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Registration No. 33-46137
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-effective Amendment No. [ ]
Post-effective Amendment No. [ 6 ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. [ 9 ]
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
(Exact name of Registrant as Specified in Charter)
7901 STONERIDGE DRIVE, SUITE 500
PLEASANTON, CALIFORNIA 94588
(Address of Principal Executive Office) (ZIP Code)
Registrant's Telephone Number: (510) 460-5444
William K. Piche
7901 Stoneridge Drive, Suite 500
Pleasanton, California 94588
(Name and Address of Agent for Service)
Copy to:
William G. Pusch
Davis Wright Tremaine
2600 Century Square, 1501 Fourth Avenue
Seattle, WA 98101-1688
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[x] on April 30, 1997 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485
[x] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
An indefinite number of shares has been registered by this Registration
Statement pursuant to Rule 24f-2 under the Investment Company Act of 1940. A
Form 24F-2 was filed on February 25, 1997 for the fiscal year ending December
31, 1996.
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CADRE NETWORK HEALTH
FINANCIAL SERVICES TRUST
CROSS-REFERENCE SHEET
Between Items Enumerated in Part A
of Form N-1A and Prospectus
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ITEM NUMBER LOCATION
OF FORM N-1A IN PROSPECTUS
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1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial Financial Highlights
Information
4. General Description The Trust; Eligible
of Registrant Participants: Description of
the Fund
5. Management of Fund Management of the Fund
6. Capital Stock and General Information
Other Securities
7. Purchase of Securities How to Invest in the Fund
Being Offered
8. Redemption or Redemptions
Repurchase
9. Pending Legal Proceedings *
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Between Items Enumerated in Part B
of Form N-1A and Statement of Additional Information
ITEM NUMBER LOCATION IN STATEMENT
OF FORM N-1A OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information *
and History
13. Investment Objectives Investment Objective and
and Policies Management Policies
14. Management of the Fund Management of the Fund
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<TABLE>
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15. Control Persons and Management of the Fund
Principal Holders of
Securities
16. Investment Advisory Management Agreement;
and Other Services Consulting Agreements
17. Brokerage Allocation Portfolio Transactions
and Other Practices
18. Capital Stock and Information About the Fund
Other Securities
19. Purchase, Redemption Determination of Net Asset
and Pricing of Value
Securities Being
Offered
20. Tax Status *
21. Underwriters Distribution Agreement
22. Calculation of Fund Performance
Performance Data
23. Financial Statements Financial Statements
</TABLE>
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* Omitted since answer is negative or inapplicable
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PART A - PROSPECTUS
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PROSPECTUS April 30, 1997
CADRE NETWORK HEALTH FINANCIAL SERVICES
LIQUID ASSET FUND
The Cadre Network Health Financial Services Liquid Asset Fund (the
"Fund") is an investment portfolio of the Cadre Network Health Financial
Services Trust (the "Trust"), which is an open-end, diversified management
investment company. The Fund operates as a money market mutual fund, with the
goal to provide as high a level of current income as is consistent with the
preservation of capital and liquidity. Investment in the Fund is limited to
investors who are either a hospital, health system, health facility, medical
group, health insuring organization, or other health care institution, provider
or payor.
Participants may invest or redeem shares at any time without charge or
penalty. Free and unlimited checkwriting redemption privileges are available to
Participants.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus sets forth concisely information about the Fund that a
person should know before investing. It should be read and retained for future
reference. Additional information about the Fund, contained in the Statement of
Additional Information dated April 30, 1997, has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus. For a free copy, write to the address or call the telephone number
listed under "General Information" in this Prospectus.
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TABLE OF CONTENTS
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EXPENSE SUMMARY ..................................................... 2
FINANCIAL HIGHLIGHTS ................................................ 3
THE TRUST; ELIGIBLE PARTICIPANTS .................................... 3
DESCRIPTION OF THE FUND ............................................. 3
HOW TO INVEST IN THE FUND ........................................... 6
REDEMPTIONS ......................................................... 7
SHAREHOLDER SERVICES ................................................ 8
MANAGEMENT OF THE FUND .............................................. 8
YIELD INFORMATION ................................................... 10
DISTRIBUTIONS AND TAXES ............................................. 10
GENERAL INFORMATION ................................................. 11
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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EXPENSE SUMMARY
The purpose of the following table is to assist you in understanding
the various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees (After Reimbursement)(1).............................. .37%
Other Expenses (After Reimbursement)(2)............................... .28%
Total Fund Operating Expenses (After Reimbursement)(3)................ .65%
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(1) Management fees are payable at an annual rate of .40% for the first
$250,000,000 of the average daily net assets, .3675% of the next
$250,000,000 of such assets, and .3350% of such assets in excess of
$500,000,000. Subject to revision or termination upon 90 days' notice to the
Fund, Cadre Financial Services, Inc. ("Cadre Financial") has agreed not to
impose all or a portion of its management fee and to take other action, to
the extent necessary, to maintain the annualized expenses at not more than
85% of average net assets of the Fund. While annualized expenses during
fiscal year 1996 were less than .85% of the Fund's average net assets, Cadre
Financial voluntarily waived a portion of its management fee. If such waiver
had not been in effect, Total Fund Operating Expenses would have been .68%
of average net assets, and the total expenses that an investor would pay on
a $1,000 investment, assuming a 5% annual return and redemption after one,
three, five and ten years, would be $6.97, $21.97, $38.51 and $87.67,
respectively.
(2) Other Expenses include custodian, legal, audit, reimbursement of
organizational expenses, insurance and trustee expenses paid to
non-interested parties. See "Management of the Fund--Trust Expenses."
(3) Based on the level of total Fund operating expenses listed above, total
expenses would be:
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EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period............................................ $6.66 $21.01 $36.82 $83.80
</TABLE>
The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be greater
or less than those indicated. While the example assumes a 5% annual return, the
Fund's actual performance will vary and may result in an actual return greater
or less than 5%. It also assumes annual operating expenses are at .65% of
average daily net assets, the actual expense level during fiscal year 1996. If
management fees are at an annual rate of .03% had not been waived, annual
operating expenses would have been .68% of average daily net assets.
Management fees are payable to Cadre Financial Services, Inc. ("Cadre
Financial") for managing the Fund's investments and business affairs and
distributing its shares. Cadre Financial has agreed to reimburse the Fund if
and to the extent that total operating expenses (including the management and
distribution fees, but excluding interest, taxes, and extraordinary expenses)
exceed an annual rate of .85% of the Fund's average daily net assets. Please
refer to footnote (1) above and "Management of the Fund" for further
information.
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FINANCIAL HIGHLIGHTS
The financial information in the table below for the years ended
December 31, 1995 and December 31, 1996 has been audited by Price Waterhouse
LLP, independent auditors, whose report for the year ended December 31, 1996 is
included in the Statement of Additional Information, and for the years ended
December 31, 1993 and December 31, 1994, and for the period November 1, 1992
(commencement of operations) through December 31, 1992 has been audited by KPMG
Peat Marwick LLP, independent auditors.
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YEAR ENDED DECEMBER 31,
------------------------------------------ PERIOD ENDED
1996 1995 1994 1993 DECEMBER 31, 1992
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Per Share Data:
Net asset value, beginning of period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income................................ 0.048 0.058 0.042 0.030 0.006
Less Distributions................................... (0.048) (0.058) (0.042) (0.030) (0.006)
------- ------- ------- ------- -------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return......................................... 5.00% 5.83% 5.83% 3.06% 0.54%*
Ratio to Average Net Assets (Annualized Basis):
Expenses, before reimbursement/waiver................ 0.68% 0.67% 1.24% 1.58% 3.40%
Expenses, net of reimbursement/waiver................ 0.65% 0.27% 0.26% 0.19% 0.00%
Net investment income, before reimbursement/waiver... 4.78% 6.05% 3.24% 1.61% (0.04%)
Net investment income, net of reimbursement/waiver... 4.81% 5.78% 4.22% 3.00% 3.36%
Net Assets at end of period (in thousands)........... $40,085 $41,864 $20,540 $ 8,914 $ 5,128
======= ======= ======= ======= =======
</TABLE>
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* Unannualized
THE TRUST; ELIGIBLE PARTICIPANTS
The Cadre Network Health Financial Services Trust (the "Trust") is a
California trust. The Fund is an investment portfolio of the Trust. Only
hospitals, health systems, health facilities, medical groups, health insuring
organizations, and other health care institutions, providers or payors are
eligible to invest in the Fund.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE. The objective of the Fund is to provide as high
a level of current income as is consistent with the preservation of capital and
liquidity. There an be no assurance that the Fund's investment objective will
be achieved. Securities in which the Fund will invest will be of high quality
and may not earn as high a level of current income as long-term or lower
quality securities which generally have less liquidity, greater market risk and
more fluctuation in market value.
MANAGEMENT POLICIES. To achieve its goal, the Fund invests in
short-term money market instruments, consisting exclusively of securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, time deposits and certificates of deposit, bankers'
acceptances, repurchase agreements and high grade corporate obligations,
including commercial paper, corporate bonds, and notes with remaining
maturities of 13 months or less.
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing its securities pursuant to Rule 2a-7 under the Investment
3
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Company Act of 1940, certain requirements of which are summarized in the
following paragraphs. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share. The Board of Trustees will
review the Fund's holdings to determine whether the net asset value calculated
by using available market quotations deviates from $1.00 per share. See
"Determination of Net Asset Value" in the Fund's Statement of Additional
Information.
The Fund is required to maintain a dollar-weighted average portfolio
maturity of 90 days or less and purchase only instruments having remaining
maturities of 13 months or less. It will invest only in U.S. dollar denominated
securities which present minimal credit risks, as determined in accordance with
procedures established by the Board of Trustees, and which are high-quality
securities. To be considered high quality, a security must be issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities;
or be rated in one of the highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization); or, if
unrated, be of comparable quality as determined in accordance with procedures
established by the Board of Trustees. No assets may be invested in securities
rated only in the second highest such rating category or, if unrated, only of
comparable quality. The nationally recognized statistical rating organizations
currently rating instruments of the type the Fund may purchase are Moody's
Investors Service, Inc., Standard & Poor's Corporation, Duff and Phelps, Inc.,
and Fitch Investors Services, Inc. Their rating criteria are described in the
Appendix to the Fund's Statement of Additional Information.
In addition, the Fund will not invest more than 5% of its total assets
in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that (i)
the Fund may invest more than 5% of its total assets in a single issuer for a
period of up to three business days in certain limited circumstances, (ii) the
Fund may invest in obligations issued or guaranteed by the U.S. government or
one of its agencies or instrumentalities without any such limitation, and (iii)
the limitation with respect to puts does not apply to unconditional puts if no
more than 10% of the Fund's total assets is invested in securities issued or
guaranteed by the issuer of the unconditional put. As to each security, these
percentages are measured at the time the Fund purchases the security. For
further information regarding the amortized cost method of valuing securities,
see "Determination of Net Asset Value" in the Fund's Statement of Additional
Information.
PORTFOLIO SECURITIES.
U.S. Government Securities. U.S. government securities are obligations
of, or are guaranteed by, the U.S. government, its agencies or
instrumentalities. These include bills, certificates or indebtedness, notes,
and bonds issued by the U.S. Treasury or by agencies or instrumentalities of
the U.S. government. Some U.S. government securities, such as Treasury bills
and bonds, are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. government to purchase
the agency's obligations, and others, such as those of the Student Loan
Marketing Association and the Federal Home Loan Mortgage Corporation, are
supported only by the credit of the instrumentality. While the U.S. government
provides financial support to U.S. government sponsored agencies or
instrumentalities, no assurance can be given that it will always do so since it
is not an obligation by law. The Fund will invest in such securities only when
the Fund is satisfied that the credit risk with respect to the issuer is
minimal. Also, U.S. government obligations and guaranteed obligations will have
fluctuating market values.
<PAGE> 9
Time Deposits. Time deposits are non-negotiable deposits maintained in
a banking institution for a specified period of time (in no event longer than
seven days) at a stated interest rate.
Certificates of Deposit. Certificates of deposit are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time.
Bankers' Acceptances. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligations both of the bank and of the drawer
to pay the face amount of the instrument upon maturity.
Repurchase Agreements. Repurchase agreements involve the acquisition
by the Fund of an underlying debt instrument, subject to an obligation of the
seller to repurchase, and the Fund to resell, the instrument at a fixed price.
The Fund's custodian will have custody of, and will hold in a segregated
account, securities acquired by the Fund under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Fund. In an attempt to reduce the risk
of incurring a loss on a repurchase agreement, the Fund will enter into
repurchase agreements only with domestic banks with total assets in excess of
one billion dollars or primary government securities dealers reporting to the
Federal Reserve Bank of New York with respect to securities of the type in
which the Fund may invest, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease
below resale price. Cadre Financial will monitor on a daily basis the value of
the collateral to assure that it always equals or exceeds the repurchase price.
Certain costs may be incurred by the Fund in connection with the sale of the
securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, realization on the securities by the
Fund may be delayed or limited. Cadre Financial will consider on an ongoing
basis and in accordance with guidelines established by the Board of Trustees
the creditworthiness of the institutions with which the Fund enters into
repurchase agreements.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund may consist of direct obligations issued by
domestic and foreign entities.
Corporate Bonds. Corporate bonds and medium term notes are normally
unsecured debt obligations of the issuer with original terms to maturity in
excess of one year. However, the Fund will not purchase any such corporate
obligations which have a remaining maturity in excess of 13 months. The Fund
will not invest in floating or variable rate demand obligations or in
securities that are not readily marketable.
Lending of Securities. Security loan transactions involve the lending
of securities to a broker-dealer or institutional investor for its use in
connection with short sales, arbitrages, or other securities transactions. Loans
of securities will be made in strictest conformity with applicable federal and
state rules and regulations. Since there may be delays in recovery of loaned
securities or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to firms deemed by Cadre Financial to
be of good standing and will not be made unless, in the judgment of Cadre
Financial, the consideration to be earned from such loans would justify the
risk.
CERTAIN FUNDAMENTAL POLICIES. The Fund (i) will not borrow money in an
amount that exceeds 33 1/3% of the value of the Fund's total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made, but
within such limit will borrow from banks only for temporary or emergency (not
leveraging or investment) purposes or by engaging in reverse repurchase
agreements (and when borrowings exceed 5% of the value of the Fund's
5
<PAGE> 10
assets, the Fund will not make any additional investments); (ii) will not
pledge its assets in an amount which exceeds 33-1/2% of the value of its total
assets, and within such limit will pledge assets only to secure borrowings for
temporary or emergency purposes; (iii) will not invest more than 10% of its
total assets in repurchase agreements not entitling the holder to payment of
principal and interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the absence of a
readily available market; (iv) except in the case of securities issued or
guaranteed by the U.S. Government, will not invest more than 5% of its total
assets in the securities of any one issuer; (v) will not lend any security or
make any other loan if, as a result, more than 33-1/2% of the Fund's total
assets would be lent to other parties, except (a) through the purchase of a
portion of an issue of debt securities in accordance with its investment
objective, policies and limitations, or (b) by engaging in repurchase
agreements with respect to portfolio securities; and (vi) under normal
conditions, may invest more than 25% of its total assets in obligations issued
by domestic banks, and may invest up to 2% of its total assets in the
securities of issuers in a single industry, provided that there is no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. This paragraph described certain
fundamental policies of the Fund which cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940) of
the Fund's outstanding voting shares. See "Investment Objective and Management
Policies" in the Statement of Additional Information for other fundamental
policies of the Fund.
The Fund attempts to increase yields by trading to take advantage of
short-term market variations. This policy is expected to result in high
portfolio turnover but should not adversely affect the Fund since the Fund
usually does not pay brokerage commissions when it purchases short-term debt
obligations. The value of the portfolio securities held by the Fund will vary
inversely to changes in prevailing interest rates. Thus, if interest rates have
increased from the time a security was purchased, such security, if sold, might
be sold at a price less than its purchase cost. Similarly, if interest rates
have declined from the time a security was purchased, such security, if sold,
might be sold at a price greater than its purchase cost. In either instance, if
the security was purchased at face value and held to maturity, no gain or loss
would be realized.
RISK FACTORS. The Fund's portfolio will be affected by general changes
in interest rates which will result in increases or decreases in the value of
the securities held by the Fund. The market value of the securities in the
Fund's portfolio can be expected to vary inversely to changes in prevailing
interest rates. Investors also should recognize that, in periods of declining
interest rates, the Fund's yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates, the Fund's
yield will tend to be somewhat lower. Also, when interest rates are falling,
the inflow of net new money to the Fund from the continuous sale of its shares
will likely be invested in portfolio instruments producing lower yields than
the balance of its portfolio, thereby reducing the Fund's current yield. In
periods of rising interest rates, the opposite can be expected to occur. In
addition, securities in which the Fund may invest may not yield as high a level
of current income as might be achieved by investing in securities with less
liquidity and safety and longer maturities. The risks associated with lending
portfolio securities, as with other extensions of credit, consist of possible
loss of rights in the collateral should the borrower fail financially. To the
extent the Fund invests in obligations of foreign entities, there may be
additional risks including future unfavorable political and economic
developments, possible withholding taxes or other governmental restrictions
which might adversely affect payment of principal or interest. Also, less
public information may be available about foreign entities.
HOW TO INVEST IN THE FUND
ELIGIBILITY FOR PARTICIPATION. Only hospitals, health systems, health
facilities, medical groups, health insuring organizations, or other health care
institutions, providers or payors are eligible to invest in the Fund.
6
<PAGE> 11
INVESTING IN THE FUND. An initial investment in the Fund must be
preceded or accompanied by a properly completed registration form. A properly
completed registration form must be on file when making a redemption from an
account. Registrations should be forwarded to:
Cadre Financial Services, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
Participants may make an investment into their Fund account by the
following two methods:
- Wire Transfer -- Participants will begin earning on their investment
the same day by calling the Fund's toll-free number 1-800-221-4524,
EXT 2, by 12:00 noon New York Time provided the Fund's custodian bank
receives the wire transfer through the Federal Reserve Wire System
prior to its close that day.
- Depository Transfer Check (DTC) or Automated Clearing House Credits
(ACH) -- Participants will begin earning on their investment the
following day by calling the Custodian's toll-free number
1-800-245-6524 by 5:00 p.m. New York Time, and requesting an
investment through the use of a DTC or ACH instrument.
No minimum investment is required for wire transfers, DTC's or ACH's.
Participants making investments by use of an ACH or DTC may not redeem
such investments for a period of five business days following the deposit. If a
participant desires earlier withdrawal privileges, the Fund recommends use of
the Federal Reserve Wire System.
REDEMPTIONS
GENERAL. Participants may request redemption of shares at any time.
Redemptions requests should be transmitted to Cadre Financial Services, Inc.,
905 Marconi Avenue, Ronkonkoma, New York 11779. When a request is received in
proper form, the Fund will redeem the shares at the next determined net asset
value. Written redemption requests must be signed by an authorized person noted
on the registration form.
Redemption proceeds of $10,000 or more will be wired to any member bank
of the Federal Reserve System, for deposit in a Participant's account, in
accordance with the redemption request. Amounts under $10,000 will be paid by
check.
CHECK REDEMPTION PRIVILEGE. Participants may use the Fund's unlimited
checkwriting services by filling out Form B (Checkwriting Authorization Form)
and signing the two custodian bank signature cards. Participants may issue
checks in any dollar amount. Checks will be honored only if they are properly
signed by a person authorized on the signature card. There is a charge for
stop-payments or if the Fund cannot honor a redemption check due to
insufficient funds or other valid reasons. Checkwriting privileges may be
modified or terminated at any time by the Fund.
REDEMPTION BY WIRE OR TELEPHONE. Shares may be redeemed by wire or
telephone as long as the person requesting such withdrawal has been authorized
on the registration form. Wire or telephone requests will be honored the same
day as long as the Fund is notified by 12:00 noon New York Time (earnings stop
the same day). The redemption proceeds will be wired to the participant's
authorized bank account, so long as the amount is $10,000 or more. If less, a
check will be issued in payment for the redemption. No charge is imposed for
wiring redemptions proceeds.
<PAGE> 12
In order to assure that a person requesting a share redemption by
telephone is authorized by a participant, the Fund will wire redemption proceeds
only to bank accounts previously specified by the participant on its
registration form. If the Fund fails to follow these confirmation procedures, it
could be liable for losses due to unauthorized or fraudulent telephone
redemption instructions.
REDEMPTION BY AUTOMATED CLEARING HOUSE (ACH). Shares may be redeemed by
use of an ACH as long as the person requesting the ACH debit is authorized on
the registration form. A participant may call the Fund's toll-free number
1-800-221-4524, EXT 2, by 5:00 p.m. New York Time, and request an ACH
withdrawal. Such withdrawal will become effective the following business day and
will be in the Participant's designated bank account in "collected funds."
Earnings on the participant's account continue the day the withdrawal request is
initiated but stop the next business day. There is no minimum amount required on
an ACH redemption.
SHAREHOLDER SERVICES
Participants may open as many accounts with the Fund as they desire.
Each account may utilize the Fund's unlimited checkwriting services.
Participants may call the Fund's toll-free number 1-800-221-4524, EXT 2,
prior to 12:00 noon New York Time any business day to make an internal transfer
between their different Fund accounts the same day. (Earnings stop accruing in
the account the withdrawal is made from and start in the account receiving such
transfer.) Participants may call up to 5:00 p.m. New York Time to make an
internal transfer for the following business day. (Earnings continue to accrue
until the transfer takes place.)
Participants will receive a daily confirmation reflecting an opening
balance, activity and closing balance each day their account has activity. A
monthly statement will be sent to each participant within ten days after the end
of each month reflecting an opening share balance, all transactions for the
month and a closing share balance. In addition, the statement will reflect the
earnings for the month (also year-to-date) and capital gains for the year.
Participants will receive the Fund's unaudited financial statements
within 40 days after the end of each calendar quarter. Once a year,
participants will receive the Fund's audited annual financial statements.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees of the Trust is responsible
for the supervision of the management of the business and affairs of the Trust.
The Board of Trustees will perform duties and undertake responsibilities
similar to those of a board of directors of a corporation.
MANAGER AND INVESTMENT ADVISER. Cadre Financial Services, Inc.,
located at 905 Marconi Avenue, Ronkonkoma, New York 11779, serves as the Fund's
investment adviser and manager. Subject to the direction of the Board of
Trustees, 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. It is a subsidiary of AMBAC Inc., a leading insurer of municipal and
structured finance obligations and provider of investment contracts and
investment rate swaps to states, municipalities and municipal authorities.
AMBAC Inc. is a publicly held company whose shares are traded on the New York
Stock Exchange.
