<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
[x] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)
CALIFORNIA HOSPITAL AND HEALTH
FACILITIES LIQUID ASSET TRUST
- --------------------------------------------------------------------------------
(Names of Registrant As Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2),
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing parties:
4) Date filed:
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CALIFORNIA HOSPITAL AND HEALTH FACILITIES LIQUID ASSET FUND
(a portfolio of Hospital and Health Facilities Trust)
7901 Stoneridge Drive, Suite 500
Pleasonton, California 94588
November 19, 1996
Dear Shareholder:
As you may know, Cadre Financial Services, Inc. ("Cadre Financial"),
the investment adviser to California Hospital and Health Facilities Liquid
Asset Fund (the "Fund"), has entered into an agreement under which
substantially all of the assets of Cadre Financial will be acquired by AMBAC
Investment Management, Inc. ("AIMI"). Because the closing of the acquisition
will result in the termination of the Fund's presently effective investment
advisory agreement, it is necessary for shareholders of the Fund to approve a
new investment advisory agreement between the Fund and AIMI.
The following important facts about the transaction should be noted:
- The amount of shares you own and the advisory fees charged to
the Fund will not change.
- No present changes are expected in the investment objectives of
the Fund, and the Fund expects that the key employees of Cadre
Financial will continue to provide services to the Fund as they
have in the past.
- You will continue to receive the investment management and
shareholder services that you have come to expect as a Fund
shareholder.
After careful consideration, the Board of Trustees of Hospital and
Health Facilities Trust (of which the Fund is the sole portfolio) has
unanimously approved a proposed Management and Investment Advisory Agreement
with AIMI. The Board recommends that you read the enclosed materials carefully
and then vote FOR the approval of the new agreement.
AIMI is an affiliate of AMBAC Inc., a publicly held corporation which
is listed on the New York Stock Exchange, and currently serves as the
investment adviser of another registered investment company which has two money
market portfolios. It is the expectation of your Board of Trustees that the
expertise and resources of AIMI, when combined with the experience of Cadre
Financial, will result in various benefits to the Fund and its shareholders, as
described in the enclosed materials.
In addition, the shareholders are being asked to elect nine trustees
to serve on the Board until their successors are elected and qualified. The
Board recommends that you vote FOR each of the nominees described in the
enclosed Proxy and listed on the proxy card.
Your vote is important. Please take a moment now to sign and return
your proxy card in the enclosed envelope. If you have questions about the
transaction, please call 1 (800) 221-4524 Ext. 202.
Thank you for your cooperation and continued support.
Sincerely,
J. MICHAEL GALLAGHER, Secretary
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CALIFORNIA HOSPITAL AND HEALTH
FACILITIES LIQUID ASSET FUND
(A PORTFOLIO OF HOSPITAL AND HEALTH FACILITIES TRUST)
7901 STONERIDGE DRIVE, SUITE 500
PLEASANTON, CALIFORNIA 94588
---------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------------
TO BE HELD ON NOVEMBER 26, 1996
1-800-221-4524 EXT. 202
A Special Meeting of the shareholders (the "Meeting") of CALIFORNIA
HOSPITAL AND HEALTH FACILITIES LIQUID ASSET FUND (the "Fund") a portfolio of
Hospital and Health Facilities Trust (the "Trust") will be held at 7901
Stoneridge Drive, Suite 500, Pleasanton, California 94588, on November 26, 1996
at 10:00 a.m. (PST) for the following purposes:
1. To consider and act upon the approval of a new investment
advisory agreement between the Trust, on behalf of the Fund,
and AMBAC Investment Management, Inc. ("AIMI") to take effect
upon the closing of the acquisition of the assets of Cadre
Financial Services, Inc. (the current investment adviser to the
Fund) by AIMI;
2. To consider and act upon the election of nine (9) members of
the Board of Trustees of the Trust to serve until their
successors are elected and qualified; and
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Trustees has fixed the close of business on November 8,
1996 as the record date for the determination of shareholders of the Fund
entitled to notice of, and to vote at, the Meeting.
By order of the Board of Trustees,
J. MICHAEL GALLAGHER, Secretary
November 19, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN
PERSON OR BY PROXY. IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE
PROVIDED FOR YOUR CONVENIENCE, WHICH REQUIRES NO POSTAGE.
<PAGE> 5
CALIFORNIA HOSPITAL AND HEALTH
FACILITIES LIQUID ASSET FUND
(A PORTFOLIO OF HOSPITAL AND HEALTH FACILITIES TRUST)
7901 STONERIDGE DRIVE, SUITE 500
PLEASANTON, CALIFORNIA 94588
-----------------------
PROXY STATEMENT
-----------------------
FOR A SPECIAL MEETING TO BE HELD ON NOVEMBER 26, 1996
1-800-221-4524 EXT. 202
INTRODUCTION
This Proxy Statement (the "Proxy") is being furnished in connection
with the solicitation by the Board of Trustees (the "Board") of Hospital and
Health Facilities Trust (the "Trust") of proxies to be voted at a Special
Meeting of Shareholders (the "Meeting") of the California Hospital and Health
Facilities Liquid Asset Fund (the "Fund"), a portfolio of the Trust, to be held
at 7901 Stoneridge Drive, Suite 500, Pleasanton, California 94588 on November
26 at 10:00 a.m. (PST) and at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Special Meeting of Shareholders.
The costs of preparing, printing, mailing and soliciting proxies are
being borne by Cadre Financial Services, Inc. ("Cadre Financial"), the current
investment adviser to the Fund. In addition, certain officers, directors and
employees of Cadre Financial and officers and Trustees of the Fund (none of
whom will receive additional compensation therefor) may solicit proxies in
person or by telephone, telegraph or mail. It is not expected that any paid
proxy solicitors will be retained. However, if such solicitors are retained,
their fees and expenses will not be borne by the Fund.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are marked,
shares represented by the proxies will be voted "FOR" Proposal 1 and in favor
of the election of each person nominated for election as a Trustee of the
Trust. For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions will be counted as present, and any
proxies from brokers or nominee owners of shares indicating that such persons
have not received instructions from the beneficial owner or other persons
entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power, will be treated as shares
that are not present. Any proxy may be revoked at any time prior to the
exercise thereof by submitting another proxy bearing a later date or by giving
written notice to the Secretary of the Trust at the address indicated above or
by voting in person at the Meeting.
The affirmative vote of a "majority of the outstanding voting
securities" of the Fund, as defined by the Investment Company Act of 1940, as
amended (the "Investment Company Act") (a "Majority Vote") (either 67% of the
shares present at the Meeting, if holders of more than 50% of the outstanding
shares are present in person or by proxy, or more than 50% of the outstanding
shares, whichever is less), is necessary to approve the Fund's new investment
advisory agreement (Proposal 1). A plurality of the shares of the Fund voting
at the Meeting is necessary to elect each of the nominees to serve as Trustee.
An abstention with respect to Proposal 1 will have the same effect as a vote
against that proposal.
<PAGE> 6
The Board knows of no business other than that specifically mentioned
in the Notice of Meeting which will be presented for consideration at the
Meeting. If any other matters are properly presented, it is the intention of
the persons named in the enclosed proxy to vote thereon in accordance with
their best judgment.
