON DATE VALUE
(000'S) MATURITY DATE OF PURCHASE (NOTE 2)
- ------- ------------- ----------- --------
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
<C> <S> <C> <C>
$13,000 Federal Home Loan Mtge. Corp. 5.40% $ 12,996,070
Discount Notes
November 3, 1998
5,000 Federal Home Loan Mtge. Corp. 5.40 4,996,973
Discount Notes
November 5, 1998
15,000 Federal National Mtge. Assoc. 4.74 14,843,646
Discount Notes
January 19, 1999
3,000 Federal National Mtge. Assoc. 4.80 2,962,780
Discount Notes
February 2, 1999
5,000 Federal National Mtge. Assoc. 4.64 4,998,893
LIBOR Floating-Rate Note
Weekly Reset
April 9, 1999
-----------
Total U.S. Government Agency
Obligations 80,529,318
(amortized cost $80,529,318)
-----------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT DESCRIPTION MATURITY ON DATE VALUE
(000'S) MATURITY DATE OF PURCHASE (NOTE 2)
- ------- ------------- ----------- --------
REPURCHASE AGREEMENTS - 18.10%
<C> <S> <C> <C>
$17,796 Repurchase Agreement with Morgan 5.55% $ 17,796,000
Morgan Stanley Group Inc., 5.55%,
due November 2, 1998. Dated
October 30, 1998, Repurchase price
$17,804,231 (collateralized by
$18,478,000 U.S. Treasury Bills, due
April 1, 1999, market value $18,152,048)
------------
Total Repurchase Agreements 17,796,000
------------
(amortized cost $17,796,000)
Total investments - 100.10% 98,325,318
(amortized cost $98,325,318)
Liabilities in excess of other assets - 0.00% (96,669)
------------
Net Assets - 100.00% $ 98,228,649
============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
7
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
<S> <C>
Investment in securities, at value (Note 2):
U.S. Government agency obligations $ 80,529,318
Repurchase agreements 17,796,000
------------
Total investments, at value 98,325,318
Cash 208,700
Interest receivable 19,804
Prepaid expenses 45,663
------------
Total assets 98,599,485
------------
LIABILITIES
Cash received pending share purchase 207,918
Advisory fees payable 20,028
Trustee fees payable 34,349
Other accrued expenses 108,541
------------
Total liabilities 370,836
------------
NET ASSETS $ 98,228,649
============
Shares of beneficial interest outstanding 98,228,855
============
NET ASSET VALUE,
offering and redemption price per share
(Net Assets / Share Outstanding) $ 1.00
============
NET ASSETS consist of:
Common stock, at par value (Note 5) $ 98,229
Paid-in capital in excess of par value 98,130,626
Accumulated net realized loss on
investment securities transactions (206)
------------
Total Net Assets $ 98,228,649
============
</TABLE>
The accompanying notes are integral part
of these financial statements.
F-1
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income $ 5,964,125
-----------
Expenses (Note 3):
Investment advisory fees 160,337
Administration fees 106,892
Transfer agent fees 53,446
Trustee expenses 38,615
Legal fees 31,480
Custodian fees 29,147
Liability insurance expense 24,505
Printing expenses 22,072
Audit fees 15,000
Registration and filing fees 12,035
Other expenses 11,528
-----------
Total expenses 505,057
Less: fees waived (64,727)
-----------
Net expenses 440,330
-----------
Net investment income $ 5,523,795
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-2
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------
1998 1997
---- ----
Operations:
<S> <C> <C>
Net investment income $ 5,523,795 $ 5,539,212
Net realized loss on investment
securities transactions -- (206)
------------- -------------
Net increase in net assets
resulting from operations 5,523,795 5,539,006
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,523,795) (5,539,212)
Net realized gains on securities transactions -- (707)
------------- -------------
Total dividends and distributions
to shareholders (Note 2) (5,523,795) (5,539,919)
------------- -------------
SHARE TRANSACTIONS:
Net proceeds from sales of shares 365,846,598 191,135,630
Net asset value of shares issued to
shareholders in reinvestment
of dividends and distributions 5,523,795 4,844,012
Cost of shares redeemed (411,802,360) (128,198,780)
------------- -------------
Net (decrease) increase in net assets
resulting from share transactions (40,431,967) 67,780,862
------------- -------------
Total (decrease) increase in net assets (40,431,967) 67,779,949
------------- -------------
NET ASSETS:
Beginning of year 138,660,616 70,880,667
------------- -------------
End of year $ 98,228,649 $ 138,660,616
============= =============
OTHER INFORMATION:
Share Transactions:
Shares sold 365,846,598 191,135,630
Shares issued to shareholders in
reinvestment of dividends and distributions 5,523,795 4,844,012
Shares repurchased (411,802,360) (128,198,780)
------------- -------------
Net (decrease) increase
in shares outstanding (40,431,967) 67,780,862
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-3
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Cadre Institutional Investors Trust (the "Trust") (formerly known as Ambac
Treasurer's Trust), was organized in April 1996 as a Delaware business trust and
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended, (the "1940 Act"). Cadre Financial Services,
Inc. (formerly known as Ambac Investment Management, Inc.) (the "Advisor"), a
wholly-owned subsidiary of Ambac Capital Corporation, which in turn is a
wholly-owned subsidiary of Ambac Financial Group, Inc., serves as the Trust's
investment advisor. Previously the Trust offered the Ambac U.S. Treasury Money
Market Fund which ceased operations on June 30, 1997. The accompanying financial
statements and financial highlights are those of the Cadre Institutional
Investors Trust Liquid Asset Fund (the "Fund") formerly known as U.S. Government
Money Market Fund. The Fund commenced investment operations on April 24, 1996.