On December 31, 1996, AMBAC Investment Management, Inc. acquired certain
assets of the Fund's former adviser and manager and changed its name to Cadre
Financial Services, Inc. Since 1995, it has served as the investment adviser of
AMBAC Treasurers Trust, as registered investment company with three investment
portfolios (including two money market funds) and total assets of approximately
$100 million as of December 31, 1996. It also manages and is investment adviser
to collective, short-term investment programs for a number of local governmental
and municipal entities which had total assets of approximately $1.8 billion as
of December 31, 1996. None of these programs is registered under the Investment
Company Act of 1940 and prior to December 31, 1996 they were managed by the
Fund's former adviser and manager.
<PAGE> 13
Cadre Financial will be paid fees monthly for its services as investment
adviser and manager calculated as a percentage of the Fund's average daily
assets. Such fees are payable at an annual rate of .40% for the first
$250,000,000 of such assets, .3675% of the next $250,000,000, and .3350% of such
assets in excess of $500,000,000.
Subject to revision or termination upon 90 days' notice to the Fund,
Cadre Financial has agreed not to impose all or a portion of its management fee
and to take other action, to the extent necessary, to maintain the Fund's
aggregate operating expenses (excluding interest, taxes, and extraordinary
expenses) at an annual rate of not more than .85% of the average daily net
assets for any fiscal year. This has the effect of lowering the overall expense
ratio of the Fund and increasing the yield to the participants at the time such
amounts are reimbursed. The Fund will not pay Cadre Financial at a later time
for any operating expenses which have been previously reimbursed.
DISTRIBUTOR. Cadre Securities, Inc. ("Cadre Securities"), an
affiliate of Cadre Financial is the Fund's distributor. Its principal business
address is 905 Marconi Avenue, Ronkonkoma, New York, 11779.
CUSTODIAN. First Trust National Association, Pioneer Building, 6th
Floor, 336 North Robert Street, St. Paul, MN 55164 is the Fund's custodian. The
custodian takes no part in determining the investment policies of the Fund or
in deciding which securities are purchased are purchased or sold by the Fund.
TRANSFER AGENT. Cadre Financial Services, Inc. is the Fund's transfer
agent and dividend disbursing agent.
CONSULTANTS. Cadre Financial has entered into a Consulting Agreement
with SharePlus, Inc. ("SharePlus"). SharePlus is an affiliate of the Hospital
Council of Northern and Central California, which established the Trust. It
will provide management consulting, but not distribution or investment
advisory, services to Cadre Financial. Cadre Financial will pay SharePlus a
monthly consulting fee at an annual rate of .10% of the Fund's average daily
net assets for the first $250,000,000, .0925% of the next $250,000,000, and
..0850% of such assets in excess of $500,000,000. The Fund is not obligated to
pay these fees. During the year ended December 31, 1996, SharePlus
received consulting fees totalling $44,857.
SharePlus has the right to retain health care industry associations and
other persons to assist it in providing consulting services under the
Consulting Agreement, and may, in its discretion, pay, or direct Cadre
Financial to pay, to any such retained person a portion of the fees otherwise
payable to SharePlus under the Consulting Agreement. No such arrangements are
currently in effect.
TRUST EXPENSES. Pursuant to the Management and Investment Advisory
Agreement, Cadre Financial will pay all of the costs and expenses incurred to
provide to the Fund the management and investment advisory services, including
the expense of all employees and office space and facilities necessary to
provide such services and all brokerage fees and commissions. The Fund will pay
expenses not assumed by Cadre Financial, including insurance, interest and
taxes, expenses of those Trustees who are not "interested persons" Cadre
Financial or the Trust, legal and audit expenses and custodial fees.
9
<PAGE> 14
The Fund has made and will continue to make ratable reimbursement
payments of its organizational expenses during the period commencing February 8,
1995 and ending July 31, 1997. Since December 31, 1996 these payments have been
made to Cadre Financial.
YIELD INFORMATION
From time to time the Fund advertises its yield and effective yield.
Both yield figures are based on historical earning and are not intended to
indicate future performance. It can be expected that these yields will
fluctuate substantially. The yield of the Fund refers to the income generated
by an investment in the Fund over a seven-day period (which period will be
stated in the advertisement). This income is then annualized. That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52 week period and is shown as a percentage of the
investment. The effective yield is calculated similarly, but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The Fund's yield and
effective yield may reflect absorbed expenses pursuant to any undertaking that
may be in effect.
Yield information is useful in reviewing the Fund's performance, but
because yields will fluctuate, under certain conditions such information may
not provide a basis for comparison with domestic bank deposits, other
investments which pay a fixed yield for a stated period of time, or other
investment companies which may use a different method of computing yield.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., IBC/Donoghue's Money Fund Report and other industry
publications.
DISTRIBUTIONS AND TAXES
DIVIDENDS. The Fund declares dividends from net investment income daily
and pays such dividends monthly. The Fund intends to distribute substantially
all of its net investment income and capital gains, if any, to Participants
within each calendar year as well as on a fiscal year basis.
Dividends from the Fund will not normally qualify for the
dividends-received deduction available to corporations, since the Fund's income
is primarily derived from interest income and short-term capital gains.
Depending upon state law, a portion of the dividends attributable to interest
income derived from U.S. Government securities may be exempt from state and
local taxation. The Fund will provide information on the portion, if any, that
qualifies for this exemption.
CAPITAL GAIN DISTRIBUTIONS. The Fund may distribute short-term capital
gains once a year or more often as necessary to maintain its net asset value at
$1.00 per share or to comply with distribution requirements under federal tax
law. The Fund does not anticipate earning long-term capital gains on securities
held in its Portfolio.
FEDERAL TAXES. Dividends derived from net investment income and
short-term capital gains are taxable as ordinary income. Distributions are
taxable when paid, except that distributions declared in December and paid in
January are taxable as if paid on December 31, whether investors receive
distributions in cash or reinvest them in additional shares. The Fund will send
investors an IRS Form 1099-DIV by January 31 of each year showing their taxable
distributions for the prior calendar year.
10
<PAGE> 15
TAX STATUS OF THE FUND. The Fund intends to qualify as "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the Code), so that the Fund will not be liable for federal income or
excise taxes on net investment income or capital gains to the extent that these
are distributed to shareholders in accordance with applicable provisions of
the Code.
OTHER TAX INFORMATION. The information above is only a summary of some
of the federal tax consequences generally affecting the Fund and its
participants and no attempt has been made to discuss the participants' tax
consequences. In addition to federal taxes, participants may be subject to state
or local taxes on their investment. Participants should consult their tax
advisers.
When participants sign their registration form, they will be asked to
certify that their Social Security or Taxpayer Identification Number in correct
and that they are not subject to back-up withholding for failing to report
income to the IRS. If participants do not comply with IRS regulations, the IRS
can require the Fund to withhold 20% of distributions from their account.
GENERAL INFORMATION
The Trust was organized as a California trust under a Declaration of
Trust dated February 12, 1992 and commenced operations on November 1, 1992. The
Declaration of Trust permits the Board of Trustees to issue an unlimited number
of full and fractional shares and to create an unlimited number of investment
portfolios ("Portfolio") which may issue shares. The Fund does not intend to
issue share certificates. The Fund is the initial Portfolio of the Trust.
Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote of
shareholders. Shares have equal voting rights, except that shares of a
particular Portfolio are entitled to vote on matters affecting only that
Portfolio when required by the Investment Company Act of 1940 or the matter
affects an interest of less than all Portfolios. Shares do not have cumulative
voting rights.
Unless otherwise required by the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Trustees or the appointment of auditors. However, pursuant to the
Declaration of Trust, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Trustees to initiate a vote of shareholders as
to any matter with regard to which shareholders have a right to vote, including
a meeting for the purpose of removing the Trustees. The Trustees will call
a meeting of shareholders for the purpose of electing Trustees if, at any time,
less than a majority of the Trustees holding office at the time had been
elected by shareholders.
Cadre Financial maintains a record of share ownership and sends
investors confirmations and statements of account. Shareholder inquiries may be
made by writing to the Fund at 905 Marconi Avenue, Ronkonkoma, New York 11779,
or by calling 1-800-221-4524, EXT 2.
NO PERSON HAS BEEN AUTHORIZE TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUND'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
11
<PAGE> 16
MANAGER AND INVESTMENT ADVISER
AND 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
First Trust National Association
Pioneer Building, 6th Floor
336 North Robert Street
St. Paul, MN 55164
CONSULTANTS
SharePlus, Inc.
7901 Stoneridge Dr., Suite 500
Pleasanton, CA 94588
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
201 North Service Road
Melville, New York 11747
LEGAL COUNSEL
Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101-1688
======================================
PROSPECTUS
======================================
April 30, 1997
CADRE NETWORK HEALTH FINANCIAL SERVICES
LIQUID ASSET FUND
(800) 221-4524
[LOGO]
CADRE NETWORK HEALTH FINANCIAL SERVICES
LIQUID ASSET FUND
<PAGE> 17
PART B - STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 18
================================================================================
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read in conjunction
with the current Prospectus of the Cadre Network Health Financial Services
Liquid Asset Fund (the "Fund") , an investment portfolio of the Cadre Network
Health Financial Services Trust (the "Trust") dated April 30, 1997. To obtain a
copy of the Prospectus, please write to Cadre Financial Services, Inc. at 905
Marconi Avenue, Ronkonkoma, New York 11779 or call (800) 221-4524, Ext. 2. This
Statement of Additional Information is not a prospectus.
The Fund operates as a money market mutual fund which seeks to maintain
a stable net asset value of $1.00 per share and to provide as high a level of
current income as is consistent with the preservation of capital and liquidity.
Investors may invest or redeem shares at any time without charge or penalty.
Investment in the Fund is limited to investors who are either a hospital, health
system, health facility, medical group, health insuring organization, or other
health care institution, provider or payor.
An investment in the Fund is neither insured or guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
Cadre Financial Services, Inc. ("Cadre Financial") serves as the Fund's
investment adviser and transfer and dividend disbursing agent. Cadre
Securities, Inc. ("Cadre Securities"), an affiliate of Cadre Financial, is the
Fund's distributor.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES...................... 1
MANAGEMENT OF THE FUND............................................ 3
INVESTMENT ADVISORY AND MANAGEMENT SERVICES...................... 3
DISTRIBUTION AGREEMENT............................................ 6
CONSULTING AGREEMENTS............................................. 6
DETERMINATION OF NET ASSET VALUE.................................. 7
FUND PERFORMANCE.................................................. 8
PORTFOLIO TRANSACTIONS............................................ 10
INFORMATION ABOUT THE FUND........................................ 11
CUSTODIAN, COUNSEL AND INDEPENDENT AUDITORS....................... 12
INDEPENDENT AUDITORS' REPORT...................................... F-1
APPENDIX ......................................................... A-1
April 30, 1997
================================================================================
<PAGE> 19
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the Fund's assets that may be invested
in any security or other asset, or sets forth a policy regarding quality
standards, such standard or percentage limitation shall be determined
immediately after and as a result of the Fund's acquisition of such security or
other asset. Accordingly, any later increase or decrease beyond the specified
policy or limitation resulting from a change in values, net assets, or other
circumstances will not be considered when determining whether the investment
complies with the Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without
approval of a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940) of the Fund. However, except for the fundamental
investment limitations set forth below and those identified as such in the
Prospectus, the investment policies and limitations described in this Statement
of Additional Information and the Prospectus are not fundamental and may be
changed without shareholder approval.
The following and those described as "certain fundamental policies" in
the Prospectus are the Fund's fundamental investment limitations. The Fund may
not:
(1) Purchase common stocks, preferred stocks, warrants, other equity
securities.
(2) Borrow money, except (i) from banks for temporary or emergency (not
leveraging or investment) purposes or (ii) by engaging in reverse repurchase
agreements, provided that (i) and (ii) in combination ("borrowings") do not
exceed 33-1/3% of the value of the Fund's total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. When
borrowings exceed 5% of the value of the Fund's total assets, the Fund will not
make any additional investments.
(3) Sell securities short, or write or purchase put or call options.
(4) Underwrite the securities of other issuers or purchase securities
subject to restrictions on disposition under the Securities Act of 1933 (so
called "restricted securities").
(5) Purchase or sell real estate unless acquired as the result of
ownership of securities (but this shall not prevent the Fund from purchasing and
selling marketable securities issued by companies or other entities or
investment vehicles that deal in
1
<PAGE> 20
real estate or interests therein, nor shall this prevent the Fund from
purchasing interest in pools of real estate mortgage loans).
(6) Make loans to others, except through the purchase of debt
obligations and through repurchase agreements as described in the Prospectus.
(7) Purchase the securities of any issuer (other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of a single issuer, or it would own
more than 10% of the outstanding voting securities of a single issuer.
(8) Purchase the securities of any issuer (other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities) if, as result, more than 25% of the Fund's total assets would
be invested in the securities of issuers having their principal business
activities in the same industry, except that the Fund may invest more than 25%
of its assets in obligations issued by domestic banks.
While domestic branches of foreign banks may, under certain
circumstances, be considered domestic banks, the Fund does not currently intend
to invest in obligations issued by such branches. Should this policy be changed,
the Fund will invest only in instruments issued by those domestic branches which
are subject to the same regulation as United States banks.
Also, while foreign branches of domestic banks may, under certain
circumstances, be considered domestic banks, the Fund does not currently intend
to invest in obligations issued by such branches. Should this policy be changed,
the Fund's investment adviser must disclose that the investment risk associated
with investing in instruments issued by the foreign branch of a domestic bank is
the same as that of investing in instruments issued by a domestic parent, in
that the domestic parent would be unconditionally liable in the event that the
foreign failed to pay on its instruments for any reason.
(9) Invest in companies for the purpose of exercising control.
(10) Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets to
the extent permitted by Section 12(d)(1) of the Investment Company Act of 1940.
(11) Purchase or sell commodities or commodity contracts, including
futures contracts.
(12) Issue bonds or any other class of securities preferred over or
senior to shares of the Fund in respect of the Fund's
2
<PAGE> 21
assets or earnings, except that the Trust may establish additional series of
shares in accordance with its Declaration of Trust.
MANAGEMENT OF THE FUND
Trustees of the Fund, together with their ages and information as to
their principal business occupations during at least the last five years, are
shown below.
JAY HUDSON, CHAIRMAN AND TRUSTEE. President and Chief Executive 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 93940. Age 59.
J. KENDALL ANDERSON, TREASURER AND TRUSTEE. Chief Executive Officer of
John Muir Medical Center. His address is 1601 Ygnacio Valley Road, Walnut Creek,
California 94598. Age 53.
ALAN H. ANDERSON, TRUSTEE. President, South Coast Health Care
Management, Inc. His address is 3901 E. 4th Street, Long Beach, California
90814. Age 53.
ELIZABETH S. CURTIS, TRUSTEE. Executive Director of Sharp Community
Medical Group since 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. Age 38.
JOSEPH D.K. DIAZ, JR., TRUSTEE. Regional Director, California
Association of Health Facilities since 1984. His address is 1140 Wall Street,
P.O. Box 370, La Jolla, California 92038. Age 47.
FRANK E. GIBSON, TRUSTEE. Chief Executive Officer of Sequoia Health
Care District since 1996. President and Chief Executive Officer of Hospital
Consortium of San Mateo County from 1981 until 1996. His address is 1600
Trousdale Drive, Burlingame, California 94010. Age 54.
Trustees are reimbursed for expenses incurred to attend meetings of the
Board of Trustees and receive no attendance fees or other compensation.
INVESTMENT ADVISORY AND MANAGEMENT SERVICES
Cadre Financial Services, Inc. ("Cadre Financial"), with offices at 905
Marconi Avenue, Ronkonkoma, New York 11779, is the Fund's investment adviser and
manager. It is a wholly-owned subsidiary of AMBAC Capital Corporation which, in
turn, is a wholly-owned
3
<PAGE> 22
subsidiary of AMBAC Inc. Through its subsidiaries, AMBAC Inc. is a leading
insurer of municipal and structured finance obligations and a provider of
investment contracts and interest rate swaps to states, municipalities and
municipal authorities. AMBAC Inc. is a publicly held company whose shares are
traded on the New York Stock Exchange.
On December 31, 1996, AMBAC Investment Management, Inc. ("AIMI")
acquired certain assets of the Fund's former adviser and manager, changed its
name to Cadre Financial Services, Inc., and is now the Fund's investment adviser
and manager. Since 1995, AIMI 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
$100 million as of December 31, 1996. It also now manages and is investment
adviser to collective, short-term investment programs for a number of local
governmental and municipal entities as a result of its 1996 acquisition of
certain assets from the Fund's former investment adviser and manager. Those
programs, none of which are registered under the Investment Company Act of 1940,
had total assets of approximately $1.8 billion as of December 31, 1996.
Pursuant to a Management and Investment Advisory Agreement (the
"Advisory Agreement") with the Trust dated December 30, 1996, Cadre Financial
acts as investment adviser and, subject to the supervision of the Board of
Trustees, directs the investments of the Fund in accordance with its investment
objective, policies and limitations. Cadre Financial also acts as the Fund's
transfer and dividend disbursing agent. It provides the Fund with all necessary
office facilities and personnel for servicing the Fund's investments, and pays
the salaries of all personnel of Cadre Financial and its affiliates performing
services relating to research, statistical and investment activities. In
addition, Cadre Financial or its affiliates, subject to the supervision of the
Board of Trustees, provides the management and administrative services necessary
for the operation of the Fund, including transfer and dividend disbursing agent
services. These services include providing facilities for maintaining the Fund's
organization, supervising relations with custodians, accountants, and other
persons dealing with the Fund, preparing all general shareholder communications
and conducting shareholder relations, maintaining the Fund's records and the
registration of the Fund's shares under federal and state law, developing
management and shareholder services for the Fund and furnishing reports,
evaluations and analysis for the Board of Trustees.
Cadre Financial is responsible for the payment of expenses and costs
incurred to provide the Fund with management and investment advisory services,
brokerage fees and commissions in connection with the Fund's investments. The
expenses of the Fund which have not been assumed by Cadre Financial, including
4
<PAGE> 23
interest and taxes, expenses of those Trustees who are not "interested persons,"
legal and audit expense, custodial fees, insurance and expenses of preparing and
filing (but not printing and mailing) amendments to the Fund's registration
statements, reports, notices and meeting material to shareholders, are paid by
the Fund. Cadre Financial also provides portfolio and general accounting record
maintenance.
The Fund organizational expenses of $94,540 were paid by the Fund's
original investment adviser and manager. 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, the Fund's original investment adviser and manager was entitled
to be reimbursed for those expenses. Reimbursement payments have been, and will
continue to be, made ratably during the period that commenced February 8, 1995
and ends July 31, 1997. Since December 31, 1996, these reimbursement payments
have been paid to Cadre Financial.
The Advisory Agreement was approved by the Board of Trustees of the
Trust, including a majority of the Trustees who are not "interested persons " of
the Trust, as defined by the Investment Company Act of 1940 (the "Independent
Trustees"), at a meeting held in person on October 22, 1996. The Advisory
Agreement was also approved by the shareholders of the Fund at a meeting held on
November 26, 1996. The Advisory Agreement will continue in effect until December
30, 1998, and may be continued in effect from year to year thereafter upon the
approval of the Fund's shareholders or the Board of Trustees. Each annual
continuance also requires approval by a vote of a majority of the Independent
Trustees cast in person at a meeting called for the purpose of voting on such
continuance. The Advisory Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Trustees or by vote of a majority (as
defined n the Investment Company Act of 1940) of the outstanding shares of the
Fund, or by Cadre Financial, in each case on 60 days' written notice. The
Advisory Agreement will automatically terminate in the event of its assignment
(as defined in the Investment Company Act of 1940 and rules thereunder).
For the services of Cadre Financial under the Advisory Agreement, the
Fund pays Cadre Financial a monthly management fee at an annual rate of .40% of
the first $250,000,000 of its 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.
During the period ending December 31, 1997, and thereafter subject to
revision or termination upon 90 days' notice to the Fund, Cadre Financial has
agreed to not impose all or a portion of its management fee and to take other
action, to the extent necessary, to maintain the Fund's aggregate operating
expenses (excluding interest, taxes and extraordinary expenses) at an
5
<PAGE> 24
annual rate of not more than .85% of the average daily net assets for any fiscal
year or for a portion of such year if the Agreement is terminated or revised.
The Fund paid its original adviser and manager fees for advisory and
management services during the years ended December 31, 1996, 1995 and 1994 of
$163,284, $-0- and $-0-, respectively, pursuant to a Management and Investment
Advisory Agreement providing for management fees at the same rate as the current
Advisory Agreement. As described in the Prospectus, the Fund's former adviser
and manager waived certain portions of its management fees during some of those
years.
DISTRIBUTION AGREEMENT
Pursuant to a Distribution Agreement (the "Distribution Agreement")
with the Trust dated __________, 1997, Cadre Securities, an affiliate of Cadre
Financial, acts as the Fund's distributor . The Distribution Agreement was
approved by the Board of Trustees of the Trust, including the Independent
Trustees, at a meeting held in person on October 22, 1996. The Distribution
Agreement will continue in effect until __________, 1999, and may be continued
in effect from year to year thereafter upon the approval of the Fund's
shareholders or the Board of Trustees. Each annual continuance also requires
approval by a vote of a majority of the Independent Trustees cast in person at a
meeting called for the purpose of voting on such continuance. The Distribution
Agreement may be terminated at any time, without the payment of any penalty, by
the Board of Trustees or a majority (as defined in the Investment Company Act of
1940 ) of the outstanding shares of the Fund, or by Cadre Securities, in each
case on sixty (60) days' written notice. The Distribution Agreement will
automatically terminate in the event of its assignment (as defined in the
Investment Company Act of 1940 and rules thereunder).
Cadre Securities provides services under the Distribution Agreement in
consideration of the fees paid by the Fund to its affiliate, Cadre Financial,
for the advisory and management services provided pursuant to the Advisory
Agreement.
CONSULTING AGREEMENTS
Pursuant to a Consulting Agreement (the "Consulting Agreement") dated
December 30, 1996 between SharePlus, Inc. ("SharePlus") and Cadre Financial,
SharePlus provides management consulting, but not distribution or investment
advisory, services to assist Cadre Financial in providing management services to
the Fund. Cadre Financial, and not the Fund, pays fees to SharePlus as described
in the Prospectus.
The Consulting Agreement continues until terminated by SharePlus, which
it may do without payment of penalty on sixty
6
<PAGE> 25
(60) days' written notice. Cadre Financial may not terminate the Consulting
Agreement. The Consulting Agreement automatically terminates on the date that
the Advisory Agreement terminates.
DETERMINATION OF NET ASSET VALUE
The Fund's investments are valued on the basis of amortized cost. This
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in valuations
that are higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of the Fund, computed as described above, may tend to be higher than a
like computation made by a fund with identical investments using a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio instruments. Thus, if use of amortized costs by the Fund resulted in a
lower aggregate portfolio value on a particular day, a prospective investor in
the Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors in
the Fund would receive less investment income. The converse would apply in a
period of rising interest rates.