The Board has fixed the close of business on November 8, 1996 as the
record date (the "Record Date") for the determination of shareholders of the
Fund entitled to notice of and to vote at the Meeting or any adjournment
thereof. Shareholders of the Fund on that date will be entitled to one vote on
each matter for each share held. Shareholders do not have cumulative voting
rights. At the close of business on the Record Date, the Fund, which is the
only portfolio of the Trust, had outstanding 42,366,585 shares. In the event
that a quorum (the presence in person or by proxy of shareholders representing
one-third of the shares outstanding on the Record Date) cannot be obtained, one
or more adjournments of the Meeting may be sought. Any such adjournment would
require the affirmative vote of the holders of a majority of the shares present
at the Meeting (or any adjournment thereof) in person or by proxy. The persons
named as proxies will vote all shares represented by proxies that they are
entitled to vote in favor of Proposal 1 in favor of an adjournment and will
vote all shares required to be voted against Proposal 1 against an adjournment.
The principal executive offices of the Fund are located at 7901
Stoneridge Drive, Pleasanton, California 94588. The enclosed proxy and this
Proxy Statement are first being sent to the Fund's shareholders on or about
November 19, 1996.
A copy of the Fund's annual report for the year ended December 31,
1995, is being sent to all shareholders of record together with this Proxy
Statement.
Price Waterhouse LLP ("PW") has been selected by the vote of the
Board, as the independent accountants of the Trust to audit the accounts of the
Fund for and during the fiscal year ending December 31, 1996. Representatives
of PW will not attend the Meeting.
PRINCIPAL HOLDERS
As of November 8, 1996, to the best knowledge of the Fund, the
following persons beneficially owned more than 5% of the outstanding shares of
the Fund:
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address Beneficially Owned Outstanding Shares
---------------- ------------------ ------------------
<S> <C> <C>
California Breast Cancer Treatment Program 2,724,520 6.5%
Chinese County Health Care Association 2,396,337 5.6%
Community Hospital of Monteray Peninsula 8,766,989 20.7%
Health Services Research Foundation 2,277,988 5.5%
Muir Medical Group 3,118,818 7.6%
Sharp Community Medical Group 3,481,231 8.2%
St. Joseph's Medical Center 3,181,603 7.6%
</TABLE>
2
<PAGE> 7
PROPOSAL NO. 1
TO CONSIDER AND ACT UPON THE APPROVAL OF A NEW ADVISORY AGREEMENT
WHICH WILL TAKE EFFECT UPON THE CLOSING OF THE ACQUISITION OF THE
ASSETS OF CADRE FINANCIAL BY AMBAC INVESTMENT MANAGEMENT, INC.
BACKGROUND
Cadre Financial, which maintains its principal office at 905 Marconi
Avenue, Ronkonkoma, New York 11779, currently serves as the Fund's investment
adviser and manager. Subject to the direction of the Board, it is responsible
for the overall management of the Trust's business and investment affairs under
the terms of a Management and Investment Advisory Agreement (the "Existing
Advisory Agreement"). The principal business of Cadre Financial is serving as
the adviser and administrator of collective, short-term investment programs for
local governmental and municipal entities and other organizations. Except for
the Trust, none of those programs are registered under the Investment Company
Act. As of September 30, 1996, Cadre Financial and its affiliates managed or
administered approximately $5.6 billion in assets for more than 2,500
institutional investors.
The chief executive officer and directors of Cadre Financial and their
principal occupations are as follows:
<TABLE>
<CAPTION>
Name Title Principal Occupation
- ---- ----- --------------------
<S> <C> <C>
William T. Sullivan, Jr. CEO/Chairman CEO of Cadre Financial Services,
Inc. and Cadre Securities, Inc.
Francis X. Sullivan Vice Chairman/Director COO of Cadre Financial Services,
Inc. and Cadre Securities, Inc.
Joan M. Restivo Director Executive Vice President of Cadre
Financial Services, Inc. and Cadre
Securities, Inc.
Beth A. Smith Director Senior Vice President of Cadre
Financial Services, Inc. and Cadre
Securities, Inc.
Richard I. Bauer Director President of Cadre Securities,
Inc.
Lynford Moyer Director Retired
John Elberfeld Director Retired
Raymond Peets Director Associated person Advest, Inc.
</TABLE>
3
<PAGE> 8
As of the Record Date, the following persons each beneficially owned
more than 10% of the outstanding shares of the Cadre Financial:
<TABLE>
<CAPTION>
Name and Address Name and Address
---------------- ----------------
<S> <C>
Richard I. Bauer Francis X. Sullivan
500 Sanatoga Drive 19 Marzella Street
Pottstown, Pennsylvania 19465 Brookhaven, New York 11719
Joan A. Restivo Kevin T. Sullivan
16 Maple Run Drive 8 Rosanne Court
Jericho, New York 11753 Nesconset, New York 17767
Beth A. Smith Timothy P. Sullivan
6 Cynthia Court 38 Laura Lee Drive
Setauket, New York 11733 Center Moriches, New York 11734
Adelade Sullivan William M. Sullivan
8 Rosanne Court 293 South Snedecor Avenue
Nesconset, New York 11767 Bayport, New York 11705
</TABLE>
Shareholders of the Fund are being asked to approve a New Advisory
Agreement (the "New Advisory Agreement") between the Fund and AMBAC Investment
Management, Inc. ("AIMI"), an indirect wholly owned subsidiary of AMBAC Inc.
("AMBAC"), to take effect upon the closing of the acquisition of the assets of
Cadre Financial by AIMI and the acquisition of the assets of the Fund's
distributor, Cadre Securities, Inc. ("Cadre Securities") by AMBAC Securities,
Inc. ("AMBAC Securities"), a wholly owned subsidiary of AMBAC (the
"Transaction"), pursuant to an Asset Purchase Agreement dated as of August 19,
1996 (the "Purchase Agreement"). This action is being requested because, as
described below, consummation of the Transaction will result in the automatic
termination of the Existing Advisory Agreement with Cadre Financial. Under the
New Advisory Agreement, AIMI will serve as investment adviser to the Fund. A
copy of the New Advisory Agreement is attached to this Proxy Statement as
Exhibit A.
SUMMARY OF THE TRANSACTION
The Trust and the Fund are not a parties to the Purchase Agreement.
None of the Trust, the Fund or the Trustees (individually or collectively) make
any representations or warranties as to the accuracy or completeness of the
information contained in this section entitled "Summary of the Transaction" or
any other information provided in this Proxy with respect to the terms and
conditions of the Purchase Agreement or the Transaction or the description of
AIMI and its affiliates.
The Purchase Agreement provides, among other things, that on the
closing of the Transaction, and subject to the various terms and conditions of
the Purchase Agreement, CF Acquisition Inc. ("CFA"), a subsidiary of AMBAC,
will purchase from Cadre Financial, and Cadre Financial will sell, convey,
assign, transfer and deliver to CFA, all of Cadre Financial's right, title and
interest in all of the assets, businesses, goodwill, franchises, rights,
privileges, interests, claims and properties (tangible or intangible) of every
kind and description owned by Cadre Financial or any person (whether directly,
immediately or ultimately) controlling, controlled by or under common control
(an "Affiliate") with Cadre Financial and used, useful or necessary in
connection with, or arising out of, or pertaining in any
4
<PAGE> 9
manner to, the conduct or operations of Cadre Financial's business (other than
certain excluded assets as provided for in the Purchase Agreement)
(collectively, the "Cadre Financial Assets"). Under the Purchase Agreement, in
lieu of having CFA purchase the Cadre Financial Assets, AMBAC may directly
purchase the Cadre Financial Assets and direct their transfer directly to AIMI.