Prior to April 24, 1996, the only business conducted by the Fund was the
issuance of 33,335 shares of this Fund in connection with the registration of
the Trust.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies in conformity with
generally accepted accounting principles consistently followed by the Fund in
the preparation of its financial statements.
PORTFOLIO VALUATION
Securities owned by the Fund are valued utilizing the amortized cost valuation
method permitted by Rule 2a-7 under the 1940 Act. This method involves valuing a
portfolio security initially at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for on a trade date basis. Net realized
gains or losses on sales of securities are determined by the identified cost
method. Interest income is recorded on the accrual basis.
F-4
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income are declared and accrued daily and paid
monthly. Net realized long-term capital gains, if any, are distributed at least
annually.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
FEDERAL INCOME TAXES
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes. Therefore, no Federal tax provision is
required.
The Fund has an available capital loss carryforward of $206 for Federal income
tax purposes to be applied against future net securities profits, if any,
realized subsequent to October 31, 1998. If not used, the capital loss
carryforward of $206 will expire on October 31, 2005.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions with institutions that
the Trust's Advisor has determined are creditworthy pursuant to guidelines
established by the Trust's Board of Trustees. Each repurchase agreement
transaction is recorded at cost. The Fund requires that the securities purchased
in a repurchase agreement transaction be transferred to the Trust's Custodian
(or sub-custodian) in a manner that it intended to enable the Fund to realize
the value of the securities in the event of a counterparty default. The Advisor
monitors daily the value of the securities, including accrued interest, to
ensure that the value of the collateral equals or exceeds amounts due under the
repurchase agreement. Repurchase agreement transactions involve certain risks in
the event of default or insolvency of the counterparty, including possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities, and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
F-5
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT ADVISORY, ADMINISTRATION AND OTHER FEES
The Trust and the Advisor are parties to an investment advisory agreement under
which the Advisor provides services for a fee, computed daily and paid monthly,
at the annual rates of 0.15% of the Fund's average daily net. The Advisor has
voluntarily agreed to waive its fee or reimburse expenses of the Fund to the
extent necessary to assure that the ordinary operating expenses do not exceed
0.35% of the average daily net assets for the period November 1, 1997 to
December 31, 1997, 0.40% for the period January 1, 1998 to May 31, 1998 and
0.45% for the period June 1, 1998 to October 31, 1998. The Advisor reserves the
right to modify or terminate at any time its agreements to waive fees and
reimburse expenses. The Trust and Cadre Financial Services, Inc., are parties to
an administration agreement under which Cadre Financial Services, Inc. (the
"Administrator") provides services for a monthly fee calculated at an annual
rate of 0.10% of the Fund's first $500 million average daily net assets, 0.075%
of the next $500 million of the Fund's average daily net assets and 0.05% of the
Fund's average daily net assets in excess of $1 billion.
Cadre Securities, Inc. (the "Distributor") a wholly-owned subsidiary of Ambac
Financial Group, Inc. acts as the exclusive distributor of the Trust's shares.
Certain officers of the Trust may be officers of the Advisor, Administrator
and/or Distributor or their affiliates. Such officers receive no compensation
from the Trust for serving in their respective roles. Trustees who are not
employees of the Advisor, Administrator and/or Distributor or their affiliated
companies, are each paid an annual retainer of $5,000 and receive an attendance
fee of $750 for each meeting of the Board of Trustees they attend. Members of
the Audit Committee, of which each of the Independent Trustees is a member,
receive an attendance fee of $750 for each Audit Committee meeting they attend.
The Chairman of the Audit Committee receives an additional $1,000 annual fee.
Officers of the Trust receive no compensation from the Trust.
NOTE 4 - WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Advisor voluntarily agreed to waive a portion of its fees and to reimburse
the Fund for certain expenses so that the total expenses would not exceed
certain expense limitations established for the Fund. The Advisor, at its
discretion, may revise or discontinue the voluntary fee waivers and expense
reimbursements. For the period ended October 31, 1998, the Advisor waived fees
with respect to the Fund in the amount of $64,727.
F-6
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5 - SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited
number of shares of beneficial interest in the Fund, each with a par value of
$0.001.
F-7
<PAGE>
CADRE INSTITUTIONAL INVESTORS TRUST LIQUID ASSET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding, is as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
1998 1997
---- ----
For a share outstanding throughout the year
<S> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00
----------- -----------
Income from investment operations:
Net investment income (1) 0.052 0.053
----------- ------------
Less dividends:
Dividends from net investment income
(0.052) (0.053)
Net increase in net asset value -- --
----------- ------------
Net asset value, end of year $ 1.00 $ 1.00
=========== ============
Ratios/Supplemental Data:
Net assets, end of year (000's) 98,229 138,661
Ratio to average net assets:
Net investment income including reimbursement/waiver 5.17% 5.38%
Operating expenses including reimbursement/waiver 0.41% 0.26%
Operating expenses excluding reimbursement/waiver 0.47% 0.49%
<FN>
- ----------------------
(1) Net investment income per share before reimbursement, waiver of fees and
expenses by the Investment Advisor was $0.0523 and $0.0514 for the years ended
October 31, 1998 and 1997, respectively.
</FN>
</TABLE>
F-8