The valuation of the Fund's instruments based upon amortized cost and
the concomitant maintenance of the Fund's net asset value at $1 per share is
permitted in accordance with Rule 2a-7 under the Investment Company Act of 1940,
pursuant to which the Fund must adhere to certain conditions described in the
Prospectus under "Description of the Fund-Management Policies."
The Board of Trustees monitors adherence to SEC rules and regulations
concerning money market funds, and has established procedures designed to
stabilize, to the extent reasonably possible, the Fund's net asset value
calculated on the basis of amortized cost. The Trustees will review the Fund's
holdings, at such intervals as they deem appropriate, to determine whether the
net asset value calculated by using available market quotations deviates from
$1.00 per share and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. If the Trustees
determine that such a deviation exists, they have agreed to take such corrective
action, if any, as they deem necessary or appropriate, which may include selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity, withholding dividends, redeeming shares in
kind, or establishing net asset value by using available market quotations.
8
<PAGE> 26
FUND PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's yield and total return fluctuate
in response to market conditions and other factors.
YIELD CALCULATIONS. The seven day yield for the period ending December
31, 1996 was 4.65% and the effective yield for the same period was 4.76%.
The yield quotation based upon the foregoing seven day period was
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical preexisting account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return.
The base period return is then multiplied by (365/7), with the resulting yield
figure carried to the nearest hundredth of one percent.
Yield = ending value - beginning value x 365
------------------------------ ---
beginning value 7
The effective yield based upon the foregoing seven day period was
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical preexisting account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return.
The base period return is then compounded by adding 1, raising the sum to a
power of 365 divided by 7, and subtracting 1 from the result, with the resulting
effective yield figure carried to the nearest hundredth of one percent.
365/7
Effective Yield = [(Base Period Return + 1) ] -1
The net change in value used to compute yield and effective yield
reflects reinvested distributions, fees, and expenses. Yields fluctuate in
response to market conditions. The numbers quoted are historical and are not
intended to indicate future yields.
Yield information may be useful in reviewing the Fund's performance and
in providing a basis for comparison with other investment alternatives. However,
the Fund's yield fluctuates, unlike investments that pay a fixed interest rate
over a stated period of time. Yields for the Fund are calculated on the same
basis as other money market funds, as required by regulation.
8
<PAGE> 27
When comparing investment alternatives, investors should also note the quality
and maturing of the portfolio securities held by the respective investment
companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
the Fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the Fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the Fund from the continuous sale of its shares will likely be invested
in instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising interest
rates, the opposite can be expected to occur.
The Fund may quote unaveraged or cumulative total returns reflecting
the simple change in value of an investment over a stated period. Average annual
and cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of investments,
and/or a series of redemptions over any time period. Total returns may be broken
down into their components of income and capital (including capital gains and
changes in share price, if any) in order to illustrate the relationship of these
factors and their contributions to total return. Total returns, yields, and
other performance information may be quoted numerically or in a table, graph, or
similar illustration.
The Fund's performance may be compared in advertising to the
performance of other mutual funds in general or to the performance of particular
types of mutual funds, especially those with similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc. (Lipper), an independent service that monitors the
performance of mutual funds. The Lipper performance analysis ranks funds on the
basis of total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared without
regard to tax consequences. In addition to performance rankings, the Fund may
compare its total expense ratio to the average total expense ratio of all money
market funds as tracked by Lipper. A fund's total expense ratio is a significant
factor in comparing money market investments because of its effect on net yield.
The Fund may also compare its performance to several products offered
by banks. Unlike the Fund, certain bank products such as Money Market Deposit
Accounts, Super NOW Accounts, and Certificates of Deposit are insured by the
Federal Deposit Insurance Corporation. The Fund may compare its yield, both the
7-day annualized current yield and the effective yield, to those of Money Market
Accounts, Super NOW Accounts, and Certificates of Deposit quoted in the Bank
Rate Monitor National Index, an average of the quoted rates for 100 leading
banks and
9
<PAGE> 28
thrifts in 10 U.S. cities, chosen to represent the 10 largest Consumer
Metropolitan Statistical Areas. In addition, the Fund may compare its yield to
the Auction Average Discount Rate for 182-day Treasury Bills. Six-month Treasury
Bills are issued at a discount from their face value in weekly auctions.
Consequently, their yield is quoted as a yield to maturity reflecting the
accretion of the discount as the bill matures. The Fund may also compare its
yield to the Federal Funds rate, which is the interest rate that banks charge
each other for overnight loans through the Federal Reserve System to meet
reserve requirements. Both the yield on 6-month Treasury Bills and the Federal
Funds rate are considered to be sensitive indicators of interest rates trends.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased directly from the issuer
or 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 include a concession paid by the issuer to the
underwriter and the purchase price paid to market makers for the securities may
include the spread between the bid and asked price.
Transactions are allocated to various dealers by Cadre Financial in its
best judgment. The primary consideration is prompt and effective execution of
orders at the most favorable price. Subject to that primary consideration,
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 or of shares of
other funds advised by Cadre Financial.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by Cadre Financial in advising other funds
it advises and, conversely, research services furnished to Cadre Financial by
brokers in connection with other funds Cadre Financial advises may be used by
Cadre Financial in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of Cadre Financial that the
receipt and study of such services should not reduce the overall expenses of its
research department.
10
<PAGE> 29
INFORMATION ABOUT THE FUND
The Fund is a portfolio of the Cadre Network Health Financial Services
Trust, which was organized as a California trust on February 12, 1992, and
commenced operations on November 1, 1992. In 1997, its name was changed from
Hospital and Health Facilities Trust to Cadre Network Health Financial Services
Trust. The Declaration of Trust permits the Board of Trustees to create
additional series (portfolios), each of which will issue a separate class of
shares. At this time, the Fund is the only portfolio that has been created. The
assets of the Trust received for the issue or sale of the shares of each
portfolio and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such portfolio, and
constitute the underlying assets of such portfolio. The underlying assets of
each portfolio are segregated on the books of account, and are to be charged
with the liabilities with respect to such portfolio and with a share of the
general liabilities of the Trust. Expenses with respect to the portfolios are to
be allocated in proportion to the net assets of the respective portfolios except
where allocations of direct expense can otherwise be fairly made. The Board of
Trustees has the power to determine which liabilities are allocable to a given
portfolio, or which are general or allocable to all of the portfolios. In the
event of the dissolution or liquidation of the Trust, the holders of the shares
of each portfolio are entitled to receive as a class the underlying assets of
such portfolio available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. Under California law shareholders of
such a trust may, under certain circumstances, be held personally liable for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Declaration of Trust provides for indemnification out of the portfolios'
property of any shareholder held personally liable for the obligations of the
portfolios, and requires the Trust to reimburse a Shareholder for all legal and
other expenses reasonably incurred in connection with any liability. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which a portfolio itself would be
unable to meet its obligations. The Trust believes that, in view of the above,
the risk of personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of bad faith, willful misconduct, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
11
<PAGE> 30
VOTING RIGHTS. The Trust's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable, except as
set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the Trust's shares may, as set forth in
the Declaration of Trust, initiate a vote of Shareholders as to any matter with
regard to which Shareholders have a right to vote.
CUSTODIAN, COUNSEL AND INDEPENDENT AUDITORS
First Trust National Association, Pioneer Building, 6th Floor, 336
North Robert Street, St. Paul, MN 55164 is the Fund's custodian. The custodian
has no part in determining the investment policies of the Fund or which
securities are to be
purchased or sold by the Fund.
Davis Wright Tremaine, as counsel for the Fund, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares being sold pursuant to the Fund's Prospectus.
Price Waterhouse LLP, 201 North Service Road, Melville, New York 11747,
has been selected as the Fund's independent auditor for fiscal year
1997.
12
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
[TEXT TO COME]
F-1
<PAGE> 32
CALIFORNIA HOSPITAL AND HEALTH
FACILITIES LIQUID ASSET FUND
HOSPITAL AND HEALTH FACILITIES TRUST
3 Mellon Bank Center
Pittsburgh, PA 15259-0001
1-800-221-4524
ANNUAL REPORT
DECEMBER 31, 1996
Manager and
Investment Advisor: Cadre Financial Services, Inc.
Custodian: Mellon Bank, N.A.
Marketing Representative: Cadre Financial Services, Inc.
(through its affiliate Cadre Securities, Inc.)
Counsel: Davis Wright Tremaine
Independent
Accountants: Price Waterhouse LLP
<PAGE> 33
TO OUR PARTICIPANTS
Since its inception in April of 1993, the California Hospital and Health
Facilities Liquid Asset Fund ('CHHFLAF") has provided California health care
entities with high quality investment programs. During 1996, the Fund exceeded
$70 million in total assets and ended 1996 at just over $40 million in total
assets largely because of consolidations and mergers of hospital systems.
The professional support team which brings you this carefully managed investment
program remains in place with Cadre Financial Services, Inc., our investment
advisor and administrator; Cadre Securities, our marketing agent; Davis Wright
Tremaine, our legal counsel; Price Waterhouse LLP, our independent accountants,
and Mellon Bank, N.A. our custodian bank.
Your Trustees and professional team continue to regard safety of principal and
interest as the most important investment goal, followed by liquidity and
competitive yield. CHHFLAF is not permitted to borrow funds to leverage the
portfolio nor speculate in the futures options markets. The portfolio is valued
weekly and it must maintain a $1 net asset value.
Your Trustees ended 1996 by implementing several changes with an eye on
improving performance and growth of the Fund for 1997. The proxy solicited in
November 1996 provided the Trustees the ability to approve a new Investment
Advisory Agreement with Cadre Financial Services, Inc. after their purchase by
AMBAC, Inc., a triple A rated state and municipal bond insurer. Additionally,
the Trustees will be directing Cadre Financial Services, Inc. to merge CHHFLAF
with Cadre Network Health Financial Services Liquid Asset Fund, ("CNET") in
early 1997 to take advantage of the economies these combined Funds will provide.
Speaking for the Trustees and all those associated with CHHFLAF, we look forward
to serving you in 1997. It is our pledge to safely maximize your investment
returns and to help manage your financial resources for today and the future.
Sincerely,
Chairman Jay Hudson &
The Board of Trustees and Officers
<PAGE> 34
ANNUAL REPORT COMMENTS - DECEMBER 1996
The yield on the one year treasury bill increased 35 basis points for the twelve
month period from January 1996 to December 1996, as economic fundamentals hinted
of economic expansion and perceptions of future monetary policy shifted to Fed
tightening.
The Federal Reserve Board (the Fed) reduced interest rates from 5.50% to 5.25%
in January 1996, the only change in monetary policy during this period. The
Gross Domestic Product (GDP) fluctuated dramatically each quarter in the twelve
month period. The fourth quarter of 1995 GDP registered slow growth of .05%. The
first quarter GDP report indicated the economy expanded at a modest 0.6%. The
second quarter economic activity exhibited a strong rebound with a 4.7% growth.
The third quarter GDP growth was a moderate 2.0%, well within the Fed's comfort
zone of moderate economic growth without fear of inflation. However, fourth
quarter growth once again exhibited strength increasing at a 4.5% rate. Overall,
GDP for 1996 increased at a comfortable 2.1% pace. Annual inflation remained
benign as the Consumer Price Index (CPI) and Producer Price Index (PPI)
registered marginal increases 2.9% and 2.6% respectively.
Bond yields increased during the first quarter of 1996 as the investment
community anticipated the Fed's next move would be to raise interest rates but,
as the economic growth slowed and the wage pressure anticipated from the low
unemployment rate (5.2%) never materialized, yields reversed their earlier
increases. However, yields were higher at the end of 1996 than at the beginning
of the year..
The financial markets anticipated (correctly) that the results of the November
election would be a continuation of the status quo and responded positively to
this scenario. The prospects for a balanced budget are improving, with the
Republican Congress expected to contain the Democratic White House's spending
plans and the White House limiting Congress' ambition to cut taxes.
At the start of the period, our investment strategy focused on maintaining the
Fund's liquidity and keeping the weighted average maturity slightly bullish.
However, in late 1996, as economic data pointed to slower growth, the Fund's
weighted average maturity was extended to a more strongly bullish position.
We at Cadre will continue our efforts to successfully manage your investments
generating the highest possible returns while accomplishing our primary goals of
safety of principal and liquidity.
Cadre Financial Services, Inc.
<PAGE> 35
BOARD OF TRUSTEES
<TABLE>
<S> <C>
Alan H. Anderson South Coast Health Care Management, Inc.
Elizabeth Curtis Sharp Community Medical Group
Joseph D.K. Diaz (IP) California Association of Health Facilities
Frank E. Gibson Hospital Consortium of San Mateo County
Robert L. Montgomery Alta Bates Corporation
Bruce M. Perry Community Hospitals of Central California
Aviva Truesdell Center of Health Resources, Inc.
<CAPTION>
OFFICERS
<S> <C>
Chairman Jay Hudson
Executive Director William K. Piche (IP)
Treasurer J. Kendall Anderson
Secretary J. Michael Gallagher (IP)
</TABLE>
<PAGE> 36
Annual Report Comments - December 1996
During 1995, the economy expanded at a 2.7% annual rate. The Federal Reserve
(the Fed) deemed the economic expansion to be non-inflationary and targeted a
5.50% Federal Funds rate. Alan Greenspan, Chairman of the Federal Reserve Board,
seems to have succeeded in steering the economy on a sustainable growth path.
Late in the first quarter of 1995, the economy suffered a significant
contraction as consumers reduced spending. Consumer expenditures dropped off in
the late first and early second quarter, and this caused inventories to build.
The increasing inventories led to manufacturers scaling back production and
employment in an effort to reduce unwanted inventories. This led to Growth
Domestic Product (GDP) growth of 1.3%, well below the Fed's target of 2.5%. The
inventory correction prompted Mr. Greenspan to adopt a less restrictive policy
at the July Federal Open Market Committee meeting, lowering the Funds rate to
5.75%. The Fed lowered the Funds rate again in December 1995 to 5.50% as
inflation, as measured by the Consumer Price Index, continued to improve.
Although GDP slowed during 1995, Federal Reserve policy appears to be on track.
The economy has reduced out unwanted inventories and currently enjoys moderate
growth, low inflation, a stronger dollar and lower long term rates. This
environment can be attributed to increased productivity and globalization. These
factors hold additional significance because they should continue to keep
inflationary pressures at bay. These developments have led to a less restrictive
Fed policy and shifted attention to the deficit reduction proposals. Both the
Fed and Wall Street have reacted positively to the balanced budget proposals.
Mr. Greenspan has suggested support of the plan in the form of lower rates if a
balanced budget is passed. The bond market has reacted by driving rates to
levels not seen since 1994.
We positioned ourselves for the sustained rally which took place throughout the
year. The Fund's investments focused on longer maturity securities as further
rate reductions were anticipated.
Looking forward, we believe the economy will not reach its potential as the
consumer is in no condition to fuel an expansion. Moderate economic growth,
coupled with no inflation and anticipated fiscal drag from the budget plan, will
induce the Federal Reserve to ease further. We are going to continue to maintain
a bullish stance to take advantage of further market improvement and Federal
Reserve action.
We at Cadre will continue our efforts to successfully manage your investments,
generating the highest possible returns while accomplishing our primary goal of
safety of principal.
Cadre Consulting Services, Inc.
December, 1995
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
JANUARY 31, 1997
TO THE BOARD OF TRUSTEES AND PARTICIPANTS OF THE
CALIFORNIA HOSPITAL AND HEALTH FACILITIES LIQUID ASSET FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the California Hospital and Health
Facilities Liquid Asset Fund (the "Fund"), one of the portfolios constituting
the Hospital and Health Facilities Trust at December 31, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for the
years ending December 31, 1996 and 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996, by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above. The financial statements of the Fund for the years ended December 31,
1994 and 1993, and for the period November 1, 1992, (commencement of operations)
through December 31, 1992, were audited by other independent accountants whose
report dated February 17, 1995, expressed an unqualified opinion on those
statements.
<PAGE> 38
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal Yield to
Amount Description/ Maturity on Date Value
(in thousands) Maturity Date of Purchase (Note 2)
- -------------- -------------- ---------------- --------
<S> <C> <C> <C>
Commercial paper - (69.62%)
$ 1,000 Akzo Nobel, Inc. 5.56% $ 989,727
March 11, 1997
1,000 Bear Stearns Co., Inc. 5.50 985,572
April 9, 1997
1,000 CS First Boston 5.45 995,862
January 29, 1997
1,000 CS First Boston 5.51 989,727
March 11, 1997
1,000 Ciesco LP 5.55 998,032
January 14, 1997
1,000 Corporate Asset Funding Co., Inc. 5.62 983,953
April 17, 1997
1,200 Dean Witter Discover & Co. 5.90 1,195,747
January 23, 1997
2,000 Fingerhut Owner Trust 5.70 1,997,511
January 9, 1997
2,000 Ford Motor Credit Co. 5.44 1,993,805
January 22, 1997
1,500 General Electric Capital Services 5.51 1,495,050
January 23, 1997
1,000 Golden Peanut Co. 5.47 988,391
March 21, 1997
1,000 Goldman Sachs Group LP 5.49 992,407
</TABLE>
<PAGE> 39
February 21, 1997
<PAGE> 40
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal Yield to
Amount Description/ Maturity on Date Value
(in thousands) Maturity Date of Purchase (Note 2)
- -------------- ------------- ---------------- ----------
<S> <C> <C> <C>
Commercial paper - (continued)
$ 1,500 Hertz Corp. 5.65% $ 1,497,919
January 10, 1997
1,000 IBM Credit Corp. 5.44 997,050
January 21, 1997
1,000 Merrill Lynch & Co., Inc. 5.54 989,468
March 13, 1997
1,000 Merrill Lynch & Co., Inc. 5.58 972,366
July 7, 1997
1,500 National Rural Utilities Co-op Fin. Corp. 5.44 1,495,583
January 21, 1997
1,675 Preferred Receivables Co. 5.60 1,671,417
January 15, 1997
1,000 Procter & Gamble 5.44 996,010
January 28, 1997
1,000 San Paolo U.S. Financial Co. 5.68 995,458
January 31, 1997
1,000 San Paolo U.S. Financial Co. 5.58 993,339
February 14, 1997
1,000 Sandoz Corp. 5.43 996,761
January 23, 1997
1,700 Xerox Corp. 5.85 1,696,742
January 13, 1997
- -------- ----------
$28,075 Total commercial paper 27,907,897
======= ----------
</TABLE>
<PAGE> 41
(Amortized cost - $27,907,897)
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal Yield to
Amount Description/ Maturity on Date Value
(in thousands) Maturity Date of Purchase (Note 2)
- -------------- ------------- ---------------- ----------
<S> <C> <C> <C>
Bankers' acceptances -
(20.20%)
$ 1,200 Corestates Bank 5.59% $1,199,097
January 6, 1997
1,500 Fifth Third Bank 5.46 1,499,996
January 3, 1997
2,000 First Union - North Carolina 5.63 1,993,989
January 21, 1997
2,000 Morgan Guaranty Trust Co. NY 5.08 1,999,754
February 13, 1997
1,428 Nationsbank South 5.51 1,403,512
April 28, 1997
$ 8,128 Total bankers' acceptances 8,096,348
========= ------------
(amortized cost - $8,096,348)
U.S. Government agency
obligation - (2.50%)
$ 1,000 Federal Home Loan Mortgage Corp. 4.94 999,657
February 20, 1997
- ----------
$ 1,000 Total U.S. Government agency obligation 999,657
========== ------------
(amortized cost - $999,657)
</TABLE>
<PAGE> 42
(Amortized cost - $27,907,897)
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal Yield to
Amount Description/ Maturity on Date Value
(in thousands) Maturity Date of Purchase (Note 2)
- -------------- ------------- ---------------- --------
<S> <C> <C>
Securities purchased
under agreement to
resell - (7.41%)
$ 2,971 Lehman Government Securities 6.89% $ 2,971,000
6.80% dated December 31, 1996,
maturing January 2, 1997 to be
repurchased at $2,972,122, collateralized
by $2,700,000 in U.S. Treasury Bonds,
7.625%, due February 15, 2025, value
$3,074,625
(cost $2,971,000)
- --------- Total securities purchased under ------------
$ 2,971 agreement to resell 2,971,000
------------
Total investments - 99.73% $39,974,902
Cash and other assets in
excess of liabilities - .27% 109,966
------------
Net assets - 100.0% $40,084,868
------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 43
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
ASSETS
<TABLE>
<S> <C>
Investment in securities, at value (Note 2):
Commercial paper $27,907,897
Bankers' acceptances 8,096,348
U.S. Government agency obligation 999,657
Securities purchased under agreement
to resell 2,971,000
------------
Total investments 39,974,902
Cash 769,435
Deferred organization costs (Note 2) 13,151
Interest receivable 118,976
Other assets 14,752
------------
Total assets 40,891,216
------------
LIABILITIES
Cash received from participants pending
investment in Fund shares 749,794
Investment advisory fees payable 14,374
Custodian fee payable 12,710
Audit fee payable 12,500
Legal fees payable 1,886
Due to Cadre 15,084
-----------
Total liabilities 806,348
-----------
Commitments and contingent liabilities (Note 3)
NET ASSETS
Net assets (equivalent to $1.00 per share
of 40,084,868 shares of beneficial interest
outstanding) $40,084,868
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 44
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Investment income $ 2,648,404
-----------
Expenses (Note 3):
Manager and investment advisory fees 194,097
Custodian fees 57,854
Audit fees 12,500
Legal fees 10,062
Liability insurance 29,625
Amortization of deferred organization cost 21,560
Other expenses 4,309
------------
Total expenses 330,007
Less waived fees 16,438
-----------
Net expenses 313,569
-----------
Investment income - net and
net increase in net assets
resulting from operations $ 2,334,835
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 45
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
From operations: 1996 1995
---- ----
<S> <C> <C>
Investment income - net $ 2,334,835 $ 2,228,249
------------- -------------
Net increase in net assets
resulting from operations 2,334,835 2,228,249
Dividends and distributions
to participants (Note 4) (2,334,835) (2,228,249)
------------ -------------
- -
-------------- -------------
From transactions in shares of beneficial
interest (at $1 per share):
Proceeds from sales of shares 334,687,508 236,085,679
Net asset value of shares issued to
participants in reinvestment of
dividends and distributions 2,334,835 2,228,249
------------- ------------
337,022,343 238,313,928
Cost of shares repurchased (338,801,089) (216,990,699)
------------ -----------
Change in net assets derived from
transactions in shares of beneficial interest (1,778,746) 21,323,229
------------- -------------
Net (decrease)/increase in net assets (1,778,746) 21,323,229
Net assets:
Beginning of year 41,863,614 20,540,385
------------- -------------
End of year $ 40,084,868 $ 41,863,614
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 46
HOSPITAL AND HEALTH FACILITIES TRUST
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - DESCRIPTION OF THE FUND
The California Hospital and Health Facilities Liquid Asset Fund (the "Fund"),
was established on February 12, 1992, as a common law trust organized under the
laws of the state of California and is an investment portfolio of the Hospital
and Health Facilities Trust (the "Trust"), which is an open-end, diversified
management investment company registered under the Investment Company Act of
1940, as amended. Shares of the Fund are offered exclusively for hospitals,
health systems, health facilities, medical groups, health insuring
organizations, or other health care institutions, providers or payers. The
purpose of the Fund is to enable those organizations to pool their available
funds for investment. The Fund commenced operations on November 1, 1992.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Portfolio securities are valued at amortized cost, which approximates market
value.