AMBAC has determined to effect the Transaction in this manner. Thus, upon the
closing of the Transaction, AIMI will acquire the Cadre Financial Assets.
The Purchase Agreement also provides that AMBAC Securities will
purchase from Cadre Securities, and Cadre Securities will sell, convey, assign,
transfer and deliver to AMBAC Securities, all of Cadre Securities' right, title
and interest in all of the assets, businesses, goodwill, franchises, rights,
privileges, interests, claims and properties (tangible or intangible) owned by
Cadre Securities or any Affiliate thereof and used, useful or necessary in
connection with, or arising out of, or pertaining in any manner whatsoever to,
the conduct or operations of Cadre Securities' business (other than certain
excluded assets as provided in the Purchase Agreement).
In consideration for the transfer of the assets of Cadre Financial and
Cadre Securities, AMBAC or its affiliates will transfer a specified number of
shares of AMBAC stock to Cadre Financial and Cadre Securities and assume
certain liabilities of Cadre Financial and Cadre Securities. At the option of
Cadre Financial and Cadre Securities, and subject to certain limitations
designed to assure that the Transaction will be treated as a tax-free
reorganization of Cadre Financial and Cadre Securities, AMBAC may be required
to pay a portion of the purchase price in cash. The consideration payable by
AMBAC at the closing is subject to certain adjustments. In addition, certain
additional consideration may be payable in the future, based upon the financial
performance of the business attributable to Cadre Financial and Cadre
Securities during the four year period following the closing.
Under the Purchase Agreement, consummation of the transactions
described above are contingent upon a number of conditions, including, but not
limited to: (i) the approval by the Board of the New Advisory Agreement with
AIMI and a new distribution agreement with AMBAC Securities; (ii) the approval
by the shareholders of the Fund of the New Advisory Agreement; (iii) the
consent by specified clients of Cadre Financial and Cadre Securities, and by
clients representing a specified percentage of assets and revenues, to the
assignment of their various agreements with Cadre Financial and Cadre
Securities in connection with the Transaction; and (iv) the acceptance by
certain key employees of Cadre Financial and Cadre Securities of employment
agreements with affiliates of AMBAC. The New Advisory Agreement, if approved
by the Board and shareholders, will not become effective and the Existing
Advisory Agreement will remain in effect, unless and until the Transaction is
consummated.
AMBAC, which has its principal office at One State Street Plaza, New
York, New York 10004, is a publicly held company which is listed on the New
York Stock Exchange. Through various subsidiaries, AMBAC is a leading insurer
of municipal and structured finance obligations and a provider of investment
contracts and interest rate swaps to states, municipalities, municipal
authorities and other entities in connection with their financing. AIMI is a
wholly owned subsidiary of AMBAC Capital Corporation ("AMBAC Capital"), which
in turn is a wholly owned subsidiary of AMBAC. It is a registered investment
adviser which since 1995 has served as the investment adviser of AMBAC
Treasurers Trust, a registered investment company with three investment
portfolios (including two money market funds) and total assets of approximately
$95.4 million as of September 30, 1996. AMBAC, through various subsidiaries,
also manages its own investment portfolios with total assets of approximately
$5 billion. Information regarding the advisory fees of the AMBAC Treasurers
Trust money market funds and the currently effective fee waivers and expense
reimbursement arrangements
5
<PAGE> 10
respecting those funds is contained in Exhibit B. The principal offices of
AIMI and AMBAC Capital are located at 300 Nyala Farms Road, Westport,
Connecticut 06880
The directors of AIMI and their principal occupations are as follows:
<TABLE>
<CAPTION>
Name Title Principal Occupation
- ---- ----- --------------------
<S> <C> <C>
Frank J. Bivona Director Senior Vice President, Chief Financial
Officer and Treasurer of AMBAC Inc.
and AMBAC Indemnity Corporation
Stephen A. Attanasio Director Managing Director and Head of
Investment Advisory Services to
AMBAC Investment Management, Inc.
</TABLE>
EFFECT OF THE TRANSACTION ON THE FUND
As required by the Investment Company Act, the Existing Advisory
Agreement between the Trust, on behalf of the Fund, and Cadre Financial
provides for its automatic termination in the event of an "assignment," as
defined by the Investment Company Act. Consummation of the Transaction will
constitute an "assignment" because control of Cadre Financial will change as a
consequence thereof. The Transaction will therefore result in the termination
of the Existing Advisory Agreement. For the same reasons, the existing
Distribution Agreement between the Trust, on behalf of the Fund, and Cadre
Securities (the "Existing Distribution Agreement") will terminate upon the
consummation of the Transaction. Because of the possible terminations of these
agreements, the Board has considered and evaluated the desirability of entering
into new agreements with AIMI (the "New Adviser") and AMBAC Securities to
replace the Existing Advisory Agreement and the Existing Distribution
Agreement.
In this regard, the Board has been advised by AMBAC that no material
changes in investment philosophy, policies, or strategies are presently
contemplated by the New Adviser. After the Transaction, the New Adviser will
conduct its operations relating to the Fund from the same offices now used by
Cadre Financial. The New Adviser nevertheless expects to conduct a review of
its operations after consummation of the Transaction. Based upon such review,
various changes may be implemented. However, AMBAC has represented that one of
the purposes of any such changes will be to enhance the quality and scope of
services provided to the Fund and other clients.
The New Advisory Agreement, if approved by the Fund's shareholders,
will become effective on the date the Transaction is consummated. The terms of
the New Advisory Agreement provide that it shall remain in effect for an
initial term of two years from the date of its execution, and that it may be
continued in effect from year to year thereafter if approved annually by either
the Board or by a majority of the Fund's shareholders, and is in each case also
approved by a majority of the Board who are not "interested persons" of the
Trust as defined by the Investment Company Act (the "Independent Trustees").
After careful consideration, the Board unanimously recommends that
shareholders of the Fund vote "FOR" the approval of the New Advisory Agreement
between the Trust and the New Adviser. See "Evaluation by the Board" below.
6
<PAGE> 11
THE ADVISORY AGREEMENTS
The Existing Advisory Agreement was executed on July 10, 1992, and was
approved by the Fund's initial shareholder on July 10, 1992. After its initial
term of two years, the Existing Advisory Agreement has been renewed for
successive annual periods by action of the Board and the Independent Trustees.
The most recent such renewal was approved by the Board at a meeting on April
23, 1996.
Except for the description of the New Adviser, different effective and
termination dates and certain differences noted below, the terms of the New
Advisory Agreement are in all material respects the same as the terms of the
Existing Advisory Agreement. The only other differences between the New
Advisory Agreement and the Existing Advisory Agreement are that: (1) certain
transfer agent and shareholder services will be provided pursuant to the terms
of a separate transfer agent agreement with the New Adviser (but without the
payment of any additional fee by the Fund); (2) the Fund will be obligated to
bear all brokerage fees and commissions incurred in connection with its
investments (however, the Fund does not expect to incur any such fees or
commissions because money market instruments of the type purchased by the Fund
are typically purchased in principal transactions or directly from the issuers
of such instruments); and (3) the New Adviser will have the right to terminate
the New Advisory Agreement on not less than 60 days' written notice to the
Fund.