ACCOUNTING FOR INVESTMENTS
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). In computing net investment income, the Fund amortizes any
premiums or discounts on securities owned. Gains or losses realized upon the
sale of such securities are based on their amortized cost and are determined on
the identified cost method. Interest accrued on securities purchased under
agreement to resell is included in interest receivable.
INVESTMENT TRANSACTION RESTRICTIONS
The Fund is not permitted to engage in the trading of investment instruments
with or through the Manager or Investment Advisor.
INCOME TAX STATUS
It is the Fund's policy to comply with the requirements of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its participants. Therefore, no
provision for Federal income taxes has been made.
<PAGE> 47
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Securities purchased under agreement to resell entered into with broker dealers
are secured by U.S. government or agency obligations. However, due to the
short-term nature of securities purchased under agreement to resell, the Fund
does not take possession of the collateral pledged, but is held by the
Custodian. Securities purchased under agreement to resell are collateralized at
102% of the obligation's principal and interest value to ensure that the value
of the underlying collateral is at least equal to the repurchase price. In the
event of default on the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines,
realization of the investment value by the Fund may be limited.
DEFERRED ORGANIZATION COSTS
Deferred organization costs are amortized on a straight line basis over five
years. Such organization costs have been advanced by the Manager and Investment
Advisor, Cadre Financial Services, Inc. ("Cadre"). The Fund will reimburse Cadre
for such costs ratably from February 8, 1995, through July 31, 1997.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates.
NOTE 3 - FUND EXPENSES
MANAGER AND INVESTMENT ADVISORY FEE
Pursuant to a Manager and Investment Advisory agreement with the Fund, the
Manager and Investment Advisor, Cadre provides investment advice and generally
supervises the investment program of the Fund. Cadre is paid a fee at an annual
rate of 0.40% of the first $250,000,000 of the Fund's average daily net assets,
0.3675% of the average net assets in excess of $250,000,000 but less than
$500,000,000 and 0.335% of the Fund's average daily net assets in excess of
$500,000,000. Such fee is calculated daily and paid monthly. On December 31,
1996, Cadre was acquired by AMBAC, Inc.
Cadre Securities, Inc. ("Cadre Securities"), an affiliate of Cadre, is the
Fund's transfer and dividend disbursing agent and distributor. The Fund is not
assessed fees for transfer agent services provided by Cadre Securities.
CONSULTING FEES
The Hospital Council of Northern and Central California Shared Services, Inc.,
an affiliate of the Hospital Council of Northern and Central California, which
established the Trust, provides management consulting services to Cadre. The
Fund is not obligated to pay these management consulting fees. No consulting
fees were paid during the year ended December 31, 1996.
<PAGE> 48
WAIVED FEES
For the period January 1, 1996 to March 31, 1996, Cadre waived a portion of its
manager and investment advisory fees for the Fund. Total waived fees were
$16,438.
OTHER FUND EXPENSES
The Fund pays out-of-pocket expenses incurred by its Trustees and officers (in
connection with the discharge of their duties), insurance for the Trustees, fees
of the Custodian, audit fees and legal fees.
NOTE 4 - DIVIDENDS AND DISTRIBUTIONS
On a daily basis, the Fund declares dividends and distributions from its net
investment income and net realized gains or losses from securities transactions,
if any. Such dividends and distributions are payable to participants of record
at the time of the previous computation of the Fund's net asset value.
NOTE 5 - SECURITIES TRANSACTIONS
During the year ended December 31, 1996, sales and purchases of U.S. Government
securities were $13,015,606 and $15,966,524, respectively.
<PAGE> 49
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding for each of the
four years ended in the period ended December 31, 1996, and for the period
November 1, 1992 (commencement of operations) through December 31, 1992, is as
follows:
<TABLE>
<CAPTION>
Period ended
Year ended December 31, December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income - net 0.048 0.058 0.042 0.030 0.006
Dividends and distributions
to participants (0.048) (0.058) (0.042) (0.030) (0.006)
------- ------ ------ ------ ------
Change in net asset value - - - - -
------- ------ ------ ------ ------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------ ------ ------ ------
Total investment return 5.00% 5.83% 4.11% 3.06% .054%*
Expenses, before
reimbursement/waiver 0.68% 0.67% 1.24% 1.58% 3.40%**
Expense net of
reimbursement waiver 0.65% 0.27% 0.26% 0.19% 0.00%**
Net investment income, before
reimbursement waiver 4.78% 6.05% 3.24% 1.61% (0.04%)**
Net investment income, net
or reimbursement/waiver 4.81% 5.78% 4.22% 3.00% 3.36%**
Number of shares outstanding
at end of year (in thousands) 40,085 41,864 20,540 8,914 5,128
</TABLE>
* - unannualized
** - annualized
<PAGE> 50
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER
RATINGS:
PRIME-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. Prime-1 repayment capacity
will normally be evidenced by the following characteristics:
- Leading market positions in well established
industries.
- High rates of return on funds employed.
- Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
- Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
PRIME-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or any an exceptionally
stable margin and principal is secure. While the various protective elements are
like to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
A-1
<PAGE> 51
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements:
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
A-2
<PAGE> 52
adverse effects of changes in circumstances and economic conditions.
BBB - Debt rated BBB is regarding as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS:
FITCH-1 - (Highest Grade) Commercial paper assigned this rating is
regarding as having the strongest degree of assurance for timely payment.
FITCH-2 - (Very Good Grade) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issues.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
AAA - Bonds of this rating are regarded as strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance, varying with the length of
maturity. Such bonds are mainly senior issues of strong companies, and are most
numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA bond is of showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter, such as a wide margin of
protection through collateral security or direct lien on specific property as in
the case of high-class equipment certificates or bonds that are first mortgages
on valuable real estate. Sinking funds or voluntary reduction of the debt, by
call or purchase are often factors, while guarantee or assumption by parties
other than the original debtor may influence the rating.
AA - Bonds in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits are
not greatly unlike those of the "AAA" class, but a bond so rated may be of
junior though strong lien - in many cases directly following an AAA bond - or
the margin of safety is strikingly broad. The issue may be the obligation of a
small company, strongly secured but influenced as to rating by the lesser
financial power of the enterprise and more local type of market.
A-3
<PAGE> 53
DESCRIPTION OF DUFF & PHELPS INC. COMMERCIAL PAPER RATINGS:
DUFF 1 - Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection factors. Risk factors
are minor.
DUFF 2 - Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing internal funds needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
DESCRIPTION OF DUFF & PHELPS INC. CORPORATE BOND RATINGS:
DUFF 1 - Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S.
Treasury debt.
DUFF 2, 3, 4 - High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A-4
<PAGE> 54
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial information is included in the Statement of
Additional Information which is Part B to this Registration Statement.
- Schedule of Investments as of December 31, 1996
- Statement of Assets and Liabilities as of December 31, 1996
- Statement of Operations for the year ended December 31, 1996
- Statements of Changes in Net Assets for the years ended
December 31, 1996, 1995 and 1994
- Financial Highlights for the years ended December 31, 1996,
1995 and 1994 , and the period November 1, 1992 through
December 31, 1992
- Report of Price Waterhouse LLP, independent auditors, dated
January 31, 1997
(b) Exhibits
(1) Amended and Restated Declaration of Trust dated March 14, 1997
(4) See Declaration of Trust (Item (1) above), Articles 2, 6 and 7
(5) Management and Investment Advisory Agreement dated December
30, 1996 between Hospital and Health Facilities Trust, on
behalf of its portfolio known as California Hospital and
Health Facilities Liquid Asset Fund, and AMBAC Investment
Management, Inc.
(6) Distribution Agreement dated __________, 1997 between Cadre
Network Health Financial Services, on behalf of its portfolio
known as Hospital and Health Facilities Liquid
Asset Fund, and AMBAC Securities, Inc. [To be filed by
amendment]
(8) Custodian Agreement dated __________, 1997 between Cadre
Network Health Financial Services Trust, on behalf of its
portfolio known as Cadre Network health Financial Services
Liquid Asset Fund, and
<PAGE> 55
First Trust National Association. [To be filed by amendment]
(9)(a) Transfer Agent Agreement dated December 31, 1996 between
Hospital and Health Facilities Trust, on behalf of its
portfolio known as Hospital and Health Facilities Liquid Asset
Fund, and AMBAC Investment Management, Inc.
(9)(b) Consulting Agreement dated December 30, 1996 between
SharePlus, Inc. and AMBAC Investment Management, Inc.
(10) Opinion and consent of Davis Wright Tremaine (Incorporated by
reference from Form N-1A, Amendment No. 3, filed on July 10,
1992)
(11) Consent of Price Waterhouse LLP, independent auditors
(13) Initial Share Purchase Agreement dated July 10, 1992
(Incorporated by reference from Form N-1A, Amendment No. 3,
filed on July 10, 1992)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
Registrant may be deemed to be controlled by Cadre Financial Services,
Inc., a Delaware corporation. Cadre Financial Services, Inc. is a
wholly-owned subsidiary of AMBAC Capital Corporation, a Delaware
corporation, which is in turn a wholly-owned subsidiary of AMBAC Inc.,
a Delaware corporation. Other persons who may deemed to be under common
control with Registrant include AMBAC Indemnity Corporation, a
Wisconsin stock insurance company, and HCIA Inc, a Maryland
corporation, both of which are subsidiaries of AMBAC Inc. and the
following (direct and indirect) subsidiaries of AMBAC Inc., each of
which is a Delaware corporation: AMBAC Capital Management, AMBAC
Investments, Inc., AMBAC Financial Services Holdings, Inc. and Cadre
Securities, Inc.
<PAGE> 56
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of February 1, 1997, the number of record holders of Fund Shares was
as follows:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C> <C>
Shares 46
</TABLE>
ITEM 27. INDEMNIFICATION
The provisions of Section 5.3 of Article 5 of the Declaration of Trust
filed herewith as Exhibit (1) are incorporated by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant by the Registrant pursuant to the Declaration
of Trust or otherwise, the Registrant is aware that in the opinion of
the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant for expenses incurred or paid
by trustees, officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or proceeding)
is asserted by such trustees, officers or controlling persons in
connection with the Units being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issues.
Registrant hereby undertakes that it will apply the indemnification
provisions of its Declaration of Trust in a manner consistent with
Release No. 11330 of the Securities and Exchange Commission under the
Investment Company Act of 1940 so long as the interpretations of
Sections 17(b) and 17(i) of the Investment Company Act of 1940 remain
in effect and are consistently applied.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Fund" in the Prospectus constituting Part A of
this Registration Statement and "Investment Advisory and Management
Services" in the Statement of
<PAGE> 57
Additional Information constituting Part B of this Registration
Statement.
The officers and directors of Cadre Financial and their business,
vocation or employment of a substantial nature in the past two fiscal
years are set forth below. Except as otherwise indicated, the principal
business address of each person is 905 Marconi Avenue, Ronkonkoma, New
York 11779.
<TABLE>
<CAPTION>
Other Substantial
Name and Principal Position with Business, Vocation
Business Address Cadre Financial or Employment
- ---------------- --------------- -------------
<S> <C> <C>
William T. Sullivan, Jr. Director and Chairman of None
the Board/Chief Executive
Officer
Francis X. Sullivan Director, President/Chief None
Operating Officer
Stephen A. Attanasio Director, Managing Director None
and Head of Investment
Advisory Services
Michael W. Kelly Director and Managing None
Director
Richard I. Bauer Managing Director None
568 High Street
Pottstown, PA 19464
Dolores O. Miller Managing Director None
Richard B. Gross Secretary None
One State Street Plaza
New York, NY 10004
Thomas J. Gandolfo First Vice President, None
One State Street Plaza Assistant Treasurer and
New York, NY 10004 Assistant Controller
Joan M. Restivo First Vice President None
Matthew L. Schroeder First Vice President and None
Chief Risk Compliance
Officer
Beth A. Smith First Vice President None
Paul E. Brody Vice President and Director None
One State Street Plaza of Operations
New York, NY 10004
Ralph T. Cianchetti Vice President None
Brian Clarke Vice President and None
Assistant Treasurer
George J. Dittenhoefer Vice President None
Roisin T. Kilgallen Vice President, Treasurer None
One State Street Plaza and Controller
New York, NY 10004
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
Other Substantial
Name and Principal Position with Business, Vocation
Business Address Cadre Financial or Employment
- ---------------- --------------- -------------
<S> <C> <C>
Richard Long Vice President None
One State Street Plaza
New York, NY 10004
Maureen Mollison Vice President None
David Nauss Vice President None
One State Street Plaza
New York, NY 10004
Evelyn R. Robertson Vice President and None
Portfolio Manager
Peter Smith Vice President None
Timothy P. Sullivan Vice President None
William M. Sullivan Vice President None
Richard Thierge Vice President None
Richard Alger Assistant Vice President None
One State Street Plaza and Assistant Controller
New York, NY 10004
Anthony Bastardi Assistant Vice President None
Doreen Mackie Assistant Vice President None
Brian Moran Assistant Vice President None
Adelade Sullivan Assistant Vice President None
Stephen D. Cooke Assistant Secretary None
Kevin P. Dolan Assistant Secretary None
Anne G. Gill Assistant Secretary None
One State Street Plaza
New York, NY 10004
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Cadre Securities, Inc., the Fund's principal underwriter, does
not act as a principal underwriter, depositor or investment
adviser to any other investment company registered under the
Investment Company Act of 1940. It does act as principal
underwriter for certain collective short-term investment
programs operated for local governmental and municipal
entities which are similar to investment companies, but are
not required to register under the Investment Company Act of
1940. See Item 28.
(b) Information with respect to directors and officers of Cadre
Securities, Inc. is set forth below. Except as otherwise
indicated, the principal business address of each person is
905 Marconi Avenue, Ronkonkoma, New York 11779.
<PAGE> 59
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address with Underwriter Registrant
- ---------------- ---------------- ----------
<S> <C> <C>
William T. Sullivan, Jr. Director and Chairman of None
the Board
Francis X. Sullivan Director and Vice Chairman None
of the Board
Stephen A. Attanasio Director, Managing Director None
and Head of Investment
Advisory Services
Michael W. Kelly Director and Managing None
One State Street Plaza Director
New York, NY 10004
Richard I. Bauer Managing Director None
568 High Street
Pottstown, PA 19464
Dolores O. Miller Managing Director None
Richard B. Gross Secretary None
One State Street Plaza
New York, NY 10004
Thomas J. Gandolfo First Vice President, None
One State Street Plaza Assistant Treasurer and
New York, NY 10004 Assistant Controller
Joan M. Restivo First Vice President None
Matthew L. Schroeder First Vice President and None
Chief Risk Compliance
Officer
Paul E. Brody Vice President and Director None
One State Street Plaza of Operations
New York, NY 10004
James E. Clark Vice President None
One Birch Street
Bayfield, WI 54814
Robert J. Cloherty Vice President None
2 Shady Lane
Pittsburgh, PA 15235
James J. Jacobs Vice President None
852 L. Johnson
St. Peter, MN 56082
Philip A. Johnson Vice President None
714 Lake Shore
Boulevard
Cheboygan, MI 49721
Roisin T. Kilgallen Vice President, Treasurer None
One State Street Plaza and Controller
New York, NY 10004
Richard Long Vice President None
One State Street Plaza
New York, NY 10004
David Nauss Vice President None
One State Street Plaza
New York, NY 10004
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address with Underwriter Registrant
- ---------------- ---------------- ----------
<S> <C> <C>
Evelyn R. Robertson Vice President and None
Portfolio Manager
Christopher A. Rohm Vice President None
35 Regency Circle
Gettysburg, PA 17325
Peter Smith Vice President None
James H. Strong Vice President None
2420 Camino Ramon
San Ramon, CA 94582
Timothy P. Sullivan Vice President None
William M. Sullivan Vice President None
Richard Thierge Vice President None
Richard Alger Assistant Vice President None
One State Street Plaza and Assistant Controller
New York, NY 10004
Brian Moran Assistant Vice President None
Stephen D. Cooke Assistant Secretary None
Kevin P. Dolan Assistant Secretary None
Anne G. Gill Assistant Secretary None
One State Street Plaza
New York, NY 10004
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The names and addresses of the persons maintaining physical possession
of the accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are as follows:
Cadre Financial Services, Inc.
905 Marconi Avenue
Ronkonkoma, NY 11779
First Trust National Association
Pioneer Building, 6th Floor
336 North Robert Street
St. Paul, MN 55164
ITEM 31. MANAGEMENT SERVICES
Not Applicable
<PAGE> 61
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a trustee or
trustees when requested in writing to do so by the holders of at least
10% of the Registrant's outstanding shares and in connection with such
meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pleasanton, State of California on the 25 day of
February, 1997.
CADRE NETWORK HEALTH
FINANCIAL SERVICES TRUST
By /s/ Jay Hudson
---------------------------------------
Its Chairman
By signing below, the following persons constitute and appoint Jay
Hudson or William K. Piche as their true and lawful attorneys-in-fact with full
power and authority to sign and post-effective amendments to this Registration
Statement and all other documents relating to this Registration Statement in
their stead as the following persons could do in their capacities listed below
if personally present; the following persons hereby ratify and confirm all that
each of Jay Hudson or William K. Piche shall lawfully do by virtue of this
appointment.
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Jay Hudson Chairman and Member of February 25, 1997
- ----------------------------- the Board of Trustees
(Jay Hudson) (Principal Executive
Officer)
/s/ J. Kendall Anderson Treasurer and Member of February 25, 1997
- ----------------------------- the Board of Trustees
(J. Kendall Anderson)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Alan H. Anderson Member of the Board of February 25, 1997
- ----------------------------- Trustees
(Alan H. Anderson)
/s/ Elizabeth S. Curtis Member of the Board of February 25, 1997
- ----------------------------- Trustees
(Elizabeth S. Curtis)
/s/ Joseph D.K. Diaz Jr. Member of the Board of February 25, 1997
- ----------------------------- Trustees
(Joseph D.K. Diaz Jr.)
/s/ Frank E. Gibson Member of the Board of February 25, 1997
- ----------------------------- Trustees
(Frank E. Gibson)
</TABLE>
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
(1) Amended and Restated
Declaration of Trust
(5) Management and Investment
Advisory Agreement
(6) Distribution Agreement [to
be filed by amendment]
(8) Custodian Agreement [to be
filed by amendment]
(9)(a) Transfer Agent Agreement
(9)(b) Consulting Agreement
(11) Consent of Price Waterhouse
LLP, independent auditors
</TABLE>
<PAGE> 1
EXHIBIT (1)
================================================================================
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST,
A CALIFORNIA TRUST
--------------------------------------
DECLARATION OF TRUST
(AMENDED AND RESTATED)
March 14, 1997
--------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 THE TRUST ....................................................... 1
1.1 Name............................................................. 1
1.2 Nature of Trust.................................................. 2
1.3 Definitions...................................................... 2
ARTICLE 2 PORTFOLIOS, SHARES OF BENEFICIAL
OWNERSHIP, ETC ................................................. 3
2.1 Authorized Shares............................................... 3
2.2 Powers, Preferences and Participations.......................... 4
2.3 Investment in the Trust......................................... 5
2.4 Status of Shares................................................ 5
2.5 No Certificates; Nontransferability of Interests................ 5
2.6 Redemption...................................................... 6
2.7 Exchange........................................................ 6
ARTICLE 3 VALUATION ...................................................... 7
ARTICLE 4 POWERS OF THE TRUSTEES ......................................... 7
4.1 General.......................................................... 7
4.2 Legal Title..................................................... 8
4.3 Disposition of Assets............................................ 8
4.4 Taxes............................................................ 8
4.5 Rights as Holders of Trust Property.............................. 8
4.6 Delegation; Committees........................................... 9
4.7 Collection....................................................... 9
4.8 Payment of Expenses.............................................. 10
4.9 Deposits......................................................... 10
4.10 Valuation....................................................... 10
4.11 Fiscal Year; Accounts........................................... 10
4.12 Concerning the Trust and Certain Affiliates..................... 10
4.13 Investment Program.............................................. 11
4.14 Power to Contract, Appoint, Retain and Employ................... 11
4.15 Insurance....................................................... 12
4.16 Indemnification................................................. 12
4.17 Remedies........................................................ 12
4.18 Further Powers.................................................. 13
ARTICLE 5 LIMITATIONS OF LIABILITY ....................................... 13
5.1 Liability to Third Persons....................................... 13
5.2 Liability to the Trust or the Participants....................... 13
5.3 Indemnification.................................................. 13
5.4 Surety Bonds..................................................... 15
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
5.5 Apparent Authority............................................... 15
5.6 Trust Obligations................................................ 15
5.7 Reliance on Experts, Etc......................................... 16
5.8 Liability Insurance.............................................. 16
ARTICLE 6 RECORD OF SHARES ................................................ 16
6.1 Share Register................................................... 16
6.2 Owner of Record.................................................. 16
6.3 No Transfers or Pledges of Shares................................ 17
6.4 Limitation of Fiduciary Responsibility........................... 17
6.5 Notices.......................................................... 17
ARTICLE 7 PARTICIPANTS .................................................... 17
7.1 Voting........................................................... 17
7.2 Meetings of Participants......................................... 18
7.3 Quorum........................................................... 18
7.4 Notice of Meetings............................................... 18
7.5 Record Date for Meetings and Votes............................... 18
7.6 Proxies, Etc..................................................... 19
7.7 Financial Records; Reports; Etc.................................. 19
7.8 Inspection of Records............................................ 20
ARTICLE 8 TRUSTEES AND OFFICERS ........................................... 20
8.1 Number........................................................... 20
8.2 Qualifications of Trustees....................................... 20
8.3 Term and Election................................................ 20
8.4 Resignation and Removal.......................................... 20
8.5 Vacancies........................................................ 20
8.6 Meetings......................................................... 21
8.7 Officers......................................................... 22
8.8 Bylaws........................................................... 22
ARTICLE 9 AMENDMENT OR TERMINATION OF TRUST;
DURATION OF TRUST ............................................... 22
9.1 Amendments to Declaration........................................ 22
9.2 Duration and Termination......................................... 22
ARTICLE 10 MISCELLANEOUS ........................................................ 23
10.1 Governing Law................................................... 23
10.2 Reliance by Third Parties....................................... 23
10.3 Provisions in Conflict with Law................................. 24
10.4 Gender; Section Headings........................................ 24
</TABLE>
ii
<PAGE> 4
DECLARATION OF TRUST
(AMENDED AND RESTATED)
THIS AMENDED AND RESTATED DECLARATION OF TRUST is made as of
_______________, 1997, by the Hospital Council of Northern and Central
California, a California nonprofit mutual benefit corporation (the "Declarant"):
W I T N E S S E T H:
WHEREAS, Declarant established and organized a California common law trust
pursuant to a Declaration of Trust made as of February 12, 1992 for the joint
investment of funds in order to enhance the investment opportunities available
to persons who are Eligible Participants and become Participants;
WHEREAS, the beneficial interest in the Trust's assets are divided into
non-transferable Shares of beneficial interest which are evidenced by a share
register maintained by the Trust or its agent;
WHEREAS, the Trust was being formed to act as an open-end, diversified
management investment company registered with the Securities and Exchange
Commission under the Investment Company Act of 1940; and
WHEREAS, Declarant desires to amend and restate the Declaration of Trust as
hereinafter set forth.
NOW, THEREFORE, Declarant hereby declares that all monies, securities, and
other property now or hereafter acquired pursuant to this Declaration of Trust
shall be held and managed in trust, upon the terms and conditions set forth in
this Amended and Restated Declaration for the proportionate benefit of the
holders of record from time to time of Shares of beneficial interest issued and
to be issued hereunder.
ARTICLE 1
THE TRUST
1.1 NAME. The name of the trust (the "Trust") created by this Declaration
of Trust shall be Cadre Network Health Financial Services Trust and, so far as
may be practicable, the Trustees shall conduct the Trust's activities under that
name. The name of the Trust (and the word "Trust" wherever used in this
Declaration, except where the context otherwise requires) shall refer to the
Trustees in their capacity as Trustees, and not individually or personally.
Should the Trustees determine that
<PAGE> 5
the use of such name is not legal or convenient, they may use such other
designation or they may adopt such other name for the Trust as they deem proper,
and the Trust may hold property and conduct its activities under such
designation or name. The Trustees shall have full and complete power to change
the name of the Trust at any time and from time to time, in their sole
discretion, without the vote of the Participants; provided, that notice of any
such change of name shall be promptly given to the Participants.
1.2 NATURE OF TRUST. The Trust shall be a common law trust organized and
existing under the laws of the State of California. The Trust is not intended to
be and shall not be deemed to be a general partnership, limited partnership,
joint venture, corporation, joint stock company or other entity. The
Participants shall be beneficiaries of the Trust, and their relationship to the
Trustees shall be solely in their capacity as Participants and trust
beneficiaries in accordance with the rights conferred upon them hereunder.
1.3 DEFINITIONS. As used in this Declaration of Trust, the following terms
shall have the following meanings unless the context hereof otherwise requires:
"AFFILIATE" shall mean, with respect to any Person, another Person directly
or indirectly controlling, controlled by or under common control with such other
Person, or any officer, director, partner or employee of such other Person.
"ASSETS BELONGING TO" a Portfolio shall have the meaning defined in Section
2.2(a).
"DECLARATION OF TRUST" shall mean this Amended and Restated Declaration of
Trust, as amended, restated or modified from time to time. References in this
Declaration of Trust to "Declaration", "hereof", "herein", "hereby" and
"hereunder" shall be deemed to refer to this Amended and Restated Declaration of
Trust and shall not be limited to the particular text, article or section in
which such words appear.
"ELIGIBLE PARTICIPANT" shall mean a person who is a hospital, health
system, health facility, medical group, health insuring organization, or other
health care institution, provider or payor.
"INVESTMENT COMPANY ACT" shall mean the Investment Company Act of 1940, as
amended, and the regulations promulgated thereunder.
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<PAGE> 6
"NET ASSET VALUE OF THE SHARES" and "NET ASSET VALUE OF THE RESPECTIVE
PORTFOLIOS" shall mean values determined as provided in Article 3.
"PARTICIPANTS" shall have the meaning defined in Section 2.3.
"PERSON" shall mean and include natural persons, corporations,
partnerships, joint stock companies, joint ventures, associations, trusts,
business trusts and other entities.
"PORTFOLIO" shall mean an investment portfolio represented by a separate
class of Shares established by the Trustees in accordance with Article 2.
"PROSPECTUS" shall mean the prospectus for each Portfolio distributed by
the Trust to Participants and to potential Participants, as the same may be
amended from time to time.
"SHARE" or "SHARES" shall mean the unit used to denominate and measure the
respective pro rata beneficial interests of the Participants in the Trust and
any Portfolio as provided in Article 2.
"TRUST" shall have the meaning defined in Section 1.1.
"TRUSTEES" shall mean the Persons who become fiduciaries of the Trust
pursuant to Article 8.
"TRUST PROPERTY" shall mean, as of any particular time, any and all
property, real, personal or otherwise, tangible or intangible, which has been
transferred, conveyed or paid to the Trust or Trustees and all income, profits
and gains therefrom and which, at such time, is owned or held by, or for the
account of, the Trust or the Trustees.
ARTICLE 2
PORTFOLIOS, SHARES OF BENEFICIAL OWNERSHIP, ETC.
2.1 AUTHORIZED SHARES. The beneficial interest in the Trust shall be
divided into Shares and fractions thereof, and the Trust shall have authority to
issue an unlimited number of Shares without par value. The Shares shall be
divided into Portfolios. The initial Portfolio shall be known as the "Cadre
Network Health Financial Services Liquid Asset Fund," which shall have the
investment objective of seeking to obtain a high level of current income and
stability of principal by investing in short-term securities.
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<PAGE> 7
A portion of the assets of each Portfolio may be held, without limitation
on amount, in cash equivalents. Cash equivalents are short-term interest-bearing
instruments in which funds are invested temporarily pending longer-term
investment or in which funds are invested when market conditions dictate a more
"defensive" investment strategy. The instruments may include, but are not
limited to, commercial paper, certificates of deposit, repurchase agreements,
bankers acceptances and United States Treasury Bills.
The Trustees shall have full power and authority, without obtaining any
prior authorization or vote of any of the Participants: (i) to create and
establish any additional, Portfolio or Portfolios with preferences, voting
powers, rights and privileges as the Trustees may from time to time determine,
(ii) to divide or combine the Shares of any Portfolio or Portfolios into a
greater or less number, (iii) to classify or reclassify any issued Shares into
one or more Portfolios so long as such classification or reclassification will
not have a material adverse effect on Participants that own Shares of any of the
Portfolios, (iv) to terminate any Portfolio upon sixty (60) days' notice to the
Participants owning shares of that Portfolio in the event that the net asset
value of such Portfolio is less than $5,000,000 on the date of such notice, and
(v) take such other action with respect to the Shares of any Portfolio or
Portfolios as the Trustees may deem desirable, subject to the terms of this
Declaration.
2.2 POWERS, PREFERENCES AND PARTICIPATIONS. Each Portfolio shall have the
following powers, preferences and participating or other special rights, and the
qualifications, restrictions and limitations thereof shall be as follows:
(a) All consideration received by the Trust for the issue and sale of
Shares of each Portfolio, together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong for all
purposes to the Portfolio with respect to such assets, payments or funds were
received by the Trust, subject only to the rights of creditors of the Trust, and
shall be so handled on the books of account of the Trust. Such assets, income,
earnings, profits and proceeds derived from the sale, exchange or liquidation
and any assets derived from any reinvestment of such proceeds in whatever form
the same may be, are herein referred to as "assets belonging to" such Portfolio.
(b) The Trustees may from time to time declare and pay dividends or
distributions to the Participants, in Shares or in cash, on all or any of the
Portfolios, the amount of such
4
<PAGE> 8
dividends or distributions, and the payment of them, being wholly in the
discretion of the Trustees. Dividends or distributions on any Portfolio shall be
paid only out of the earnings or other lawfully available assets belonging to
such Portfolio.
(c) In the event of the liquidation or dissolution of the Trust,
Participants owning Shares of each Portfolio shall be entitled to receive, as a
class, out of the assets of the Trust available for distribution to
Participants, the assets belonging to such Portfolio, and the assets so
distributed among such Participants shall be distributed among such Participants
in proportion to the number of Shares of such Portfolio held by them and
recorded on the books of the Trust. In the event that there are any general
assets not belonging to any particular Portfolio and available for distribution,
then, after the distribution of the assets belonging to each Portfolio, a
distribution of such general assets shall be made to all Portfolios in
proportion to the net asset value of the respective Portfolios prior to the
distribution of assets belonging to each Portfolio.
(d) The assets belonging to any Portfolio shall be charged with the
liabilities in respect to such Portfolio, and shall also be charged with a share
of the general liabilities of the Trust in a fair and equitable manner under
policies and procedures established by the Trustees. The determination of the
Trustees shall be conclusive as the amount of liabilities, including accrued
expenses and reserves, as to the allocation of the same as to a given Portfolio
and as to whether the same or general assets of the Trust are allocable to one
or more Portfolios.
2.3 INVESTMENT IN THE TRUST. Shares may be owned only by Eligible
Participants. An Eligible Participant shall become a participant ("Participant")
as of the date on which the payment of consideration to the Trust for Shares is
accepted by the Trustees for one or more Portfolios. The Trustees in their sole
discretion may decline to accept payments of consideration from any Eligible
Participant or Participant. The Trustees may establish minimum dollar amounts of
initial or additional consideration to be paid for Shares. Shares shall be
issued to Participants on the basis of the net asset value of the Shares of such
Portfolio next determined after receipt by the Trust of the Participant's
consideration for such Shares. Any Participant may have an interest in more than
one Portfolio.
2.4 STATUS OF SHARES. Shares acquired by Participants in the manner
described in Section 2.3 shall be fully paid and nonassessable. No Participant
shall have preemptive rights.
2.5 NO CERTIFICATES; NONTRANSFERABILITY OF INTERESTS. Ownership of Shares
shall be recorded on the books of the Trust
5
<PAGE> 9
or its transfer agent as provided in Article 6. No certificate or other document
shall be issued evidencing Shares or any interest in the Trust. No Participant
shall have the right or power to sell, assign or otherwise transfer any Share or
any part of its interest in the Trust, or use the same as security for a loan.
2.6 REDEMPTION. A Participant may require the Trust, to the extent that the
class of Shares in question has assets lawfully available therefor and out of
such assets but not otherwise, to redeem all or any part of the Shares
outstanding on the books of the Trust in the name of such Participant, payable
as provided in the Investment Company Act. Shares will be redeemed at the net
asset value of such Shares next determined after receipt by the Trust of a
request for redemption. The Trust shall make payment for any such redemption in
cash, or if in the opinion of the Trustees, which shall be conclusive,
conditions exist which make payment wholly or partly in securities or other
property belonging to the Trust, the value of which shall be determined as
provided in Article 3, provided that all distributions made as of any one
valuation date shall be made pro rata on the same basis. The Trust may, to the
extent necessary, sell or cause to be sold any securities belonging to a
Portfolio to provide cash to pay for Shares of such Portfolio that are redeemed.
The Trustees may not suspend the right of the holders of the Shares of any
Portfolio to require the Trust to redeem Shares of such Portfolio except as
permitted by the Investment Company Act.
2.7 EXCHANGES. A Participant shall be entitled, subject to such limitations
as the Trustees in their sole discretion may adopt, to convert all or any part
of the Shares of any Portfolio owned by such Participant into Shares of any
other Portfolio. Shares may be exchanged at the net asset value next determined
after receipt by the Trustees of a request for exchange in proper form. The
Trustees shall determine the net asset value of the Shares to be converted, and
within five business days after receipt of such request, shall transfer to such
Participant on the books of the Trust such number of Shares of the Portfolio
desired as, taken at the net asset value thereof determined in the same manner
and at the same time as that of the Shares exchanged, shall equal the net asset
value of the Shares exchanged. Any amount representing a fraction of a Share
shall be paid in fractional Shares. Upon any conversion, proper transfer shall
be made between the assets belonging to the various Portfolios of Shares
involved.
6
<PAGE> 10
ARTICLE 3
VALUATION
The net asset value per Share of each Portfolio shall be determined by
dividing the total value of the Portfolio's assets less any liabilities,
including the fees payable for advisory and other services, by the number of
outstanding Shares. The Portfolio shall be charged with the liabilities in
respect to such Portfolio, and shall also be charged with a share of the general
liabilities of the Trust proportionate to the net asset value of such Portfolio.
The determination of the net asset value of Shares may be delegated by the
Trustees.
The net asset value of Shares shall be determined at such time or times and
in such manner as is determined by the Trustees and as required by the
Investment Company Act. The method of determining the value of Portfolio assets
shall be established by the Trustees and shall be set forth in the Prospectus.
ARTICLE 4
POWERS OF THE TRUSTEES
4.1 GENERAL. Subject to the rights of the Participants as provided herein,
the Trustees shall have, to the extent permitted by applicable law, full,
exclusive and absolute power, control and authority over the Trust Property and
over the affairs of the Trust to the same extent as if the Trustees were the
sole and absolute owners of the Trust Property. The Trustees may do and perform
such acts and things as in their sole judgment and discretion are necessary and
proper for conducting the affairs of the Trust or promoting the interests of the
Trust and the Participants. The enumeration of any specific power or authority
herein shall not be construed as limiting the aforesaid general power or
authority or any specific power or authority. The Trustees may exercise or
delegate to others any power authorized and granted to them by this Declaration
of Trust. Such powers of the Trustees may be exercised without the necessity of
any order of, or resort to, any court.
Except as otherwise provided in this Declaration of Trust, the Trustees
shall not be limited by any law now or hereafter in effect limiting the
investments which may be held or retained by trustees or other fiduciaries, and
they shall have full authority and power to make any and all Trust investments
within the limitations of this Declaration of Trust, that they, in their
absolute discretion, shall determine to be advisable and appropriate. The
Trustees shall have no liability for loss with respect to Trust investments made
as permitted by this Declaration of Trust, even though such investments shall be
of a
7
<PAGE> 11
character or in an amount not otherwise considered proper for the investment of
trust funds by trustees or other fiduciaries. Notwithstanding the foregoing or
anything herein to the contrary, the Trustees shall make Trust investments for
each Portfolio only in accordance with the investment objectives and policies of
such Portfolio as set forth in its Prospectus.
4.2 LEGAL TITLE. Legal title to all of the Trust Property shall be vested
in the Trustees and be held by and transferred to the Trustees, except that the
Trustees shall have full power to cause legal title to any Trust Property to be
held by or in the name of the Trust, or in the name of any other Person as
nominee, on such terms, in such manner, and with such powers as the Trustees may
determine. The right, title and interest of the Trustees in and to the Trust
Property shall vest automatically in all persons who may hereafter become
Trustees upon their due election and qualification without any further act. Upon
the resignation, disability, removal, adjudication as an incompetent, or death
of a Trustee, he (and in the event of his death, his estate) shall automatically
cease to have any right, title or interest in or to any of the Trust Property,
and the right, title and interest of such Trustee in and to the Trust Property
shall vest automatically in the remaining Trustees without any further act.
4.3 DISPOSITION OF ASSETS. The Trustees shall have full power to sell,
exchange or otherwise dispose of any and all Trust Property free and clear of
any and all trusts, at public or private sale, for cash or on terms, with or
without advertisement, and subject to such restrictions, stipulations,
agreements and reservations as they shall deem proper, and to execute and
deliver any deed, power, assignment, bill of sale, or other instrument in
connection with the foregoing. The Trustees shall also have full power in
furtherance of the affairs and purposes of the Trust, to give consents and make
contracts relating to Trust Property or its use.
4.4 TAXES. The Trustees shall have full power: (i) to pay all taxes or
assessments, of whatever kind or nature, validly and lawfully imposed upon or
against the Trust or the Trustees in connection with the Trust Property or upon
or against the Trust Property or income or any part thereof; (ii) to settle and
compromise disputed tax liabilities; and (iii) for the foregoing purposes to
make such returns and do all such other acts and things as may be deemed by the
Trustees to be necessary or desirable.
4.5 RIGHTS AS HOLDERS OF TRUST PROPERTY. The Trustees shall have full power
to exercise all of the rights, powers and privileges appertaining to the
ownership of all Trust Property to the same extent that any individual might,
and, without limiting
8
<PAGE> 12
the generality of the foregoing, to vote or give any consent, request or notice
or waiver, any notice either in person or by proxy or power of attorney, with or
without the power of substitution, to one or more Persons, which proxies and
powers of attorney may be for meetings or actions generally, or for any
particular meeting or action, and may include the exercise of discretionary
powers.
4.6 DELEGATION; COMMITTEES. The Trustees shall have full power (consistent
with their continuing exclusive authority over the management of the Trust, the
conduct of its affairs, their duties and obligations as Trustees, and the
management and disposition of Trust Property) to delegate from time to time to
such one or more of their number (who may be designated as constituting a
Committee of the Trustees) or to officers, employees or agents of the Trust the
doing of such acts and things and the execution of such instruments either in
the name of the Trust, or the names of the Trustees or as their attorney or
attorneys, or otherwise as the Trustees may from time to time deem expedient and
appropriate in the furtherance of the business affairs and purposes of the
Trust.
4.7 COLLECTION. The Trustees shall have full power: (i) to collect, sue
for, receive and give receipt for all sums of money or other property due to the
Trust; (ii) to consent to extensions of the time for payment, or to the renewal
of any securities, investments or obligations; (iii) to engage or intervene in,
prosecute, defend, compromise, abandon or adjust by arbitration or otherwise any
actions, suits, proceedings, disputes, claims, demands or things relating to the
Trust Property; (iv) to foreclose any collateral, security or instrument
securing any investments, notes, bills, bonds, obligations or contracts by
virtue of which any sums of money are owed to the Trust; (v) to exercise any
power of sale held by them, and to convey good title thereunder free of any and
all trusts, and in connection with any such foreclosure or sale, to purchase or
otherwise acquire title to any property; (vi) to be parties to reorganization
and to transfer to and deposit with any corporation, committee, voting trustee
or other Person any securities, investments or obligations of any Person which
form a part of the Trust Property, for the purpose of such reorganization or
otherwise; (vii) to participate in any arrangement for enforcing or protecting
the interests of the Trustees as the owners or holders of such securities,
investments or obligations and to pay any assessment levied in connection with
such reorganization or arrangement; (viii) to extend the time (with or without
security) for the payment or delivery of any debts or property and to execute
and enter into releases, agreements and other instruments; and (ix) to pay or
satisfy any debts or claims upon any evidence that the Trustees shall think
sufficient.
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<PAGE> 13
4.8 PAYMENT OF EXPENSES. The Trustees shall have full power: (i) to incur
and pay any charges or expenses which in the opinion of the Trustees are
necessary or incidental to or proper for carrying out any of the purposes of
this Declaration of Trust; (ii) to reimburse others for the payment thereof; and
(iii) to pay appropriate compensation or fees from the funds of the Trust to
Persons with whom the Trust has contracted or transacted business. The Trustees
shall fix the compensation, if any, of all officers and employees of the Trust.
The Trustees shall not be paid compensation for their general services as
Trustees hereunder. The Trustees may reimburse themselves or any other Person
for any and all charges or expenses incurred or paid by any of them on behalf of
the Trust or any Portfolio. The Trustees may allocate such expenses among
various Portfolios in such manner and proportion as appropriate in the
discretion of the Trustees.
4.9 DEPOSITS. The Trustees shall have full power to deposit any monies or
funds included in the Trust Property, and intended to be used for the payment of
expenses of the Trust or the Trustees, with one or more banks, trust companies
or other banking institutions whether or not such deposits will draw interest so
long as the depository enters into a custodian agreement acceptable to the
Trustees. Such deposits are to be subject to withdrawal in such manner as the
Trustees may determine, and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust company or
other banking institution with whom the monies, investments, or securities have
been deposited.
4.10 VALUATION. Subject to the requirements of the Investment Company Act,
the Trustees shall have full and complete power to determine in good faith or
cause other Persons to determine conclusively the value of any of the Trust
Property and the method by which the Trust Property is to be valued.
4.11 FISCAL YEAR; ACCOUNTS. Subject to the requirements of the Investment
Company Act, the Trustees shall have full power to determine the fiscal year of
the Trust and the method or form in which its accounts shall be kept and from
time to time to change the fiscal year or method or form of accounts. The
Trustees may establish different fiscal years for the various Portfolios as
appropriate in the discretion of the Trustees.
4.12 CONCERNING THE TRUST AND CERTAIN AFFILIATES.
(a) Subject to the requirements of the Investment Company Act, the
Trustees may (but need not), in their discretion, from time to time, adopt
standards with respect to conflicts of interest, trading on the basis of
material nonpublic information, the appropriateness of the Trust paying its
10
<PAGE> 14
distribution and marketing expenses and similar matters to govern (i) Trustees,
officers, directors, employees and agents of the Trust and their Affiliates and
(ii) such other Persons and their Affiliates as the Trustees may deem
appropriate.
(b) Any Trustee or officer, employee, or agent of the Trust may, in
his personal capacity, or in a capacity as trustee, officer, director,
stockholder, partner, member, agent, adviser or employee of any Person, have
business interests and engage in business activities in addition to those
relating to the Trust, which interests and activities may be similar to those of
the Trust and include the acquisition, syndication, holding, management,
operation or disposition of securities, investments and funds, for his own
account or for the account of such Person. Each Trustee, officer, employee and
agent of the Trust shall be free of any obligation to present to the Trust any
investment opportunity which comes to him in any capacity other than solely as
Trustee, officer, employee or agent of the Trust, even if such opportunity is of
a character which, if presented to the Trust, could be taken by the Trust.
4.13 INVESTMENT PROGRAM. The Trustees shall use their best efforts to
obtain through qualified Persons a continuing and suitable investment program,
consistent with the investment objectives and policies of each Portfolio. The
Trustees shall also have full power to contract for or otherwise obtain from or
through qualified Persons for the benefit of, and to make available to, the
Participants of the Trust from time to time, additional investment and
noninvestment programs and services distinct from the Trust's program of
investments measured by Shares, but consistent with the objectives of the Trust
and the general purposes of this Declaration of Trust. The Trustees shall have
the power to review and approve or reject, in their sole discretion, such
additional investment and noninvestment programs as may be presented to the
Trustee by such qualified Persons.
4.14 POWER TO CONTRACT, APPOINT, RETAIN AND EMPLOY. The Trustees shall have
full power to appoint or discharge, employ or dismiss, retain or terminate, or
contract or cancel the contract with any Person as the Trustees may deem
necessary or desirable for the transaction of the affairs of the Trust, or the
transaction of the affairs of any additional investment programs or services or
noninvestment programs or services of any nature affiliated with the Trust or
otherwise contracted for or by the Trust, including any Person or Persons who,
may, among other things: (i) serve as the Trust's investment adviser; (ii) serve
as the Trustee's administrator or co-administrator; (iii) serve as the Trust's
marketing agent; (iv) furnish reports to the Trustees and provide research,
economic and statistical data in connection with the Trust's investments; (v)
act as managers,
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<PAGE> 15
consultants, accountants, technical advisers, attorneys, brokers, underwriters,
corporate fiduciaries, escrow agents, depositories, custodians or agents for
collection, insurers or insurance agents, registrars for Shares or in any other
capacity deemed by the Trustees to be necessary or desirable; (vi) investigate,
select, and, on behalf of the Trust, conduct relations with Persons acting in
such capacities and pay appropriate fees to, and enter into appropriate
contracts with, or employ, or retain services performed or to be performed by,
any of them in connection with the investments acquired, sold, or otherwise
disposed of, or committed, negotiated, or contemplated to be acquired, sold or
otherwise disposed of; (vii) act as attorney-in-fact or agent in the purchase or
sale or other disposition of investments, and in the handling, prosecuting or
other enforcement of any lien or security securing investments; (viii) assist in
the performance of such ministerial functions necessary in the management of the
Trust as may be agreed upon with the Trustees; and (ix) any of the foregoing as
may be agreed upon by the Trustees with regard to any additional investment and
noninvestment programs and services for the benefit of the Participants.