The New Advisory Agreement provides that the New Adviser will act as
the investment adviser of the Fund and, subject to the control and direction of
the Board, will manage the investments of the Fund in accordance with the
investment objectives, policies and limitations of the Fund. The New Adviser
will also be required to provide the Fund with various management and
administrative services necessary for the Fund's operations and to supply, at
its own expense, office facilities and personnel. Under the New Advisory
Agreement, the New Adviser will be responsible for the payment of all expenses
and costs incurred in providing these services. The Fund will remain
responsible to pay all expenses not assumed by the New Adviser, including
interest and taxes, expenses of the Independent Trustees; legal and audit
expenses, custodial fees, insurance, and the expenses of preparing and filing
amendments to the Fund's registration statement, reports, notices and meeting
material to shareholders, and the costs of printing and mailing prospectuses,
reports and other materials sent to shareholders.
For the services of Cadre Financial under the Existing Advisory
Agreement, the Fund pays Cadre Financial a monthly management fee computed at
an annual rate of .40% of the first $250,000,000 of the Fund's average net
assets, .3675% of the next $250,000,000 of such average assets, and .3350% of
such assets in excess of $500,000,000. This fee will remain unchanged under
the New Advisory Agreement. The Fund paid no fees to Cadre Financial for the
fiscal year ended December 31, 1995 pursuant to the Existing Advisory Agreement
because Cadre Financial waived any and all amounts due thereunder.
Pursuant to the Existing Advisory Agreement, Cadre Financial paid the
Fund's organizational expenses, which totaled $94,540. On February 8, 1995,
the net asset value of the Fund was $25,000,000 or more for a period of 30
consecutive days and as a result, pursuant to the terms of the Existing
Advisory Agreement, Cadre Financial became entitled to be reimbursed by the
Fund for those expenses. Reimbursement payments are being made ratably during
the period commencing February 8, 1995 and ending July 31, 1997. The New
Adviser will become entitled to receive these reimbursement payments as a
consequence of the Transaction.
The New Advisory Agreement provides that until December 31, 1997, and
thereafter, subject to revision or termination upon 90 days' notice to the
Fund, the New Adviser will not impose all or a portion of its management fee
and will take other action, to the extent necessary, to maintain the Fund's
7
<PAGE> 12
aggregate operating expenses (excluding interest, taxes and extraordinary
expenses) at not more than .85% of the average daily net assets for any fiscal
year (or for a portion of such year if the New Advisory Agreement is terminated
or revised). This undertaking by the New Adviser to limit the Fund's overall
expense ratio is the same as the undertaking originally made by Cadre Financial
in the Existing Advisory Agreement. However, the New Adviser will not be able
to revise or terminate its undertaking for a period of approximately one year.
The New Adviser has made certain representations to the Fund which are
intended to help assure that the Transaction, including the amounts received by
the selling shareholders of Cadre Financial in the Transaction, come with the
"safe harbor" provided by Section 15(f) of the Investment Company Act. That
Section provides that an investment adviser to a mutual fund and its affiliated
persons may receive any amount or benefit in connection with the sale of such
adviser which results in an "assignment" of an advisory agreement if two
conditions are met. Under these two conditions: (1) for a period of three
years after the sale, at least 75% of the board of directors (trustees) of the
fund must be persons who are not "interested persons" of the fund's new adviser
or predecessor adviser; and (2) there is not imposed as "unfair burden" as a
result of the sale or any express or implied terms, conditions or
understandings related thereto. An "unfair burden" is defined to include any
arrangement, during the two year period after the sale, whereby the new adviser
or predecessor adviser receives or is entitled to receive any compensation
directly or indirectly: (1) from any person in connection with the purchase or
sale of securities or other property to, from, or on behalf of, the fund, other
than bona fide ordinary compensation as principal underwriter; or (2) from the
fund or its shareholders for other than bona fide investment advisory or other
services. In this regard, AMBAC has agreed that neither it nor any of its
affiliates will take any actions which would cause the "safe harbor" provisions
of Section 15(f) not to be met.
EVALUATION BY THE BOARD OF THE TRANSACTION AND THE NEW ADVISORY AGREEMENT
On October 22, 1996, the Board of Trustees met to consider the
Transaction and its possible effect on the Fund and to evaluate the New
Advisory Agreement. Senior officers of Cadre Financial and the New Adviser
were present at the meeting to provide information regarding the Transaction
and the New Adviser and to respond to questions from the Board. In evaluating
the New Advisory Agreement, the Board reviewed various materials that were
furnished by AMBAC in advance of the meeting. Those materials included
information regarding AMBAC and its affiliates and their personnel, operations
and financial condition. Representatives of Cadre Financial and AMBAC
discussed with the Board the philosophy of management, performance expectations
and methods of operation of AMBAC and its affiliates insofar as they relate to
the Fund and indicated their belief that, as a consequence of the Transaction,
the quality of managerial and advisory services provided to the Fund would not
be adversely affected and would likely be enhanced by the resources of AMBAC
and its affiliates. In its deliberations, the Board considered the general
terms of the Transaction, including, among other things, the expected continued
employment of certain key personnel of Cadre Financial by the New Adviser,
which it believed to be important to assure the continued quality of services
provided to the Fund. The Board also considered comparative information on
other investment companies with investment objectives similar to the Fund. In
addition, it reviewed and discussed the terms and provisions of the New
Advisory Agreement and compared fees payable by the Fund under the New Advisory
Agreement with those paid by other investment companies.
The Board has identified several potential benefits that the Fund can
be expected to obtain under the New Advisory Agreement. In this regard, the
Board determined that expanded research and credit review capabilities that
would be available from the New Adviser would benefit the Fund and its
8
<PAGE> 13
shareholders. The Board also concluded that AMBAC's plans to make certain
investments in computer systems used to provide accounting and transfer agent
services to the Fund, together with AMBAC's commitment to devote additional
resources and personnel to expand compliance and control systems, should
enhance the quality of services received by the Fund. At the same time, the
advisory fees paid by the Fund would remain unchanged under the New Advisory
Agreement. These factors, coupled with the fact that senior officers of Cadre
Financial will serve as senior officers of the New Adviser, would help to
insure a smooth transition after the Transaction. These various considerations
led the Board to conclude that the approval of the New Advisory Agreement would
be in the best interests of the Fund and its shareholders.
In considering these matters, the Board was advised by the Fund's
independent counsel and considered all information that it believed was
relevant to its deliberations.
Based upon the foregoing, the Board of Trustees, including the
Independent Trustees, unanimously approved the New Advisory Agreement and
approved the taking of various actions necessary to obtain its approval by
shareholders.
CONSULTING AGREEMENTS
Cadre Financial and SharePlus, Inc., formerly known as Hospital
Council of Northern and Central California Shared Services, Inc. ("SharePlus"),
are parties to a consulting agreement under which SharePlus provides management
consulting, but not distribution or investment advisory, services to assist
Cadre Financial in providing management services to the Fund and to assist in
facilitating the distribution of the Fund's shares. In consideration of these
services, Cadre Financial pays a monthly fee to SharePlus which is computed at
the annual rate of 0.10% on the first $250 million of the Fund's average daily
net assets, with lower rates applicable to the portion of the Fund's average
daily net assets in excess of $250 million. This fee is paid by Cadre
Financial and is not paid by the Fund.