4.15 INSURANCE. The Trustees shall have full power to purchase and pay for,
entirely out of Trust Property, insurance policies insuring the Trust and the
Trustees, officers, employees and agents, of the Trust individually against all
claims and liabilities of every nature arising by reason of holding or having
held any such office or position, for by reason of any action alleged to have
been taken or omitted by the Trust or any such Person as Trustee, officer,
employee and agent, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trustee would have the power to
indemnify such Person against such liability.
4.16 INDEMNIFICATION. In addition to the mandatory indemnification provided
for in Section 5.3, the Trustees shall have full power, to the extent permitted
by applicable laws, including without limitation, the Investment Company Act, to
indemnify or enter into agreements with respect to indemnification with any
Person with whom the Trust has dealings, to such extent as the Trustees shall
determine.
4.17 REMEDIES. Notwithstanding any provision in this Declaration of Trust,
when the Trustees deem that there is a significant risk that an obligor to the
Trust may default or is in default under the terms of any obligation to the
Trust, the Trustees shall have full power to pursue any remedies permitted by
law which, in their sole judgment, are in the interests of the Trust, and the
Trustees shall have full power to enter into any investment, commitment or
obligation of the Trust resulting from
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<PAGE> 16
the pursuit of such remedies as are necessary or desirable to dispose of
property acquired in the pursuit of such remedies.
4.18 FURTHER POWERS. The Trustees shall have full power to take all such
actions, do all such matters and things and execute all such instruments as they
deem necessary, proper or desirable in order to carry out, promote or advance
the interests and purposes of the Trust although such actions, matters or things
are not herein specifically mentioned. Any determination as to what is in the
best interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. The Trustees
shall not be required to obtain any court order to deal with the Trust Property.
ARTICLE 5
LIMITATIONS OF LIABILITY
5.1 LIABILITY TO THIRD PERSONS. No Participant shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any other
Person in connection with Trust Property or the affairs of the Trust; and no
Trustee, officer, employee of the Trust or other Person designated by the
Trustees shall be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any other Person in connection with Trust Property or
the affairs of the Trust, except for that arising from bad faith, willful
misconduct, gross negligence or reckless disregard of duties; and all such other
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust.
5.2 LIABILITY TO THE TRUST OR THE PARTICIPANTS. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust or to any
Participant, trustee, officer, employee or agent of the Trust for any action or
failure to act (including, without limitation, the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misconduct, gross negligence or reckless disregard of his
duties; provided, that the provisions of this Section 5.2 shall not limit the
liability of any Person with respect to breaches by it of a contract between it
and the Trust.
5.3 INDEMNIFICATION.
(a) The Trust shall indemnify and hold each Participant harmless from
and against all claims and liabilities, whether they proceed to judgment or are
settled or otherwise brought to a conclusion, to which such Participant may
become subject by reason of its being or having been a Participant, and shall
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reimburse such Participant for all legal and other expenses reasonably incurred
by it in connection with any such claim or liability. The rights accruing to a
Participant under this Section 5.3 shall not exclude any other right to which
such Participant may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Participant in any
appropriate situation even though not specifically provided herein.
(b) The Trust shall indemnify each of its Trustees, officers,
employees and agents and other Persons designated by the Board of Trustees to
receive such indemnification, against all liabilities and expenses (including,
without limitation, amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding by the Trust or any other Person, whether civil or criminal, in which
he may be involved or with which he may be threatened, while an officer or
thereafter, by reason of his being or having been such a Trustee, officer,
employee, agent or otherwise designated person, except as to any matter as to
which he shall have been adjudicated to have acted in bad faith or with willful
misconduct or reckless disregard of his duties or gross negligence; provided,
that the provisions of this Section 5.3(b) shall not be construed to permit the
indemnification of any Person with respect to breaches by it of a contract
between it and the Trust; further provided, that as to any matters disposed of
by a compromise payment by such Trustee, officer, employee, agent or otherwise
designated Person, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless the
Trust shall have determined that the officer, Trustee, employee, agent or
otherwise designated Person acted in good faith in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Trust and, with
respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The determination of whether such officer, Trustee,
employee, or agent has met the standard set forth in the preceding sentence
shall be made: (i) by the Trustees by a majority vote of a quorum consisting of
Trustees who were not parties to the action, suit or other proceeding; (ii) if
such quorum is not obtainable or if obtainable and, a majority vote of a quorum
of disinterested Trustees so directs, by independent legal counsel in a written
opinion; or (iii) by a majority vote of the Participants. The rights accruing to
any Trustee, officer, employee, agent or otherwise designated Person under the
provisions of this Section 5.3(b) shall not exclude any other right to which he
may be lawfully entitled; provided, that no Trustee, officer, employee, agent or
otherwise designated Person may satisfy any right of indemnity or reimbursement
granted herein or to which he may be otherwise entitled except out of the
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Trust Property, and no Participant shall be personally liable to any Person with
respect to any claim for indemnity or reimbursement or otherwise. The Trustees
may make advance payments in connection with indemnification under this Section
5.3(b), provided that the indemnified Trustee, officer, employee, agent or
otherwise designated Person shall have given a written undertaking to reimburse
the Trust in the event that it is subsequently determined that he is not
entitled to such indemnification.
(c) Any action taken by, or conduct on the part of, a Trustee, an
officer, an employee, an agent of the Trust or other Person designated by the
Trustees, in conformity with, or in good faith reliance upon, the provisions of
Section 5.7 hereof shall not, for the purpose of this Declaration of Trust
(including, without limitation, Sections 5.1, 5.2 and 5.3) constitute bad faith,
willful misconduct, gross negligence or reckless disregard of his duties.
(d) Notwithstanding the foregoing, any indemnification shall be made
by the Trust only as permitted by the Securities Act of 1933, as amended, and
the Investment Company Act.
5.4 SURETY BONDS. No Trustee shall, as such, be obligated to give any bond
or surety or other security for the Performance of any of his duties.
5.5 APPARENT AUTHORITY. Unless otherwise required by or pursuant to
applicable law, no purchaser, seller, transfer agent or other Person dealing
with the Trustees or any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by such officer, employee or agent or make inquiry
concerning or be liable for the application of money or property paid,
transferred or delivered to or on the order of the Trustees or of such officer,
employee or agent.
5.6 TRUST OBLIGATIONS. Any written instrument creating an obligation of the
Trust shall be conclusively taken to have been executed by a Trustee or an
officer, employee or agent of the Trust only in his capacity as a Trustee under
this Declaration of Trust or in his capacity as an officer, employee or agent of
the Trust. Any written instrument creating an obligation of the Trust may refer
to this Declaration of Trust and contain a statement or acknowledgement to the
effect that the obligations thereunder are not personally binding upon, nor
shall resort be had to the property of, any of the Trustees, Participants,
officers, employees or agents of the Trust, and that only the Trust Property or
a specific portion thereof shall be bound; provided, that the omission of any
recital pursuant to this Section 5.6 shall not operate to impose personal
liability on any
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of the Trustees, Participants, officers, employees or agents of the Trust.
5.7 RELIANCE ON EXPERTS, ETC. Each Trustee, officer, employee and agent of
the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel or upon reports made to the Trust by any of
its officers or employees or by any investment adviser, distributor, manager,
custodian, accountant, appraiser or other expert or consultant selected with
reasonable care by the Trustees or officers of the Trust.
5.8 LIABILITY INSURANCE. The Trustees may maintain insurance for the
protection of the Trust Property, and the Trustees, Participants, officers,
employees and agents of the Trust, in such amount as the Trustees shall deem
adequate to cover all foreseeable tort and contract liability to the extent
available at reasonable rates.
ARTICLE 6
RECORD OF SHARES
6.1 SHARE REGISTER. A share register shall be kept by or on behalf of the
Trustees, and shall contain the names and addresses of the Participants, the
number of Shares held by them, and a record of all allocations and redemptions
thereof. Such share register shall be conclusive as to the identity of the
holders of the Shares. Only Participants whose ownership of Shares is recorded
on such share register shall be entitled to receive distributions with respect
to Shares or otherwise to exercise or enjoy the rights and benefits related to
the ownership of Shares. No Participant shall be entitled to receive any
distribution, nor to have notices given to it as herein provided, until it has
given its appropriate address to such officer or agent of the Trust as shall
keep the share register for entry thereon.
6.2 OWNER OF RECORD. No Person becoming entitled to any Shares in
consequence of the merger, reorganization, consolidation, bankruptcy or
insolvency of any Participant or otherwise by operation of law who is not an
Eligible Participant, shall be recorded as the holder of such Shares and shall
only be entitled to the redemption value of such Shares. Until the Person
becoming entitled to such redemption value shall apply for the payment thereof
and present such proof of such entitlement as the Trustees may in their sole
discretion deem appropriate, the holder of record of such Shares shall be deemed
to be the holder of such Shares for all purposes hereof, and neither the
Trustees, the transfer agent nor any officer or other agent of the Trust
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<PAGE> 20
shall be affected by any notice of such merger, reorganization, consolidation,
bankruptcy, insolvency or other event.
6.3 NO TRANSFERS OR PLEDGES OF SHARES. The beneficial interest evidenced,
represented or measured by the Shares shall not be assignable or transferable
other than to the Trust itself for purposes of redemption.
6.4 LIMITATION OF FIDUCIARY RESPONSIBILITY. The Trustees shall not, nor
shall the Participants or any officer, transfer agent or other agent of the
Trust, be bound to see the execution of any trust, express, implied or
constructive, or of any charge, pledge or equity to which any of the Shares or
any interest thereof are subject, or to ascertain or inquire whether any
redemption of any such Shares by any Participant or its representatives is
authorized by such trust, charge, pledge or equity, or to recognize any Person
as having any interest therein except the Participant recorded as the holder of
such Shares. The receipt of the Participant in whose name any Share is recorded
or of the duly authorized agent of such Participant shall be a sufficient
discharge for all monies payable or deliverable in respect of such Shares and
from all liability to see to the proper application thereof.
6.5 NOTICES. Any and all notices to which Participants may be entitled and
any and all communications shall be deemed duly served or given if mailed,
postage prepaid, addressed to Participants of record at their last known post
office addresses as recorded on the share register provided for in Section 6.1.
ARTICLE 7
PARTICIPANTS
7.1 VOTING. On any matter submitted to a vote of the Participants, all
Shares then issued and outstanding shall be entitled to vote, shall be voted in
the aggregate and not by Portfolio, except
(a) when required by the Investment Company Act, Shares shall be
voted by individual Portfolio; and
(b) when the matter affects an interest of less than all Portfolios,
then only Participants that own Shares of the affected Portfolio or Portfolios
shall be entitled to vote.
Each Participant shall be entitled to exercise the voting rights of Shares
registered in the name of such Participant or the nominee thereof. Each full
Share shall be entitled to one vote and each fractional Share shall be entitled
to a corresponding fractional vote. All matters shall be decided by a
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majority of the votes validly cast, except as otherwise required by law or this
Declaration of Trust. Participants shall not be entitled to cumulative voting.
7.2 MEETINGS OF PARTICIPANTS. Meetings of the Participants for such
purposes as may be permitted or required by law or this Declaration of Trust
shall be held at such time and place as may be determined by the Trustees and
specified in the notice of the meeting. The Participants shall, by an instrument
or concurrent instruments in writing delivered to the Board of Trustees signed
by the holders of at least ten percent (10%) of the Shares, have the right to
initiate a vote of the Participants as to any matter with regard to which
Participants have a right to vote. Within sixty (60) days of receipt of such
instrument or instruments, the Trustees shall cause a ballot to be sent to each
Participant, setting forth the matter to be voted on and the manner in which
such ballots should be executed and delivered or shall hold a meeting of the
Participants.
7.3 QUORUM. The presence at any meeting, in person or by proxy, of
Participants that hold one-third of the issued and outstanding Shares shall
constitute a quorum for transaction of business of the Trust, except that when a
provision of law or this Declaration of Trust permits or requires that the
Shares be voted by Portfolio, then the Participants that hold one-third of the
issued and outstanding Shares of that Portfolio shall constitute a quorum for
transaction of business of that Portfolio.
In the absence of a quorum, the Participants that are present in person or
represented by proxy, by majority vote, may adjourn the meeting to another time
and place. No notice of adjournment need be given, and the business that might
have been transacted at the meeting originally called may be transacted at any
adjourned meeting at which a quorum is present.
7.4 NOTICE OF MEETINGS. Notice of meetings of the Participants, stating the
date, time, place and purposes of the meeting, and notice of any vote without a
meeting stating the purpose and method thereof, shall be given by the Trustees
by mail to each Participant at its registered address, mailed at least ten (10)
days before the date of the meeting. Only the business stated in the notice of
the meeting, shall be considered at such meeting.
7.5 RECORD DATE FOR MEETINGS AND VOTES. For the purpose of determining the
Participants that are entitled to notice of and to vote at any meeting or any
adjournment thereof, or that are entitled to participate in any dividend or
distribution, or for the purpose of any other action, the Trustees may from time
to time fix a date not more than thirty (30) days prior to the date
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of any meeting or vote of Participants or other action as a record date for the
determination of Participants entitled to notice of and to vote at such meeting
or any adjournment thereof or to be treated as holders of record of Shares for
purposes of such other action. Any Participant who was a Participant at the time
so fixed shall be entitled to notice of and to vote at such meeting, even though
it holds no Shares at the time of the meeting. No Person becoming a Participant
after the record date shall be entitled to vote at such meeting or to cast a
ballot in such vote or to be treated as a holder of record of Shares for
purposes of such other action.
7.6 PROXIES, ETC. At any meeting of Participants, any Participant entitled
to vote may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Secretary of the Trust, or
with such other officer or agent of the Trust as the Trustees may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Trustees, proxies may be solicited in the name of one or more
Trustees or nominees for Trustees. A proxy purporting to be executed by or on
behalf of a Participant shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
7.7 FINANCIAL RECORDS; REPORTS; ETC.
(a) The Trustees shall cause the Trust to keep full accounts of all
of its receipts and disbursements in accordance with the requirements of the
Investment Company Act and generally accepted accounting principles. The
Trustees shall at least once during each period of twelve months cause an audit
to be made of the Trust's financial records by independent, certified public
accountants responsible to the Trustees.
(b) The Trustees shall cause the Trust to maintain a separate account
on the books of the Trust for each Participant. All transactions for such
Participant shall be recorded by the Trusts in such account. Statements showing
transactions of and the number of Shares held by each Participant shall be
rendered by the Trust on a regular, periodic basis as determined by the
Trustees, but not less than annually.
(c) In addition to any reports, statements and opinions prepared
pursuant to Section 7.7(a) and (b), the Trustees may cause to be prepared or
conducted by the Trust's independent accountant such other reports and
examinations as the Trustees shall, in their discretion, deem appropriate.
7.8 INSPECTION OF RECORDS. The records of the Trust shall be open to
inspection for reasonable purpose by Participants at
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all reasonable times, provided that five (5) days written notice thereof is
given to the Trustees.
ARTICLE 8
TRUSTEES AND OFFICERS
8.1 NUMBER. The number of Trustees shall be not less than five, and the
number of Trustees may be changed from time to time by the Trustees; provided,
that the number of Trustees shall in no event be less than five or more than
fifteen. No reduction in the number of Trustees shall have the effect of
removing any Trustee from office prior to the expiration of his term.
8.2 QUALIFICATIONS OF TRUSTEES. The members of the Board of Trustees shall
be persons who are eligible to serve as directors of a registered investment
company under the Investment Company Act, including without limitation the
requirement under the Investment Company Act that a majority of the Board of
Trustees shall be persons who are not "interested persons" (as defined in the
Investment Company Act) of any Portfolio's principal underwriters and no more
than sixty percent of the Board of Trustees shall be persons who are "interested
persons" of the Trust.
8.3 TERM AND ELECTION. Each Trustee named, elected or appointed as
provided herein shall, except as otherwise provided in Section 8.4 or 8.5, hold
office until his successor has been elected or appointed and has qualified to
serve as a Trustee.
8.4 RESIGNATION AND REMOVAL. Any Trustee may resign (without need for
prior or subsequent accounting) by an instrument in writing delivered to the
remaining Trustees and such resignation shall be effective upon such delivery,
or at a later date according to the terms of the notice. Any Trustee may be
removed by the action of two-thirds of the other Trustees.
8.5 VACANCIES. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to exercise the duties of the
office, or removal of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust, and title to any Trust Property held in the
name of such Trustee and the other Trustees or otherwise, shall, in the event of
the death, resignation, removal, bankruptcy, adjudicated incompetence or other
incapacity to exercise the duties of the office of such Trustee, vest in the
continuing or surviving Trustees without necessity of any further act or
conveyance.
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In the case of a vacancy, including a vacancy resulting from an increase
in the number of Trustees, a majority of the remaining Trustees, regardless of
whether they constitute a quorum, or the Participants fill such vacancy, and any
Trustee so elected by the Trustees shall hold office until his successor has
been elected and has qualified to serve as a Trustee.
8.6 MEETINGS.
(a) Meetings of the Trustees shall be held from time to time upon
the call of the Chairman or any three Trustees. Regular meetings of the Trustees
may be held without call or notice at a time and place fixed by resolution of
the Trustees. Notice of any other meeting shall be mailed or otherwise given not
less than 48 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting, except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
specifically provided otherwise in this Declaration of Trust, any action of the
Trustees may be taken at a meeting by vote of a majority of the Trustees present
(a quorum being present) or without a meeting, by written consents of a majority
of the Trustees. Any agreement, or other instrument or writing executed by one
or more of the Trustees or by any authorized Person, shall be valid and binding
upon the Trustees and upon the Trust when authorized or ratified by action of
the Trustees as provided in this Declaration of Trust.
(b) Any committee of the Trustees, including an Executive Committee,
if any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless otherwise
specifically provided in this Declaration of Trust, any action of any such
committee may be taken at a meeting by vote of a majority of the members present
(a quorum being present) or by written consent of a majority of the members.
(c) All or any one or more Trustees may participate in a meeting of
the Trustees or any committee thereof by utilizing conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting pursuant to such
communications shall constitute presence in person at such meeting. The minutes
of any meeting of Trustees held by utilizing such communications equipment shall
be prepared in the same manner as those of a meeting of Trustees held in person.
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8.7 OFFICERS. The Trustees may elect, from among their numbers, a Chairman
who shall be the chief executive officer of the Trust, and a Treasurer, who
shall be the chief financial officer of the Trust. The Trustees may elect or
appoint, from among their number or otherwise, or may authorize the Chairman to
appoint, a Secretary, and such other officers or agents, who shall have such
powers, duties and responsibilities as the Trustees may deem to be advisable and
appropriate. Two or more offices, except those of Chairman and Secretary, may be
held by the same person. The Secretary, if not a Trustee, shall attend meetings
of the Trustees but shall have no voting power.
8.8 BYLAWS. The Trustees may adopt and, from time to time, amend or
repeal, Bylaws for the conduct of the business of the Trust, and in such Bylaws,
among other things, may define the duties of the respective officers, agents,
employees and representatives of the Trust.
ARTICLE 9
AMENDMENT OR TERMINATION OF TRUST;
DURATION OF TRUST
9.1 AMENDMENTS TO DECLARATION. This Declaration of Trust may be amended by
the Trustees or the Participants at any time or from time to time and in any
respect and, if determined by the Trustees or the Participants to be necessary
to comply with applicable law, retroactively; provided, that any such amendment
which amends Sections 2.1, 2.4, 5.1, 5.3, 7.1, 9.1 or 9.2 and adversely affects
the rights of the Participants shall be approved by the Participants at a
meeting or by a vote as provided in Article 7. No such amendment shall divert
any part of the Trust Property that equitably belongs to any Participant for
purposes other than the exclusive benefit of the Participant at any time prior
to the satisfaction of all liabilities with respect to such Participant.
9.2 DURATION AND TERMINATION. This Trust shall continue until termination
of the last Portfolio existing under this Trust. Portfolios may be terminated in
the following manner:
(a) The Trustees, with the approval of Participants that own at
least a majority of the outstanding Shares of any Portfolio may sell and convey
the assets of such Portfolio to another trust or corporation organized under the
laws of any state of the United States for a consideration that may include the
assumption of all or a part of the outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Portfolio and which may include
shares of beneficial interest or stock or other securities of such trust or
corporation. Upon making provision for the payment of all such liabilities, by
such
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assumption or otherwise, the Trustees shall distribute the remaining proceeds
ratably among the Participants owning outstanding Shares of such Portfolio.
(b) The Trustees, with the approval of Participants that own at
least a majority of the outstanding Shares of any Portfolio, or, as otherwise
provided in Section 2.1, may terminate that Portfolio. Upon such termination,
the Trustees shall sell and convert into money all the assets of such Portfolio.
Upon making provision for the payment of all outstanding obligations, taxes and
other liabilities, accrued or contingent, of the Portfolio, the Trustees shall
distribute the remaining assets of the Portfolio ratably among the Participants
owning outstanding shares of the Portfolio.
(c) Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in subsections (a) through (b), the Trust shall
terminate as to the Portfolio and the Trustees shall be discharged of any and
all further liabilities and duties hereunder with respect to such Portfolio.
Further, the right, title and interest of all parties of that Portfolio shall be
cancelled and discharged.
ARTICLE 10
MISCELLANEOUS
10.1 GOVERNING LAW. This Declaration of Trust is adopted in the State of
California and with reference to the laws thereof, and the rights of all parties
and the validity, construction and effect of every provision hereof shall be
subject to and construed according to the laws of the State of California.
10.2 RELIANCE BY THIRD PARTIES. Any certificate executed by an individual
who, according to the records of the Trust, or of any official or public body or
office in which this Declaration of Trust may be recorded or filed, appears to
be a Trustee or the Secretary of the Trust, certifying to: (i) the number or
identity of Trustees or Participants; (ii) the due authorization of the
execution of any instrument or writing; (iii) the form of any vote passed at a
meeting of the Trustees or Participants; (iv) the fact that the number of
Trustees or Participants present at any meeting or executing any written
instrument satisfies the requirements of this Declaration of Trust; (v) the form
of any Bylaw adopted by or the identity of any officers elected by the Trustees;
or (vi) the existence of any fact or facts which in any manner relate to the
affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees or any of them or the
Trust and the successors of such Person.
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10.3 PROVISIONS IN CONFLICT WITH LAW. The provisions of this Declaration
of Trust are severable, and if the Trustees shall determine, with the advise of
counsel, that any one or more of such provisions (the "Conflicting Provisions")
are in conflict with applicable federal or California laws, the Conflicting
Provisions shall be deemed never to have constituted a part of this Declaration
of Trust; provided, that such determination by the Trustees shall not affect or
impair any of the remaining provisions of this Declaration of Trust or render
invalid or improper any action taken or omitted (including, but not limited to,
the election of Trustees) prior to such determination.
10.4 GENDER; SECTION HEADINGS.
(a) Words of the masculine gender shall mean and include correlative
words of the feminine and neuter gender and words importing the singular number
shall mean and include the plural number and vice versa.
(b) Any headings preceding the texts of the several Articles and
Sections of this Declaration of Trust and any table of contents or marginal
notes appended to copies hereof, shall be solely for convenience of reference
and shall neither constitute a part of this Declaration of Trust nor affect its
meaning, construction or effect.
IN WITNESS WHEREOF, the undersigned has caused this Amended and Restated
Declaration of Trust to be executed by its proper and duly authorized officers
as of the date first above written.
HOSPITAL COUNCIL OF NORTHERN
AND CENTRAL CALIFORNIA
By /s/ Philip R. Wolfe
--------------------------------------
Its Chairman
---------------------------------
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<PAGE> 1
EXHIBIT (5)
================================================================================
--------------------------------------------
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
BETWEEN
HOSPITAL AND HEALTH FACILITIES TRUST
AND
AMBAC INVESTMENT MANAGEMENT, INC.
December 30, 1996
--------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <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> 3
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
This Agreement, executed on December ___, 1996, 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 Prospectus contained
in Part A thereof (the
<PAGE> 4
"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") of even date herewith;
(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
(iv) determine what portion, if any, of the Fund shall be held
uninvested.
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<PAGE> 5
(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.
(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
3
<PAGE> 6
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 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
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<PAGE> 7
(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 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
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<PAGE> 8
(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 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 the
date first set forth above; provided that it has been approved by a majority of
the outstanding voting securities
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<PAGE> 9
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
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
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<PAGE> 10
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
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
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<PAGE> 11
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 /s/ Stephen Attanasio
-------------------------------------
Its Managing Director
-------------------------------
HOSPITAL AND HEALTH FACILITIES
TRUST
By /s/ J. Michael Gallager
--------------------------------------
Its Secretary
--------------------------------
9
<PAGE> 1
EXHIBIT (9)(A)
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 31st day of
December, 1996, by and between Hospital and Health Facilities 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 corporation organized under the laws of the State of Delaware (hereinafter
referred to as the "Agent").
W I T N E S S E T H:
WHEREAS, the Trust is an open-end management investment company
which is registered under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Agent is registered under the Securities Exchange Act
of 1934 (the "1934 Act") as a transfer agent;
NOW, THEREFORE, the Trust, on behalf of the Fund and the Agent do
mutually promise and agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE AGENT
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby employs and appoints the Agent to act as transfer agent, dividend
disbursing agent, and shareholder servicing agent for the Fund.
The Agent shall perform all of the customary services of a transfer
agent, dividend disbursing agent and shareholder servicing agent, and as
relevant, agent in connection with accumulation, open account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to the following and as more
fully described in Exhibit A:
A. Receive orders for the purchase of shares, with prompt
delivery, where appropriate, of payment and supporting
documentation to the Fund's custodian;
B. Process purchase orders and issue the appropriate number of
uncertificated shares with such uncertificated shares being
held in the appropriate shareholder account;
C. Process redemption requests received in good order and, where
relevant, deliver appropriate documentation to the Fund's
custodian;
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<PAGE> 2
D. Pay moneys (upon receipt from the Fund's custodian, where
relevant) in accordance with the instructions of redeeming
shareholders;
E. Process transfers of shares in accordance with the
shareowner's instructions;
F. Process exchanges between funds within the same family of
funds, if applicable;
G. Prepare and transmit payments for dividends and distributions
declared by the Fund;
H. Make changes to shareholder records, including, but not
limited to, address changes in plans (i.e., systematic
withdrawal, automatic investment, dividend reinvestment,
etc.);
I. Record the issuance of shares of the Fund and maintain,
pursuant to Rule 17Ad-10(e) under the 1934 Act, a record of
the total number of shares of the Funds which are authorized,
issued and outstanding and such other records as are required
to be maintained by a transfer agent for open-end registered
investment companies by the rules adopted under the 1934 Act;
J. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
K. Mail shareholder reports and prospectuses to current
shareholders;
L. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to
dividends and distributions for all shareholders;
M. Provide shareholder account information upon request and
prepare and mail confirmations and statements of account to
shareholders for all purchases, redemptions and other
confirmable transactions as agreed upon with the Trust; and
N. Provide a Blue Sky System which will enable the Fund to
monitor the total number of shares sold in each state. In
addition, the Fund shall identify to the Agent in writing
those transactions and assets to be treated as exempt from the
Blue Sky reporting to the Fund for each state. The
responsibility of the Agent for the Fund's Blue Sky state
registration status is solely limited to
2
<PAGE> 3
the initial compliance by the Fund and the reporting of such
transactions to the Fund.
2. COMPENSATION AND EXPENSES
The Agent shall not be entitled to receive any special compensation
for the services provided under this Agreement, and instead shall be deemed to
be compensated for its services hereunder by virtue of the fee paid to the Agent
pursuant to the Management and Investment Advisory Agreement between the Trust
and the Agent, dated 12/30 , 1996 (the "Management Agreement"); provided,
however, the Trust agrees to reimburse the Agent for its out-of-pocket expenses,
including, but not limited to the following: printing, postage, forms,
stationery, record retention, mailing, insertion, programming, labels,
shareholder lists and proxy expenses. Except for such reimbursement of expenses,
the Agent shall bear all of the costs of providing services hereunder.
The Fund agrees to pay all reimbursable expenses within thirty (30)
days following receipt of a notice for reimbursement of such expenses.
3. REPRESENTATIONS OF AGENT
The Agent represents and warrants to the Trust that:
A. It is a corporation duly organized, existing and in good
standing under the laws of Delaware.
B. It is duly qualified to carry on its business and duly
registered as a transfer agent under the 1934 Act;
C. It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement;
D. All requisite corporate proceedings have been taken to
authorize it to enter and perform this Agreement; and
E. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
4. REPRESENTATIONS OF THE TRUST
The Trust represents and warrants to the Agent that:
A. The Trust is registered under the 1940 Act as an open-ended
diversified investment company;
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<PAGE> 4
B. The Trust is a business trust organized, existing, and in good
standing under the laws of California;
C. The Trust is empowered under applicable laws and by its
Declaration of Trust and other governing documents to enter
into and perform this Agreement;
D. All necessary proceedings required to be taken by the Trust to
authorize it to enter into and perform this Agreement;
E. The Trust will comply with all applicable requirements of the
Securities Act of 1933 and the Investment Company Act of 1940,
and all other laws, rules and regulations of governmental
authorities having jurisdiction; and
F. A registration statement under the Securities Act of 1933
covering shares of the Fund is currently effective and will
remain effective. Appropriate state securities law filings
have been made and will continue to be made, with respect to
all shares of the Fund being offered and sold.
5. COVENANTS OF THE TRUST AND THE AGENT
The Funds shall furnish the Agent a certified copy of the resolution
of the Board of Trustees of the Trust authorizing the appointment of the Agent
and the execution of this Agreement. The Trust shall provide to the Agent a copy
of its Declaration of Trust and all amendments.
The Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act and the rules thereunder, the
Agent agrees that all such records prepared or maintained by the Agent relating
to the services to be performed by the Agent hereunder are the property of the
Trust and will be preserved, maintained and made available in accordance with
such section and rules and will be surrendered to the Trust on and in accordance
with its request.
6. LIABILITY; INDEMNIFICATION
A. The Agent. The Agent agrees to use reasonable care and to act in
good faith in performing its duties hereunder and shall not be liable for any
error in judgment or mistake of law or for any loss suffered by the Trust or the
Fund in connection with the matters to which this Agreement relates, provided
that the Agent has acted in accordance with such standard and with the terms of
this Agreement.
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<PAGE> 5
Notwithstanding the foregoing, the Agent shall not be liable or
responsible for delays or errors occurring by reason of circumstances beyond its
control, including acts of civil or military authority, national or state
emergencies, fire, mechanical or equipment failure, flood or catastrophe, acts
of God, insurrection or war. In the event of a mechanical breakdown beyond its
control, the Agent shall take all reasonable steps to minimize service
interruptions for any period that such interruption continues beyond the Agent's
control. The Agent will make every reasonable effort to restore any lost or
damaged data, and the correct of any errors resulting from such a breakdown will
be at the Agent's expense. The Agent agrees that it shall, at all times, have
reasonable contingency plans with appropriate parties, making reasonable
provision for emergency use of electrical data processing equipment to the
extent appropriate equipment is available.
The Trust will indemnify and hold the Agent harmless against any and
all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) ("Losses") resulting from any claim, demand, action
or suit and arising out of or in connection with the Agent's duties on behalf of
the Trust hereunder, except insofar as such Losses result from the willful
misfeasance, bad faith or negligence of the Agent in the performance of its
duties hereunder or from its reckless disregard of such duties.
In performing services hereunder, Agent shall be entitled to rely
and to act upon: (i) telephone instructions relating to the exchange or
redemption of shares received by the Agent and reasonably believed by the Agent
to have originated from the record owner of the subject shares; (ii) any
instructions executed or orally communicated by a duly authorized officer or
employee of the Trust, according to such lists of authorized officers and
employees furnished to the Agent and as amended from time to time in writing by
a resolution of the Board of Directors of the Trust; and (iii) any genuine
instrument signed, countersigned or executed by any person or persons authorized
to sign, countersign or execute the same.
B. The Trust. Article 5 of the Trust's 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.
7. CALIFORNIA LAW TO APPLY
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<PAGE> 6
This Agreement shall be deemed to have been executed in California
and shall be construed and the provisions thereof interpreted under and in
accordance with the substantive laws of the State of California, without regard
to the conflicts of laws provisions of such state.
8. TERM, AMENDMENT, ASSIGNMENT, TERMINATION AND NOTICE
A. This Agreement shall become effective as of the date set forth
above for an initial term of two years and shall continue in
effect from year to year thereafter provided that each such
continuance is approved annually by the Board of Trustees of
the Trust, including the vote of a majority of the Trustees
who are not "interested persons" of the Trust, as defined by
the 1940 Act and the rules thereunder.
B. This Agreement may be amended by the mutual written consent of
the parties.
C. This Agreement may be terminated upon ninety (90) days written
notice given by one party to the other, and shall terminate in
the event that the Management Agreement terminates (effective
as of the date of termination of the Management Agreement).
D. This Agreement and any right or obligation hereunder may not
be assigned by either party without the signed, written
consent of the other party; provided, however, that the Agent
may assign this Agreement without such consent in a
transaction which does not constitute an "assignment" as
defined by the 1940 Act and the rules thereunder.
E. Any notice required to be given by the parties to each other
under the terms of this Agreement shall be in writing,
addressed and delivered, or mailed to the principal place of
business of the other party.
F. In the event that the Trust gives to the Agent written notice
of its intention to terminate this Agreement and appoint a
successor transfer agent, the Agent agrees to cooperate in the
transfer of its duties and responsibilities to the successor,
including the transfer of any and all relevant books, records
and other data established or maintained by the Agent under
this Agreement.
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<PAGE> 7
G. Should the Trust exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records
and material will be paid by the Trust.
9. NATURE OF THE TRUST
A. 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.
B. 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.
IN WITNESS WHEREOF, the authorized representatives of the parties
hereto have executed this Agreement as of the date first written above.
Health and Hospital Facilities Trust AMBAC Investment
Management, Inc.
By: /s/ J. Michael Gallager By: /s/ Stephen Attanasio
----------------------------- --------------------------------
Its Secretary Its Managing Director
- ---------------------------------- --------------------------------
7
<PAGE> 8
EXHIBIT A
DUTIES OF THE AGENT
1. SHAREHOLDER INFORMATION
The Agent shall maintain a record of the number of shares held by each
holder of record which shall include their addresses and taxpayer
identification numbers.
2. SHAREHOLDER SERVICES
The Agent will investigate all shareholder inquiries relating to
shareholder accounts, and will answer all correspondence from shareholders
and others relating to its duties hereunder and such other correspondence
as may from time to time be mutually agreed upon between the Agent and the
Trust. The Agent shall keep records of shareholder correspondence and
replies thereto, and of the lapse of time between the receipt of such
correspondence and the mailing of such replies.
3. STATE REGISTRATION REPORTS
The Agent shall furnish the Trust on a state-by-state basis, sales
reports, such periodic and special reports as the Trust may reasonably
request, and such other information, including shareholder lists and
statistical information concerning accounts, as may be agreed upon from
time to time between the Trust and the Agent.
4. UNCERTIFICATED SHARES
(a) With respect to shares held in open accounts or uncertificated form
(i.e., no certificate being issued with respect thereto), the Agent
shall maintain comparable records of the recordholders thereof,
including their names, addresses, and taxpayer identification
numbers.
5. MAILING COMMUNICATIONS TO SHAREHOLDERS: PROXY MATERIALS
At the expense of the Trust, the Agent will address and mail to
shareholders of the Fund, all reports to shareholders, dividend and
distribution notices, and proxy material for meeting of shareholders. In
connection with the meetings of shareholders, the Agent will prepare
shareholder lists, mail, and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior
to meetings (act as inspector of election at meetings and certify shares
voted at meetings).
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<PAGE> 9
6. SALES OF SHARES
(a) PROCESSING OF INVESTMENT CHECKS OR OTHER INVESTMENTS
Upon receipt of any check or other instrument drawn or endorsed to
it as agent for, or identified as being for the account of the Fund,
or drawn or endorsed to the Distributor of the Fund's shares for the
purchase of shares, the Agent shall stamp the check with the date of
receipt, shall forthwith process the same for collection and, shall
record the number of shares sold, the trade date and price per
share, and the amount of money to be delivered to the custodian of
the Fund for the sale of such shares.
(b) ISSUANCE OF SHARES
Upon receipt of notification that the Fund's custodian has received
the amount of money specified in the immediately preceding
paragraph, the Agent shall issue to and hold in the account of the
purchaser/shareholder, or if no account is specified therein, in a
new account established in the name of the purchaser, the number of
shares such purchaser is entitled to receive, as determined in
accordance with applicable Federal law and regulations.
(c) CONFIRMATIONS
The Agent shall send to purchasers of shares confirmations of their
purchases and periodic statements which will show the new share
balance, the shares held under a particular plan, if any, for
withdrawing investments, the amount invested, and the price paid for
the newly purchased shares, or will be in such other form as the
Trust and the Agent may agree from time to time. Such confirmations
and statements will be sent at such times as may be required by
applicable laws and regulations or as may otherwise be agreed to by
the Trust and the Agent in compliance with such laws and
regulations.
(d) SUSPENSION OF SALE OF SHARES
The Agent shall not be required to issue any shares of the Fund
where it has received a written instruction from the Trust or
written notice from any appropriate Federal or state authority that
the sale of the shares of the Fund has been suspended or
discontinued, and the Agent shall be entitled to rely upon such
written instructions or written notification.
2
<PAGE> 10
(e) TAXES IN CONNECTION WITH ISSUANCE OF SHARES
Upon the issuance of any shares in accordance with the foregoing
provisions of this Section, the Agent shall not be responsible for
the payment of any original issue or other taxes required to be paid
in connection with such issuance.
(f) RETURNED CHECKS
In the event that any check or other order for the payment of money
is returned unpaid for any reason, the Agent will: (i) give prompt
notice of such return to the Trust or its designee; (ii) place a
stop transfer order against all shares issued as a result of such
check or order; and (iii) take such actions as the Agent may from
time to time deem appropriate.
7. REDEMPTIONS
(a) REQUIREMENTS FOR TRANSFER OR REDEMPTION OF SHARES
The Agent shall process all requests from shareholders to transfer
or redeem shares in accordance with the procedures set forth in the
Fund's Prospectus, including, but not limited to, all requests from
shareholders to redeem shares and all determinations of the number
of shares required to be redeemed to fund designated monthly
payments, automatic payments, or any other such distribution or
withdrawal plan.
The Agent will transfer or redeem shares upon receipt of written
instructions, accompanied by such documents as the Agent reasonably
may deem necessary to evidence the authority of the person making
such transfer or redemption, and bearing satisfactory evidence of
the payment of stock transfer taxes, if any.
The Agent reserves the right to refuse to transfer or redeem shares
until it is satisfied that the endorsement on the instructions is
valid and genuine, and for that purpose it may require a guarantee
of signature by a member firm of a national securities exchange, by
any national bank or trust company, by any member bank of the
Federal Reserve system or by other eligible guarantor institution.
The Agent also reserves the right to refuse to transfer or redeem
shares until it is satisfied that the requested transfer or
redemption is legally authorized, and it shall incur no liability
for the refusal, in good faith, to make transfers or redemptions
which the Agent, in its judgment, deems improper or unauthorized, or
until it is reasonably satisfied that there is no
3
<PAGE> 11
basis to any claims adverse to such transfer or redemption.
The Agent may, in effecting transactions, rely upon the provisions
of the Uniform Act for the Simplification of Fiduciary Security
Transfers or the provisions of Article 8 of the Uniform Commercial
Code, as the same may be amended from time to time in the State of
California, which, in the opinion of legal counsel for the Trust or
of its own legal counsel protect it in not requiring certain
documents in connection with the transfer or redemption of shares.
The Trust may authorize the Agent to waive the signature guarantee
in certain cases by written instructions.
For the purposes of the redemption of shares of the Fund which have
been purchased within 15 days of a redemption request, the Trust
shall provide the Agent with written instructions concerning the
time within which such requests may be honored.
(b) NOTICE TO CUSTODIAN AND FUND
When shares are redeemed, the Agent shall, upon receipt of the
instructions and documents in proper form, deliver to the Fund's
custodian and the Trust a notification setting forth the number of
shares to be redeemed. Such redemptions shall be reflected on
appropriate accounts maintained by the Agent reflecting outstanding
shares of the Fund and shares attributed to individual accounts and,
if applicable, any individual withdrawal or distribution plan.
(c) PAYMENT OF REDEMPTION PROCEEDS
The Agent shall, upon receipt of the moneys paid to it by the Fund's
custodian for the redemption of shares, pay to the shareholder, or
his authorized agent or legal representative, such moneys as are
received from the custodian, all in accordance with the redemption
procedures described in the Fund's Prospectus; provided, however,
that the Agent shall pay the proceeds of any redemption of shares
purchased within a period of time agreed upon in writing by the
Agent and the Trust, only in accordance with procedures agreed to in
writing by the Agent and the Trust, for determining that good funds
have been collected for the purchase of such shares. The Trust shall
indemnify the Agent for any payment of redemption proceeds or
refusal to make such payment, if the payment or refusal to pay is in
accordance with said written procedures.
4
<PAGE> 12
The Agent shall not process or effect any redemptions pursuant to a
plan of distribution or redemption, or in accordance with any other
shareholder request upon the receipt by the Agent of notification of
the suspension of the determination of the Fund's net asset value.
8. DIVIDENDS
(a) NOTICE TO AGENT AND CUSTODIAN
Upon the declaration of each dividend and each capital gains
distribution by the Board of Trustees of the Trust with respect to
shares, the Trust shall furnish to the Agent a copy of a resolution
of its Board of Trustees, certified by the Secretary of the Trust,
setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be
determined, the amount payable per share to the shareholders of
record as of that date, the total amount payable to the Agent on the
payment date, and whether such dividend or distribution is to be
paid in shares of such class at net asset value.
On or before the payment date specified in such resolution of the
Board of Trustees, the Trust will cause the custodian of the Fund to
pay to the Agent sufficient cash to make payment to the shareholders
of record as of such payment date.
(b) PAYMENT OF DIVIDENDS BY THE AGENT
The Agent will, on the designated payment date, automatically
reinvest all dividends required to be reinvested in additional
shares at net asset value (determined on such date), and mail to
shareholders statements at such times as may be required by
applicable law or agreed to by the Trust and the Agent showing the
number of full and fractional shares (rounded to three decimal
places) then currently owned by the shareholders and the net asset
value of the shares so credited to the shareholders' accounts.
(c) INSUFFICIENT FUNDS FOR PAYMENTS
If the Agent does not receive sufficient cash from the Fund's
custodian to make total dividend and/or distribution payments to all
shareholders as of the record date, the Agent will, upon notifying
the Trust, withhold payment to all shareholders of record as of the
record date, until such sufficient cash is provided to the Agent.
5
<PAGE> 13
(d) INFORMATION RETURNS
It is understood that the Agent shall file such appropriate
information returns concerning the payment of dividends, return of
capital, and capital gain distributions with the proper Federal,
state, and local authorities as are required by law to be filed and
shall be responsible for the withholding of taxes, if any, due on
such dividends or distributions to shareholders when required to
withhold taxes under applicable law.
6
<PAGE> 1
EXHIBIT (9)(B)
================================================================================
-------------------------------------------
CONSULTING AGREEMENT
BETWEEN
SHAREPLUS, INC.
AND
AMBAC INVESTMENT MANAGEMENT, INC.
December 30, 1996
-------------------------------------------
================================================================================
<PAGE> 2
CONSULTING AGREEMENT
This Agreement, executed on December ___, 1996, is made by and between the
SHAREPLUS, INC., a California corporation ("SharePlus"), and AMBAC INVESTMENT
MANAGEMENT, INC., a Delaware corporation ("AIMI"):
RECITALS
The California Hospital and Health Facilities Liquid Asset Fund (the
"Fund") was established as a Portfolio of the Hospital and Health
Facilities Trust (the "Trust") formed by the Hospital Council of Northern
and Central California under a Declaration of Trust dated as of February
12, 1992;
The Trust is registered with the Securities and Exchange Commission
as an open-end, diversified investment company under the Investment
Company Act of 1940 and the Fund's Shares are registered under the
Securities Act of 1933;
AIMI has entered into a Management and Investment Advisory Agreement
with the Trust of even date herewith to provide management services as
investment adviser to the Fund, which operates as a money market mutual
fund; and
AIMI desires to avail itself of the experience, and consulting
assistance of SharePlus in providing the services required under the
Management and Investment Advisory Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
APPOINTMENT, DUTIES AND
COMPENSATION OF CONSULTANT
1.1 APPOINTMENT AS CONSULTANT. AIMI hereby retains SharePlus as a
consultant on the terms and for the period set forth in this Agreement, and
SharePlus hereby accepts such appointment and agrees to provide consulting
services for the compensation set forth in this Agreement.