As permitted by the consulting agreement, SharePlus retained the
California Association of Health Facilities ("CAHF") as a sub-consultant to
assist it in providing services to Cadre Financial. SharePlus pays CAHF a
monthly consulting fee, based on the portion of the Fund's average daily net
assets which are owned by shareholders that are licensed skilled nursing
facilities which are not owned by hospitals and are located in California, at
an annual rate of .05% of the first $50,000,000 of such assets, .075% of the
next $100,000,000 of such assets, .09% of the next $100,000,000 of such assets,
.083% of the next $250,000,000 of such assets, and .077% of such assets in
excess of $500,000,000.
It is expected that the New Adviser will enter into a consulting
agreement with SharePlus which is similar to the agreement now in effect with
Cadre Financial in order to enable the New Adviser to receive the services now
being provided by SharePlus and CAHF to Cadre Financial.
To the extent that one of the Trustees is an employee of CAHF, such
Trustee may be deemed to have an interest in approving the New Advisory
Agreement.
THE DISTRIBUTION AGREEMENT
Cadre Securities currently acts as the Fund's distributor, transfer
and dividend disbursing agent pursuant to a Distribution Agreement with the
Trust executed on July 10, 1992 (the "Existing Distribution Agreement").
9
<PAGE> 14
The Fund and AMBAC Securities, a newly formed subsidiary of AMBAC
which will be registered as a broker-dealer, will enter into a New Distribution
Agreement (the "New Distribution Agreement") if the New Advisory Agreement is
approved by shareholders and the Transaction is consummated. Except for the
description of the New Adviser, the different effective and termination dates,
the ability of AMBAC Securities to terminate the New Distribution Agreement on
not less than 60 days' notice to the Fund, and the fact that transfer agent
services would be provided by the New Adviser pursuant to separate transfer
agent agreement as discussed above, the terms of the New Distribution Agreement
are in all material respects the same as the terms of the Existing Distribution
Agreement. The New Distribution Agreement was unanimously approved by the
Board of Trustees, including the Independent Trustees, on October 22, 1996.
The New Distribution Agreement is not being voted on by shareholders. In
approving the New Distribution Agreement, the Trustees considered many of the
same factors that they considered in approving the New Advisory Agreement and
determined that the New Distribution Agreement would be in the best interests
of the Fund and its shareholders. See "Evaluation by the Board of the
Transaction and the New Advisory Agreement."
AFTER CONSIDERATION OF THE ABOVE, AND SUCH OTHER FACTORS AND
INFORMATION AS IT DEEMED RELEVANT, THE BOARD, INCLUDING EACH OF THE INDEPENDENT
TRUSTEES, UNANIMOUSLY APPROVED THE NEW ADVISORY AGREEMENT AND VOTED TO
RECOMMEND ITS APPROVAL BY THE FUND'S SHAREHOLDERS.
PROPOSAL NO. 2
ELECTION OF THE BOARD OF
TRUSTEES OF THE TRUST
The Investment Company Act generally requires that the trustees of
registered investment companies, such as the Trust, be elected by shareholders.
To satisfy this requirement, the initial Trustees of the Trust were appointed
by the Trust's initial shareholder. However, subsequent changes in the
composition of the Board may be viewed as necessitating that certain of the
Trustees now serving be elected by shareholders in order to effect compliance
with applicable Investment Company Act requirements.
At the Meeting, nine (9) trustees will be elected to the Board to
serve until their successors are elected and qualified. The affirmative vote
of a majority of the shares of the Fund present at the Meeting and voting for
each nominee is required to elect such nominee. It is the intention of the
persons named in the enclosed proxy to vote in favor of the election of each of
the nominees listed below, in the absence of other instructions. The Board
recommends that you vote in favor of the election of each of the nominees.
The Board knows of no reason why any of the nominees listed below will
be unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominees as the Board may recommend.
Certain information concerning the nominees is set forth below. The
nominees are all currently trustees of the Trust, except for Aviva R.
Truesdell. The "interested" trustees (as defined by Section 2(a)(19) of the
Investment Company Act are indicated by an asterisk(*)). None of the Trustees
directly owned any shares in the Fund during the fiscal year ended December 31,
1995, nor, up to and including the Record Date, have they owned any shares in
the Fund during fiscal year 1996. Certain trustees, in their respective
capacities as officers and directors of certain shareholders of the Fund, may
be deemed to
10
<PAGE> 15
have an indirect interest in the shares of the Fund owned by such shareholders.
Interests in such shares are indicated by a double asterisk (**).
<TABLE>
<CAPTION>
TRUSTEE FUND SHARES
PRINCIPAL OCCUPATIONS OR OF THE OWNED AS OF % OF SHARES
NAME AND AGE EMPLOYMENT IN PAST 5 YEARS TRUST SINCE 10/31/96 OUTSTANDING
- ------------ -------------------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Alan H. Anderson President, South Coast Health 1992 79,644 .2%
Age: 53 Care Management, Inc. His
address is 3901 E. 4th Street,
Long Beach, California 90814.
J. Kendall Anderson Chief Executive Officer of the 1992 3,118,818** 7.6%**
Age: 53 John Muir Medical Center. His
address is 1601 Ygnacio Valley
Road, Walnut Creek, California
94598.
Elizabeth Suzanne Executive Director of Sharp 1996 3,481,231** 8.2%**
Curtis Community Medical Group since
Age 38 April 1994. Vice President of
Physician Services, Sharp
Healthcare, San Diego, California
from March 1989 to March 1991;
and Director of Finance, Sharp
Memorial Hospital, San Diego,
California, from November 1987 to
March 1989. Her address is 8665
Gibbs Drive, Suite 201, San
Diego, California 92123.
Joseph D.K. Diaz, Jr.* Regional Director, California 1992 390,239** 0.92%**
Age: 47 Association of Health Facilities
since 1984. His address is 1140
Wall Street, P.O. Box 370, La
Jolla, California 92038.
Frank E. Gibson President and Chief Executive 1994 951,080** 2%**
Age: 54 Officer of Hospital Consortium of
San Mateo County since 1981.
CEO, Sequoia Health Care District
since 1996. His address is
1600 Trousdale Drive,
Burlingame, California 94010.
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
TRUSTEE FUND SHARES
PRINCIPAL OCCUPATIONS OR OF THE OWNED AS OF % OF SHARES
NAME AND AGE EMPLOYMENT IN PAST 5 YEARS TRUST SINCE 10/31/96 OUTSTANDING
- ------------ -------------------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Jay Hudson President and Chief Executive 1992 8,766,989** 20.7%**
Age: 59 Officer of Community Hospital of
the Monterey Peninsula since
1990; Chief Operating Officer
from 1987 to 1990; and Senior
Vice President from 1982 to 1987.
His address is 23625 Holman
Highway, Monterey, California
93340.
Robert L. President, Western Division 1992 0 0%
Montgomery of Sutter/CHS since 1996.
Age: 59 President, Alta Bates Health System
from 1988 until 1996. Executive
Vice President of VHA
Enterprises, Inc. from 1987 to
1988. His address is One California
Street, Suite 1550, San Francisco,
California 94111.
Bruce M. Perry Chief Executive Officer, 1993 0 0%
Age: 54 New Management Strategies,
7081 N. Marks, Suite 186,
Fresno, California, since October
1996. Chief Executive Officer of
Community Hospitals of Central
California from October 1991 to
October 1996. From 1988 to
1991, Partner and Managing
Director of The Hunter Group,
consultants to hospitals and
other health care providers. His
address is 2445 Capital Street,
Fresno, California 93721.
Aviva R. Truesdell Senior Vice President of COHR, 45,227 .001%
Age: 50 Inc. since 1991; and Vice
President from 1986 to 1991. Her
address is 10211 Donna Avenue,
Northridge, California 91324
</TABLE>
None of the Trustees owned any shares in Cadre Financial, Cadre
Securities, AMBAC or the New Advisor during the fiscal year ended December 31,
1995, nor, up to and including the Record Date, have they owned any such
securities during fiscal year 1996.
12
<PAGE> 17
Four meetings of the Board of the Trustees were held between January
1995 and December 31, 1995. Each nominee who was a trustee during that period
attended at least 75% of the meetings of the Board of Trustees, with the
exception of J. Kendall Anderson, Joseph D.K. Diaz, Jr., Frank E. Gibson,
Robert L. Montgomery and Bruce M. Perry.
The Trustees receive no remuneration from the Trust or the Fund for
acting as such. However, the Independent Trustees may be reimbursed by the
Fund for expenses they incur in providing services to the Trust.
The Board has no standing committees.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased directly from the issuer
or from an underwriter or a market maker for the securities. Usually no
brokerage commissions are paid by the Fund for such purchases. Purchases from
underwriters of portfolio securities typically include a commission paid by the
issuer to the underwriter and the purchase price paid to market makers for the
securities generally includes a "spread" which represents compensation to the
market maker.
Currently, transactions are allocated to various dealers by Cadre
Financial in its best judgment. The primary considerations are prompt and
effective execution and orders at the most favorable price. Subject to those
primary considerations, dealers may be selected for research, statistical or
other services to enable Cadre Financial to supplement its own research and
analysis with the views and information of other securities firms. Securities
transactions are not directed to securities firms in consideration of sales of
Fund shares.
Under the New Advisory Agreement, the New Adviser will be responsible
for placing orders for the purchase and sale of portfolio securities for the
Fund and will do so in a manner deemed fair and reasonable to shareholders of
the Fund and consistent with the practices of CFS described above.
During the fiscal year ended December 31, 1995, the Trust did not pay
any brokerage commissions.
DEADLINE FOR SHAREHOLDER PROPOSALS
The Trust does not hold regularly scheduled annual meetings of
shareholders. Any shareholder desiring to present a proposal for inclusion at
the next meeting of shareholders should submit such proposal to the Trust.
13
<PAGE> 18
OTHER MATTERS
The management of the Trust knows of no other matters which are to be
brought before the Meeting. However, if any other matters not now known or
determined properly to come before the Meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote such Proxy in accordance
with their best judgment on such matters.
All Proxies received will be voted in favor of all the proposals,
unless otherwise directed therein.
By order of the Board of Trustees,
J. MICHAEL GALLAGHER
Secretary
November 19, 1996
14
<PAGE> 19
EXHIBIT A
---------
================================================================================
--------------------------------------------
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
BETWEEN
HOSPITAL AND HEALTH FACILITIES TRUST
AND
AMBAC INVESTMENT MANAGEMENT, INC.
_______________, 1996
--------------------------------------------
================================================================================
<PAGE> 20
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DELIVERY OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Documents Delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 APPOINTMENT, DUTIES AND COMPENSATION . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Appointment as Adviser and Manager . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Investment Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Management Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Expenses Paid by AIMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Expenses Paid by Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Reimbursement of Expenses by AIMI . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 AIMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5 DURATION, TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Duration of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Certain Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 21
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
This Agreement, executed on July 10, 1992, is made by and between the
Hospital and Health Facilities Trust, a California trust (the "Trust"), on
behalf of its Portfolio known as the California Hospital and Health Facilities
Liquid Asset Fund (the "Fund"), and AMBAC Investment Management, Inc., a
[Delaware] corporation, ("AIMI"):
RECITALS
The Fund is a Portfolio under the Hospital and Health
Facilities Trust existing pursuant to a Declaration of Trust dated as
of February 12, 1992 made by the Hospital Council of Northern and
Central California;
The Trust is registered with the Securities and Exchange
Commission as an open-end, diversified investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the
Fund's Shares are registered under the Securities Act of 1933, as
amended; and
The Trust desires to avail itself of the experience,
resources, advice and assistance of AIMI and, subject to the
supervision of the Board of Trustees of the Trust, AIMI is willing to
undertake the duties and responsibilities hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DELIVERY OF DOCUMENTS
1.1 DOCUMENTS DELIVERED. The Trust has delivered, or will cause
to be delivered, to AIMI true and complete copies of the following documents
and all future amendments thereto:
(a) Declaration of Trust dated as of February 12, 1992;
(b) Certified resolutions of the Board of Trustees of the
Trust authorizing the appointment of AIMI as the
manager and investment adviser of the Fund pursuant
to this Agreement and approving this Agreement;
(c) Registration Statement of the Fund on Form N-1A (the
"Registration Statement"), including the
<PAGE> 22
Prospectus contained in Part A thereof (the
"Prospectus") and the Statement of Additional
Information contained in Part B thereof (the
"Statement of Additional Information"), all
amendments to the Registration Statement and the
current Prospectus and Statement of Additional
Information;
(d) Distribution Agreement between the Trust and AMBAC
Securities, Inc. ("AMBAC Securities") executed on
_______________, 1996;
(e) Custody Agreement between the Trust and Mellon Bank
N.A. (the "Custodian") dated July 10, 1992; and
(f) Certificate of the Secretary of the Trust setting
forth the names and specimen signatures of the
individuals authorized at the time of delivery of
such certificate to act on behalf of the Trust and
the Fund in connection with matters arising
hereunder.
ARTICLE 2
APPOINTMENT, DUTIES AND COMPENSATION
2.1 APPOINTMENT AS ADVISER AND MANAGER. The Trust hereby
appoints AIMI as the investment adviser and manager of the Fund on the terms
and for the period set forth in this Agreement, and AIMI hereby accepts such
appointment as set forth in this Agreement.
2.2 INVESTMENT ADVISORY SERVICES.
(a) Subject to the direction and control of the Board of
Trustees of the Trust, AIMI will manage the investment and reinvestment of the
assets of the Fund and will:
(i) maintain a continuous investment program for
the Fund;
(ii) determine what securities shall be purchased
or sold by the Fund;
(iii) arrange for the purchase and sale of
securities held in the portfolio of the Fund by
placing orders pursuant to its determinations either
directly with the issuer or with any broker or dealer
who deals in the securities in which the Fund
invests; and
2
<PAGE> 23
(iv) determine what portion, if any, of the Fund
shall be held uninvested.
(b) Any investment program maintained by AIMI under this
Agreement shall at all times conform to, and be in accordance with any
requirements imposed by: (i) the provisions of the 1940 Act, and the rules or
regulations thereunder, and all other applicable federal and state laws; (ii)
the provisions of the Declaration of Trust; (iii) any policies or
determinations of the Board of Trustees of the Trust as in effect from time to
time; and (iv) the investment objectives and policies of the Fund as reflected
in the Trust's Registration Statement, including the Prospectus and Statement
of Additional Information, as in effect from time to time. AIMI shall invest
the assets of the Fund in the manner provided above and shall have no duty or
responsibility with respect to the diversification of the assets of the Fund,
except with respect to the diversification of the assets as contemplated by the
Prospectus and Statement of Additional Information.