<PAGE> 3
1.2 SERVICES AS CONSULTANT. SharePlus shall:
(a) Consult with, advise and provide AIMI and its affiliate, AMBAC
Securities, Inc. ("AMBAC Securities"), information about the members of the
Hospital Council of Northern and Central California and others involved in the
health care industry who are eligible to participate in the Fund in order to
assist AIMI and its affiliate in providing services to the Fund and its
Participants;
(b) Schedule and announce through its publications, informational
meetings and seminars at which representatives of AMBAC Securities, who are
licensed as securities salesmen, will discuss the Fund and related matters;
(c) Consult with AIMI as to local facilities to be used in
connection with the administration and operation of the Fund;
(d) Assist in the preparation and dissemination of information with
respect to the existence of the Fund;
(e) Allow the use of its publications to give information on how to
obtain materials concerning the Fund;
(f) Consult with the Fund and AIMI regarding coordination of efforts
and the resolution of operational difficulties that may arise between the Fund
and persons that are or may become participants in the Fund;
(g) Provide AMBAC Securities with mailing lists of potential
participants in the Fund;
(h) Permit the use of its logos in informational materials prepared
regarding the Fund; and
(i) Retain health care industry associations and others to assist
SharePlus in providing the consulting services required under this Agreement.
1.3 LIMITATIONS ON ACTIONS OF CONSULTANT. SharePlus understands that
neither it nor any other person whom it may retain as provided in Section 1.2(i)
shall have any discretion to accept or reject the application of any person to
become a participant in the Fund. It will forward all requests for information
regarding the Fund that may be received by it directly to AMBAC Securities for
appropriate action. SharePlus
3
<PAGE> 4
further understands and agrees that neither it nor any person it retains as a
consultant as provided in Section 1.2(i) will:
(a) Accept application or registration forms from persons seeking to
become participants by buying Shares of the Fund;
(b) Accept any cash, checks, wire transfers, or other forms of
payment from any person that may be remitted for the purchase of Shares in the
Fund;
(c) Deliver any Prospectus, Statement of Additional Information or
other informational or advertising document prepared in connection with the
offering of Shares by the Fund to any person or potential participant in the
Fund;
(d) Engage in the offer or sale of Shares of the Fund or otherwise
engage in any activity that would necessitate the registration of SharePlus as a
broker-dealer under federal or state law;
(e) Engage in any direct solicitation of individual participants in
the Fund or individual prospective participants in the Fund with respect to the
sale of Fund Shares or the services of AIMI; or
(f) Permit its employees and agents, or the employees and agents of
any other person retained to provide consulting services pursuant to Section
1.2(i), to engage in, and will take reasonable action to prevent such employees
and agents from engaging in, the activities described in this Section 1.3.
1.4 COMPENSATION AS CONSULTANT. AIMI agrees to pay to SharePlus for its
services as consultant 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 net assets:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE
<S> <C> <C>
Up to $250,000,000.............. .100%
$250,000,001 - $500,000,000 ..... .0925%
$500,000,001 and above........... .0850%
</TABLE>
SharePlus may, in its discretion, assign and pay, or direct AIMI to pay,
to any person retained as a consultant as permitted by Section 1.2(i) a portion
of the fees payable under this Section 1.4, and AIMI agrees that it will pay
such portion of the fees as may be directed in writing by SharePlus.
4
<PAGE> 5
ARTICLE 2
LIMITATION OF LIABILITY
SharePlus shall not be liable for any error in judgment or mistake of law
or for any loss suffered by AIMI 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 it of its obligations and duties under this
Agreement; provided, the foregoing shall not limit SharePlus' liability with
respect to any breaches by it of this Agreement. SharePlus shall not be liable
for the payment of any of the administrative costs of the Fund.
ARTICLE 3
DURATION AND TERMINATION
This Agreement shall become effective on the date first set forth above
and continue in effect until terminated as provided herein. This Agreement may
be terminated at any time by SharePlus, without the payment of any penalty, on
sixty (60) days' written notice to AIMI. The Agreement may not be terminated by
AIMI. This Agreement shall automatically terminate on the date that the
Management and Investment Advisory Agreement described in the Recitals
terminates, and shall also terminate if the representations set forth in Section
4.1 cease to be true.
If SharePlus ceases to Act as a consultant under this Agreement, AIMI
agrees that, at SharePlus' request, it will take all necessary steps to
discontinue use of any logo of SharePlus or other indication of SharePlus'
support of the Fund.
ARTICLE 4
REPRESENTATIONS
4.1 SHAREPLUS. SharePlus represents that neither it nor any other person
who it may retain pursuant to Section 1.2(i):
(a) Is subject to an order of the Securities and Exchange Commission
(the "S.E.C.") issued under Section 203(f) of the Investment Advisers Act of
1940 (the "Advisers Act");
(b) Has been convicted of any felony or misdemeanor involving
conduct described in Sections 203(e)(2)(A)-(D) of the Advisers Act;
(c) Has been found by the S.E.C. to have been engaged,
nor been convicted of engaging, in any of the conduct specified
5
<PAGE> 6
in paragraphs (1), (4) or (5) of Section 203(e) of the Advisers Act; or
(d) Is subject to any order, judgment or decree described in Section
203(e)(3) of the Advisers Act.
SharePlus further represents that it has full power and authority to enter
into this Agreement and the persons signing this Agreement on its behalf have
full power and authority to do so.
4.2 AIMI. AIMI represents that:
(a) It has in effect all registrations, licenses, bonds and
approvals necessary for its entering into this Agreement and the performance of
its duties hereunder and is registered as an investment adviser under the
Advisers Act; and
(b) It has full power and authority to enter into this Agreement and
the persons signing this Agreement on its behalf have full power and authority
to do so.
ARTICLE 5
WARRANTIES
SharePlus warrants that:
(a) It shall not directly or indirectly seek any compensation, fee
or payment of whatever kind from any participant in the Fund or prospective
participant in the Fund on account of any services provided pursuant to this
Agreement;
(b) It shall perform its duties under this Agreement in a manner
consistent with the instructions of AIMI and with the Advisers Act and the
applicable rules thereunder;
(c) It shall make no solicitation or sale of Shares of the Fund at
any time, and agrees to restrict its activities to comply with AIMI's
Communication Guidelines (Exhibit 1); and
(d) It shall obtain from each other person it retains pursuant to
Section 1.2(i) the same warranties as are being made by SharePlus in
sub-paragraphs (a), (b) and (c) of this Section 5.1.
ARTICLE 6
MISCELLANEOUS
6
<PAGE> 7
6.1 AMENDMENTS. This Agreement shall not be modified or amended without
the consent of both parties hereto, which consent must be evidenced by an
instrument in writing executed by each party hereto.
6.2 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.
6.3 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.
6.4 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
6.5 NOTICES. Notices or consent 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 by certified mail, return receipt requested,
postage prepaid, to the appropriate party as follows:
a. If to AIMI:
AMBAC Investment Management, Inc.
905 Marconi Avenue
Ronkonkoma, NY 11779
b. If to SharePlus:
SharePlus, Inc.
7901 Stoneridge Drive, Suite 500
Pleasanton, CA 94588
or at such other address as shall be specified by either party by notice given
in the manner required by this Section 4.5.
6.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
6.7 APPLICABLE LAW. This Agreement shall be deemed to have been executed
in the State of California and the substantive laws
7
<PAGE> 8
of the State of California shall govern the construction of this Agreement and
the rights and remedies of the respective parties hereto.
6.8 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.
SHAREPLUS, INC.
By /s/ J. Michael Gallager
Its
-----------------------------------
AMBAC INVESTMENT MANAGEMENT, INC.
By /s/ Stephen Attanasio
--------------------------------------
Its Managing Director
---------------------------------
8
<PAGE> 9
EXHIBIT 1
GUIDELINES FOR AMBAC PERSONNEL AND CONSULTANTS REGARDING SALES AND MARKETING OF
CALIFORNIA HOSPITAL AND HEALTH FACILITIES
LIQUID ASSET FUND
INDEX
SECTION 1
PERMISSIBLE SALES AND MARKETING ACTIVITIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Can I communicate with members of the public on matters relating to the
sale or marketing of shares of the Fund? 3
2. If I am not a registered representative, what types of sales and marketing
activities are prohibited? 3
3. If I am not a registered representative, what types of Fund related oral
communications are permissible? 4
4. Do restrictions also apply to the activities of persons who are registered
representatives? 4
5. Can I accompany a registered representative in making a sales presentation
to a prospective investor? 5
6. What effect do the restrictions applicable to persons who are not
registered representatives have on my ability to assist in the preparation
of sales and marketing related materials or to engage in other internal
sales or marketing activities? 5
7. If I am not a registered representative, can I discuss the Fund at an
industry sponsored seminar or conference at which I am making a
presentation? 6
8. If I am not a registered representative, can I respond to questions from
shareholders of the Fund regarding their accounts or to general
administrative questions? 6
9. What should I do when I receive a phone call from a prospective investor
if I am not a registered representative? 6
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C>
10. If I am not a registered representative, can I mail information to a
prospective investor if he or she wishes to obtain additional information?
What can I mail and what must I include in the mailing? 7
11. What can happen if I fail to comply with applicable restrictions? 7
12. Do the various restrictions also apply to senior management of AIMI and
other AMBAC affiliates? 7
13. How should press and media inquiries be handled? 8
</TABLE>
SECTION 2
RULES APPLICABLE TO ADVERTISING AND SALES MATERIALS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Are there limitations on advertising and on the types and content of sales
materials that can be sent or given to prospective investors? 9
2. Must prospectuses for the Fund accompany letters or sales materials sent
or given to prospective investors? 9
3. Who can send sales materials to prospective investors or place
advertisements for publication? 10
</TABLE>
- -------------------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING SALES, MARKETING OR ADVERTISING
RESTRICTIONS AND REQUIREMENTS WHICH ARE NOT ANSWERED BY THESE GUIDELINES,
OR IF YOU NEED FURTHER GUIDANCE REGARDING THESE MATTERS, YOU SHOULD
CONTACT MATT SCHROEDER, COMPLIANCE OFFICER OF AMBAC INVESTMENT MANAGEMENT
INC., AT (203) 341-2304.
- -------------------------------------------------------------------------------
2
<PAGE> 11
SECTION 1
PERMISSIBLE SALES AND MARKET ACTIVITIES
1. Question:
Can I communicate with members of the public, including persons who are
customers of AMBAC Inc. ("AMBAC") or of any of its affiliated companies or
organizations affiliated with any consultant, regarding matters relating
to the sale or marketing of shares of California Hospital and Health
Facilities Liquid Asset Fund (the "Fund")?
Answer:
That depends on whether or not you are a registered representative of the
company that serves as the distributor of the Funds' shares (the
"Distributor"). As a general rule, only persons who have been licensed as
registered representative of the Distributor can communicate with the
public, including any prospective potential investors in the Fund, in
connection with sales of the Fund's shares or engage in any other fund
related marketing activities. Certain very limited exceptions to this rule
are discussed below.
2. Question:
If I am not a registered representative of the Distributor, what types of
sales and marketing activities are prohibited?
Answer:
The following are examples of activities that would be prohibited:
- You may not solicit orders to sell shares of the Fund.
- You may not accept orders from investors, even if the orders
were unsolicited.
- You may not communicate with prospective investors, whether in
person, in writing, by phone or by any other means, regarding
the possible investment by them in shares of the Fund or on
other matters relating to the sale of the Fund's shares.
- You may not discuss the Fund or its features or advantages
with prospective investors.
- You may not pre-qualify prospective investors regarding their
eligibility to purchase shares of the Fund, or discuss with
them the suitability of such an investment or their financial
status, investment history or investment objectives.
3
<PAGE> 12
- You may not complete an account application for a prospective
investor.
- You may not sign any sales-related correspondence. (See also
Question 10 on mailing materials to prospective investors.)
3. Question:
If I am not a registered representative of the Distributor, what types of
Fund related oral communications are permissible?
Answer:
The following are permissible:
- You may say that AMBAC Investment Management, Inc. ("AIMI") serves
as the investment adviser to the Fund and identify the organizations
which act as consultants to AIMI with respect to the Fund. You also
may say that the Fund is a "no-load money market mutual fund".
- You may ask a prospective investor whether he or she wishes to
obtain additional information, including a prospectus. (See also
Question 10 as to the procedures applicable to mailing prospectus
and sales related materials.)
- You may ask a prospective investor whether he or she wishes to meet
or speak with a registered representative of the Distributor and
make arrangements for such a meeting or conversion.
- You may extend invitations to prospective investors, inviting them
to attend seminars or other sales-related events sponsored by the
Distributor and conducted by appropriately registered
representatives. However, any written invitations or announcements
of such events must be approved by the Distributor. (See Section II,
Questions 1 and 3.)
- You may contact existing investors regarding non-investment related
matters concerning an investor's account. (See also Question 8 for
examples of non-investment related matters.)
4. Question:
Do restrictions also apply to the sales and marketing activities of
personnel who are registered representatives of the Distributor?
4
<PAGE> 13
Answer:
Yes, but they are different. Registered representatives are not subject to
the restrictions on the activities of unlicensed persons set forth above.
However, they must comply with various state and federal regulations and
NASD rules in connection with their sales and marketing activities. These
activities must also be conducted in accordance with policies established
by the Distributor which are set forth in the Distributor's compliance
manual.
The Distributor supervises the activities of its registered
representatives to help assure compliance with applicable rules and
policies.
5. Question:
Can I accompany a registered representative in making a sales presentation
to a prospective investor?
Answer:
Yes. You can accompany registered personnel for purposes of introducing a
registered representative to a person whom you know and believe may be
interested in purchasing shares of the Fund. You may also attend (but may
not participate in) marketing seminars and similar events sponsored by the
Distributor. You may also attend industry "trade shows" at which AMBAC is
an exhibitor, provided you do not engage in marketing the Fund. In all of
these cases, however, the limitations on your activities described in the
responses Questions 1, 2 and 3 above continue to apply, even though a
registered representative is present. If for any reason a registered
representative is temporarily not present at a trade show, you may not
"fill in" for the registered representative. In such a case, you may only
arrange for prospective investors to receive authorized written sales
materials (which must include a prospectus), and arrange for them to meet
with the registered representative when he or she is again available.
6. Question:
What effect do the restrictions applicable to persons who are not
registered representatives have on my ability to assist in the preparation
of sales and marketing related materials concerning the Fund or to engage
in other internal activities related to sales or marketing of the Fund.
5
<PAGE> 14
Answer:
The restrictions outlined above apply to your dealing and communications
with members of the public (i.e., prospective investors). They do not
prohibit you from performing internal activities such as writing or
designing advertisements, sales materials, and marketing and seminar
scripts, or from performing marketing related research. However, as
discussed in Section II below, all written sales and marketing related
materials must be approved prior to use by a registered principal of the
Distributor and must be filed with the NASD. Also, certain procedures must
be followed in connection with mailing these materials. (See Question 10.)
7. Question:
If I am not a registered representative, can I discus the Fund at an
industry sponsored seminar or conference at which I am making a
presentation?
Answer:
Only to a very limited extent. You may mention that AIMI is a registered
investment adviser and that it serves as the investment adviser of a
registered mutual fund that is designed for investors who are either a
hospital, health system, health facility, medical group, health insuring
organization, or other healthcare institution, provider or payer. You may
also mention the name of the Fund. However, you must keep in mind that,
under the restrictions discussed above, an unlicensed person may not
discuss the features or benefits of the Fund and may not discuss their
investment objectives or policies with the public. Thus, your statements
should do no more than identify AIMI and the Fund. If you believe that
investment matters are likely to be discussed or that questions relating
to the Fund are likely to be asked at a seminar or conference at which you
are going to be speaking, you should consult with the compliance officer
at AIMI in advance (preferably, before agreeing to speak) to obtain more
detailed advice.
8. Question:
If I am not a registered representative, can I respond to questions from
shareholders of the Fund regarding their accounts or to general
administrative question they may have regarding the Fund (e.g., questions
relating to share purchase and redemption procedures, account status,
account balance, recent account activity and dividend procedures)?
Answer:
Yes. Provided that responses are limited to clerical or ministerial
matters that are not investment related, an unregistered person may
respond to administrative questions of this type. You may not, however,
respond to any investment related questions. Any such questions must be
referred to a registered representative.
6
<PAGE> 15
9. Question:
What should I do when I receive a phone call from a prospective investor
if I am not a registered representative?
Answer:
If the caller is requesting written information about the Fund, you may
arrange for such information (including a prospectus) to be sent. (See
Question 10.) In all other cases, you should transfer the call to a
registered representative who is available to handle the call. If a
registered representative is not available, you should ask the caller for
his or her name and telephone number and say that a registered
representative will return their call as soon as possible. (See Questions
2 and 3.)
10. Question:
If I am not a registered representative, can I mail information to a
prospective investor if he or she wishes to obtain additional information?
What can I mail and what must I include in the mailing?
Answer:
Unless you are a registered representative or have been specifically
trained and authorized to handle fulfillment requests, you may not mail
any marketing or sales materials or prospectuses to prospective investors.
You should forward all requests to send materials to a registered
representative or appropriate individuals who have been assigned
fulfillment responsibilities.
11. Question:
What can happen if I fail to comply with applicable restrictions?
7
<PAGE> 16
Answer:
A failure to comply with the restrictions on the activities of unlicensed
personnel can result in severe regulatory action against you, your
employer organization, AMBAC registered representatives, AMBAC registered
supervisory personnel, the Distributor, and against AIMI or another AMBAC
affiliate for violation of federal and state securities laws. Potential
regulatory sanctions for violations can be severe, and may include civil
money penalties as well as criminal penalties in egregious circumstance
against you personally or against one of the AMBAC companies or the
organization with which you are affiliated. In addition, in case of AMBAC
personnel, internal sanctions may be imposed by AMBAC if you fail to
comply with applicable limitations. These internal sanctions may range
from a letter of warning, which will be included in your official
personnel file, or termination of your employment, depending on the
circumstances. Because violations can adversely affect the reputation of
AMBAC and can also result in sanctions which might adversely affect the
authority of AMBAC to engage in securities related businesses, the failure
of any person who is a director, officer or employee of any AMBAC
affiliated company to comply with applicable rules and limitations
applicable to sales and marketing activities will be viewed as a serious
matter and will be subject to appropriate internal sanctions.
12. Question:
Do the various restrictions discussed above also apply to senior
management of AIMI and other AMBAC affiliates?
Answer:
Yes. Senior management of AIMI and its affiliates who are not licensed as
registered representatives are subject to same limitations as all other
personnel.
13. Question:
How should press and media inquiries be handles?
Answer:
Communications with the press and media should be viewed as a form of
advertising. Thus, all such communications regarding the Fund should be
conducted only by specifically authorized registered representatives.
Non-licensed persons employed by any AMBAC affiliated company should not
discuss the Fund when dealing with the press and media. All press and
media inquiries should be forwarded to John Cathey at (212) 208- 3490.
Registered representatives authorized to respond to press and media
inquiries must limit the content of their communications with the press
and media to information of the type which could be given to prospective
investors without triggering a prospectus delivery requirement. Therefore,
before speaking with the press or media (or agreeing to any telephone or
in person
8
<PAGE> 17
interview) a registered representative should inform AIMI's compliance
officer and obtain guidance as to what can and cannot be said.
9
<PAGE> 18
SECTION II
RULES APPLICABLE TO ADVERTISING AND SALES MATERIALS
1. Question:
Are there limitations on advertising and on the types and content of sales
materials that can be sent or given to prospective investors?
Answer:
Yes. The only advertisements that may be used, and the only sales
materials that may be sent or given to prospective investors, are those
that have been approved for use by a registered principal of the
Distributor. For this purpose, advertising and sales materials should be
deemed to include any written material or advertisement (or similar
material in electronic, video or audio format or on film) which is
disseminated in connection with the marketing or selling of shares of the
Fund, including, but not limited to, form letters, seminar scripts, press
releases, announcements and business cards. In addition, no other sales
related correspondence (such as a non-form letter) may be sent to
prospective investors unless approved by a registered principal. However,
letters regarding administrative matters sent by personnel of AIMI or the
Distributor to existing shareholders of the Fund need not be viewed as
sales materials. (See response to Question 8 above.)
You should also be aware that various SEC and NASD rules require the
filing of sales materials and govern the permissible content of sales
materials. (The Distributor is responsible to make required filings with
the NASD.) A failure to comply with any of these restrictions, including
applicable approval requirements, can result in violations of law and can
be subject to regulatory sanctions of the type mentioned in response to
Question 9 of Section I above. AMBAC will view violations by its personnel
of any of these restrictions and requirements as a serious matter and will
impose such internal sanctions on personnel who do not comply with
applicable procedures as may be appropriate.
2. Question:
Must prospectuses for the Fund accompany letters or sales materials sent
or given to prospective investors?
Answer:
Sometimes. The answer depends on the type of materials involved. Materials
that comply with certain SEC rules (which specify the permissible content
of a communication) need not be accompanied by prospectuses. Registered
representatives and designated individuals who have been assigned
fulfillment responsibilities (who are the only persons authorized to send
or give sales materials to prospective investors) will be advised of those
materials that can be sent or given without prospectuses also being sent.
10
<PAGE> 19
Regarding prospectuses, applicable rules state that you may not alter a
prospectus. This includes highlighting, writing on or circling information
included in the prospectus.
3. Question:
Who can send sales materials to prospective investors? Who can place
advertisements for publication?
Answer:
Because sending materials of this type is a sales related activity, only
registered representatives, or unregistered persons who have been
specifically authorized and trained to handle fulfillment requests, may
send sales materials to prospective investors. It is important to remember
that only sales materials that have received necessary approvals under the
Distributor's compliance procedures may be used.
The same prohibitions and procedures apply to the placement of
advertisements. Only registered representatives or specifically
authorized, unregistered persons may place advertisements, provided in all
cases, a properly approved "Marketing and Sales Literature Approval Form"
has been completed.
11
<PAGE> 20
To: Matt Schroeder
Compliance Officer
AMBAC Investment Management, Inc.
I have received a copy of the Guidelines for AMBAC Personnel and Consultants
Regarding Sales and Marketing of California Hospital and Health Facilities
Liquid Asset Fund (the "Guidelines").
I have read, understand and agree to comply with the Guidelines.
- ------------------------------ -----------------
Signature Date
- ------------------------------
Name (PLEASE PRINT)
- ------------------------------
Location
12
<PAGE> 1
EXHIBIT (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
February ____, 1997
To the Board of Trustees and Shareholder
Hospital and Health Facilities Trust -
California Hospital and Health
Facilities Liquid Asset Fund:
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 31, 1997, relating to the financial statements and financial highlights
of the California Hospital and Health Facilities Liquid Asset Fund, which
appears in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Accountants" in the Prospectus
and to the reference to us under the heading "Independent Auditor" in the
Statement of Additional Information.
<PAGE> 2
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
201 North Service Road
Melville, New York 11747