(c) AIMI shall give the Fund the benefit of its best
judgment and effort in rendering services hereunder, but shall not be liable
for any loss sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any security, whether or not such purchase,
sale or retention shall have been based upon (i) its own investigation and
research or (ii) upon investigation and research made by any other individual,
firm or corporation selected in good faith by AIMI. Nothing herein contained
shall, however, be construed to protect AIMI against any liability to the
Trust, the Fund or the holders of its outstanding securities by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and duties
under this Agreement. AIMI will be under no liability or obligation to anyone
with respect to any failure on the part of the Board of Trustees of the Trust
to perform any of its obligations under the Declaration of Trust or any
agreement affecting the Trust or under the terms of this Agreement or for any
error or omission whatsoever on the part of the Board of Trustees.
(d) The Fund will have the benefit of the investment
analysis and research, the review of current economic conditions and trends and
the consideration of investment policy now generally available to investment
advisory customers of AIMI. It is understood that AIMI will not use any inside
information pertinent to investment decisions undertaken in connection with
this Agreement that may be in its possession or in the possession of any of its
affiliates, nor will the Fund seek to obtain any such information.
3
<PAGE> 24
(e) AIMI shall maintain books and records with respect to
the securities transactions of the Fund and shall render to the Fund such
periodic and other reports as the Fund may reasonably request. AIMI shall
assist in the preparation of reports to shareholders and to the Securities and
Exchange Commission, and in all audits of the Fund. AIMI shall calculate the
net asset value of the Fund in accordance with the terms of the Registration
Statement, the Prospectus, the Statement of Additional Information and the
methods and policies adopted by the Board of Trustees of the Trust.
2.3 MANAGEMENT SERVICES. Subject to the direction and control of
the Board of Trustees of the Trust, AIMI shall:
(a) Assist in supervising all aspects of the Fund's
operations, other than those which are to be managed by the Custodian pursuant
to the Custodian Agreement;
(b) Act, in performing its duties as administrator, in
conformity with the Declaration of Trust, the Registration Statement,
Prospectus and Statement of Additional Information, the instructions and
directions of the Board of Trustees of the Trust and in compliance with all
applicable federal and state laws and regulations;
(c) Furnish to the Fund, at AIMI's sole expense, the
services of such persons competent to perform such administrative and clerical
functions as may be necessary from time to time in order to provide effective
administration of the Fund and maintain or provide for the maintenance of such
accounts, books and records as are required under this Agreement or reasonably
requested by the Board of Trustees of the Trust;
(d) Arrange for the preparation on behalf of the Fund of
any and all required Fund or Trust tax returns and reports to the Fund's
shareholders and the periodic amending of the Registration Statement,
Prospectus and Statement of Additional Information;
(e) Furnish to the Fund, at AIMI's sole expense, adequate
office facilities (which may be AIMI's own offices), data processing services,
clerical, accounting and bookkeeping services, stationery and office supplies
and all other necessary office equipment and related services;
(f) At least once each quarter, provide the Board of
Trustees of the Trust with a detailed evaluation of the performance of the Fund
based upon such factors as AIMI shall deem appropriate in light of its
knowledge and experience;
(g) Each fiscal quarter furnish to the Board of Trustees
of the Trust with a copy of the Fund's financial
4
<PAGE> 25
statements for the fiscal quarter most recently ended, furnish to the Board of
Trustees of the Trust and Fund's shareholders such financial statements and
other periodic reports as are required by applicable law, and furnish to the
Board of Trustees of the Trust such other reports and information as they may
from time to time reasonably request; and
(h) Act as transfer agent, dividend disbursing agent and
shareholder servicing agent for the Fund, without special compensation, in
accordance with the terms of a Transfer Agency Agreement between the Trust, on
behalf of the Fund, and AIMI.
2.4 COMPENSATION. The Trust agrees to pay to AIMI, and AIMI
agrees to accept, as full compensation for its services under this Agreement, a
fee, which shall be payable monthly and computed at an annual percentage rate
of the Fund's average daily net assets, in an amount equal to the following
percentages of such average daily net assets:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE
<S> <C>
Up to $250,000,000............. .4000%
$250,000,001 - $500,000,000 ... .3675%
$500,000,001 and above......... .3350%
</TABLE>
ARTICLE 3
EXPENSES
3.1 EXPENSES PAID BY AIMI. AIMI shall pay all of the costs and
expenses required to perform the services to be provided to the Fund pursuant
this Agreement.
3.2 EXPENSES PAID BY FUND. All expenses of the Fund not required
to be borne by AIMI pursuant to Section 3.1 shall be paid by the Fund,
including, but not limited to, the following:
(a) interest and taxes;
(b) expenses of Board of Trustees of the Trust (other
than those, if any, who are "interested persons" of AIMI (as defined by the
1940 Act);
(c) outside legal and audit expenses;
(d) fees and expenses of the Custodian or any successor
custodian;
(e) cost of insurance maintained by or for the Trust and
the Fund;
(f) expenses of preparing and filing (including filing
fees) amendments to the Registration Statement, the Prospectus
5
<PAGE> 26
and Statement of Additional Information, reports, notices and shareholders'
meeting material, and the costs of printing and mailing Prospectuses,
Statements of Additional Information, proxy statements and reports that are
sent to shareholders of the Fund;
(g) expenses incidental to holding meetings of the Fund's
shareholders; and
(h) such nonrecurring expenses as may arise, including
litigation affecting the Fund or the Trust, and the legal obligations which the
Fund may have to indemnify its officers and Board of Trustees with respect
thereto.
3.3 REIMBURSEMENT OF EXPENSES BY AIMI. During the period ending
December 31, 1997, and thereafter subject to revision or termination upon
ninety (90) days' written notice to the Fund, AIMI shall waive all or a portion
of its fees and take other action, to the extent necessary, to maintain the
Fund's annualized expenses (including management and distribution fees, but
excluding interest, taxes, brokerage commissions, and extraordinary expenses)
at not more than .85% of the average daily net assets of the Fund for any
fiscal year or for a portion of such year if this Agreement is terminated or
revised.
ARTICLE 4
LIMITATION OF LIABILITY
4.1 AIMI. AIMI shall not be liable for any error in judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or negligence on its part in the
performance of its duties or from reckless disregard by AIMI of its obligations
and duties under this Agreement; provided, the foregoing shall not limit AIMI's
liability to the Fund with respect to any breaches by AIMI of this Agreement.
4.2 TRUST. Article 5 of the Declaration of Trust contains
provisions limiting the liability of the Trustees, officers, employees and
agents of the Trust. The obligations of the Trust created hereunder are not
personally binding upon, nor shall resort be had to the property of, any of the
Trustees, officers, employees or agents of the Trust or of the Shareholders of
the Fund, and only that portion of the Fund property necessary to satisfy the
obligations of the Trust arising hereunder shall be bound or affected by the
operation of this Agreement.
4.3 INSURANCE. AIMI shall, at its expense, maintain policies of
insurance with limits of not less than one million dollars which provide
officer's and director's liability coverage
6
<PAGE> 27
and errors and omissions coverage. Upon request, AIMI shall provide evidence
that such insurance is in effect.
ARTICLE 5
DURATION, TERMINATION AND AMENDMENT
5.1 DURATION OF AGREEMENT. This Agreement shall become effective on
_______________, 1996; provided that it has been approved by a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act, and by
the vote of a majority of the members of the Board of Trustees who are not
parties to this Agreement or "interested persons" of any such party (as that
term is defined by the 1940 Act and the rules thereunder), cast in person at a
meeting of the Board of Trustees called for the purpose of voting on the
approval of this Agreement. This Agreement shall remain in effect for two
years from the date of its execution and shall continue from year to year
thereafter, but only so long as such continuance is approved at least annually
by the vote of a majority of the members of the Board of Trustees or by vote of
a majority of the outstanding voting securities of the Fund (as defined by the
1940 Act), and is in each case also approved by the vote of a majority of the
members of the Board of Trustees who are not parties to this Agreement or
"interested persons" of any such party (as that term is defined by the 1940 Act
and the rules thereunder), cast in person at a meeting called for such purpose.
This Agreement may be terminated at any time, without the payment of
any penalty, by AIMI or the Board of Trustees or by vote of a majority of the
Fund's outstanding voting securities, in each case, on sixty (60) days' written
notice. This Agreement shall automatically terminate in the event of its
"assignment," as defined by the 1940 Act and the rules thereunder.
5.2 AMENDMENTS, ETC. No provision of this Agreement may be waived,
amended or terminated as to the Fund except by an instrument in writing signed
by the Trust and AIMI and no amendment of this Agreement shall be effective
until approved by the Board of Trustees of the Trust in the manner required by
Section 5.1 and, if required by the 1940 Act, by vote of a majority of the
outstanding voting securities of the Fund.
ARTICLE 6
MISCELLANEOUS
6.1 CERTAIN RELATIONSHIPS. Nothing in this Agreement shall
prevent AIMI or any officer, director or employee thereof from acting as
investment adviser or manager for any other person, firm, corporation or entity
and shall not in any way limit or restrict AIMI or any of its directors,
officers, partners or
7
<PAGE> 28
employees or any of its affiliates or their respective directors, officers,
partners or employees from buying, selling or trading any investment
instruments for its or their own accounts or for the accounts of others for
whom it or they may be acting; provided, that AIMI represents that it will
undertake no activities which, in its judgment, will materially adversely
affect the performance of its obligations under this Agreement.
6.2 THIRD PARTIES. When dealing with third parties on behalf of
the Fund, AIMI shall include such recitals in written documents as may be
reasonably requested by the Trust regarding the limitation of liability of the
Board of Trustees, the Fund's shareholders, and the Trust's officers, employees
and agents to third parties.
6.3 CAPTIONS. The captions in this Agreement are included for
convenience of reference only and shall in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
6.4 SEVERABILITY. If any provision of this Agreement shall be
held invalid under any applicable statute or regulation or by a decision of a
court of competent jurisdiction, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
6.5 BINDING EFFECT. Except as otherwise provided in Article 5,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
6.6 NOTICES. Notices or consents of any kind required or
permitted under this Agreement shall be in writing and shall be deemed duly
delivered if delivered in person or if mailed, two (2) days following mailing
by certified mail, return receipt requested, postage prepaid to the appropriate
party as follows:
a. If to the Trust:
Hospital and Health Facilities Trust
c/o Hospital Council of Northern and
Central California
7901 Stoneridge Dr., Ste. 500
Pleasanton, California 94588
b. If to AIMI:
AMBAC Investment Management, Inc.
[905 Marconi Avenue
Ronkonkoma, NY 11779]
8
<PAGE> 29
or at such other address as may be specified by either party to the other in
the manner required under this Section 6.6.
6.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
6.8 APPLICABLE LAW. This Agreement shall be deemed to have been
executed in the State of California and the substantive laws of the State of
California shall govern the construction of this Agreement and the rights and
remedies of the respective parties hereto; provided, however, in the event of
any conflict between such laws and the 1940 Act, the provisions of the 1940 Act
shall govern.
6.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the authorized representatives of the parties
hereto have executed this Agreement as of the date first above written.
AMBAC INVESTMENT MANAGEMENT, INC.
By
-----------------------------------------
Its
-----------------------------------
HOSPITAL AND HEALTH FACILITIES TRUST
By
-----------------------------------------
Its
-----------------------------------
9
<PAGE> 30
Exhibit B
Information Regarding AMBAC Treasurers Trust
AMBAC Treasurers Trust ("ATT") is a registered investment company
which consists of three investment portfolios. The investment adviser of ATT
is AMBAC Investment Management, Inc. ("AIMI"). Two of the investment
portfolios of ATT are money market funds with investment objectives similar to
those of the Fund. Provided below is certain information regarding these
portfolios:
<TABLE>
<CAPTION>
Name of Portfolio Net Assets of the Fund at 9/30/96 Investment Advisory Fee
----------------- --------------------------------- -----------------------
(unaudited)
<S> <C> <C>
AMBAC U.S. Government $69.2 15% of the fund's average daily
Money Market Fund net assets. AIMI has voluntarily
agreed to waive its fees or to
absorb the fund's expenses to the
extent necessary to assure that
the ordinary operating expenses of
the fund do not exceed .20% of the
fund's average daily net assets.
AMBAC U.S. Treasury $26.2 15% of the fund's average daily
Money Market Fund net assets. AIMI has voluntarily
agreed to waive its fees or to
absorb the fund's expenses to the
extent necessary to assure that
the ordinary operating expenses of
the fund do not exceed .28% of the
fund's average daily net assets.
</TABLE>
The services provided by AIMI to ATT do not include administrative or transfer
agent services. These services are provided by a company that is not
affiliated with AMBAC, and additional fees are paid by the portfolios of ATT in
consideration of these services.
<PAGE> 31
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
(A PORTFOLIO OF HOSPITAL AND HEALTH FACILITIES TRUST)
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF THE TRUST FOR A SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER 26, 1996
The undersigned hereby appoints William K. Piche' and J. Michael
Gallagher, jointly and severally, as Proxies, with full power to appoint his or
her substitute, and hereby authorizes them to represent and to vote, as
designated below, all shares of California Hospital and Health Facilities Liquid
Asset Fund (the "Fund") held of record by the undersigned on November 8, 1996
the Meeting of Shareholders of Hospital Health and Facilities Trust (the Trust")
to be held November 26, 1996, and at any and all adjournments thereof, with
all the powers the undersigned would possess if personally present at such
meeting, and hereby revokes any proxies that may previously have been given by
the undersigned with respect to the shares covered hereby.
The Board of Trustees Recommends a Vote "FOR" each of the Proposals.
<TABLE>
<S> <C> <C> <C> <C>
1. Proposal to approve the New Advisory FOR AGAINST ABSTAIN
Agreement for the Fund. [ ] [ ] [ ]
2. Election of Trustees of the Trust. FOR all nominees WITHHOLD
(see reverse). listed below AUTHORITY
[ ] [ ]
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through the nominees name in the list below.)
Jay Hudson, J. Kendall Anderson, Allan H. Anderson, Elizabeth Suzanne
Curtis, Joseph D.K. Diaz, Frank E. Gibson, Robert L. Montgomery,
Bruce M. Perry and Aviva R. Truesdell.
3. In their discretion upon such other business as may properly be
brought before the meeting.
If this proxy is properly executed and returned, the shares represented hereby
will be voted in the manner directed herein, if not otherwise specified, this
proxy will be voted to elect each of the persons nominated as Trustees and FOR
Proposal 1.
Please date and sign below exactly as name appears on this Proxy. Executors,
administrators, trustees, etc. should give full title. If shares are held
jointly, each holder should sign.
- ----------------------------------
Name of Shareholder
- ----------------------------------
Authorized Signature
Title:
- ----------------------------------
Authorized Signature
Title:
Date:
----------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY DATE PROMPTLY USING THE ENCLOSED
ENVELOPE.
