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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. [ 7 ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. [ 10 ]
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 M. Sullivan
905 Marconi Avenue
Ronkonkoma, NY 11779
(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)
[x] on April 30, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] 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
[ ] 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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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
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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
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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, Ambac Cadre Financial Services, Inc. ("Ambac 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, Ambac 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
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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 Ambac Cadre Financial Services, Inc.
("Ambac Cadre Financial") for managing the Fund's investments and business
affairs and distributing its shares. Ambac 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
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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
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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.
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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
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<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:
Ambac 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.
- Automated Clearing House Credits (ACH) -- Participants will begin
earning on their investment the following day by calling the
Custodian's toll-free number 1-800-568-1300 by 3:00 p.m. Central Time,
and requesting an investment through the use of an 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 Ambac 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 a checkwriting authorization form and
signing the custodian bank's certificate of authority form. Participants may
issue checks in any dollar amount. Checks will be honored only if they are
properly signed by a person authorized on the certificate of authority. 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. Ambac 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 Ambac
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
Ambac 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,
Ambac 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 Ambac Cadre
Financial at a later time for any operating expenses which have been previously
reimbursed.
DISTRIBUTOR. Ambac Cadre Securities, Inc. ("Ambac Cadre Securities"),
an affiliate of Ambac 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, Minnesota 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. Ambac Cadre Financial Services, Inc. is the Fund's
transfer agent and dividend disbursing agent.
TRUST EXPENSES. Pursuant to the Management and Investment Advisory
Agreement, Ambac 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 Ambac Cadre Financial, including insurance, interest
and taxes, expenses of those Trustees who are not "interested persons" Ambac
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 Ambac 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
under the name Hospital and Health Facilities Trust. Effective April 30, 1997,
the Trust's name was changed to Cadre Network Health Financial Services Trust.
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.
Ambac 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
Ambac Cadre Financial Services, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
DISTRIBUTOR
Ambac 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
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 Ambac 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.
Ambac Cadre Financial Services, Inc. ("Ambac Cadre Financial") serves
as the Fund's investment adviser and transfer and dividend disbursing agent.
Ambac Cadre Securities, Inc. ("Ambac Cadre Securities"), an affiliate of Ambac
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 and officers 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.
WILLIAM T. SULLIVAN, JR., CHAIRMAN AND TRUSTEE*. Chairman and CEO,
Ambac Cadre Financial Services, Inc. since 1996. Chairman and CEO of CF
Services, Inc. (formerly Cadre Financial Services, Inc.) since 1983. His
address is 905 Marconi Avenue, Ronkonkoma, New York 11779. Age: 51.
JENETE M. MASLONKA, TREASURER AND TRUSTEE. Chief Operating Officer,
Network Health Financial Services since 1996; Banking consultant 1993-1994;
Compliance Officer 1993-1994 and Senior Vice President, Operations 1989-1993,
First Professional Bank. Her address is 11835 W. Olympic Boulevard, Suite
650E, Los Angeles, California 90064. Age: 42.
WILLIAM K. PICHE, SECRETARY AND TRUSTEE. President and CEO since 1997
and Executive Director 1995-1997, SharePlus, Inc.; Regional Vice President,
Operations and Development, Paracelsus Healthcare Corp. 1993-1995; President
and CEO, Memorial Hospitals Association, Modesto, California 1987-1993. His
address is 7901 Stoneridge Drive, Suite 500, Pleasanton, California 94588.
Age: 50.
ALAN H. ANDERSON, TRUSTEE. President, South Coast Health Care
Management, Inc. His address is 3901 E. 4th Street, Long Beach, California
90814. Age: 54.
J. KENDALL ANDERSON, TRUSTEE. President and Chief Executive Officer of
the John Muir-Mt. Diablo Health Systems. His address is 1601 Ygnacio Valley
Road, Walnut Creek, California 94598. Age: 54.
ELIZABETH SUZANNE 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: 39.
<PAGE> 22
DENNIS A. EDER, TRUSTEE. Senior Vice President and CFO, Care America
Health Plans since 1995; Acting CFO, since September 1996, Vice President,
Treasury, UniHealth 1988 to 1995. His address is 6300 Canoga Avenue, Woodland
Hills, California 91367. Age: 44.
HARVEY A. FEIN, TRUSTEE. Chief Financial Officer, Molina Medical
Centers since 1995; Financial Consultant 1994-1995; Director of Finance, Blue
Cross of California-Wellpoint Health Networks, Inc. 1990-1994. His address is
One Golden Shore, Long Beach, California 90802. Age: 50.
FRANK E. GIBSON, TRUSTEE. President and Chief Executive Officer of
Hospital Consortium of San Mateo County since 1981. CEO, Sequoia Health Care
District since 1996. His address is 1600 Trousdale Drive, Burlingame,
California 94010. Age: 54.
TERRY HARTSHORN, TRUSTEE. Chairman since 1993 and President and CEO
1976-1993, PacifiCare Health Systems; President and CEO UniHealth January
1997-1993. His address is 3400 Riverside Drive, Burbank, California 91505.
Age: 52.
JAMES O. HILLMAN, TRUSTEE. Senior Vice President, Physicians Group
Council, Health Care Association of Southern California, since April 30, 1997;
Chief Operating Officer, American Medical Group Association April 1997-1996;
Executive Director, Unified Medical Group Association 1988-1996. His address
is 3010 Old Ranch Parkway #190, Seal Beach, California 90740. Age: 62.
MARTIN L. HOPP, TRUSTEE. Otolaryngologist, Head and Neck Surgeon on
staff of Cedars-Sinai Medical Center, Century City Hospital and Midway
Hospital; Chief Operating Officer, Beverly Hills Care. His address is 8631 W.
Third Street, Suite 440E, Los Angeles, California 90048. Age: 47.
JAY HUDSON, 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.
* Mr. Sullivan is an "interested person" of the Trust, as defined in the
Investment Company Act of 1940, by virtue of his affiliation with Ambac Cadre
Financial.
Trustees who are not "interested persons" 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
Ambac Cadre Financial Services, Inc. ("Ambac 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> 23
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 Ambac 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, Ambac 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. Ambac 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 Ambac Cadre Financial and
its affiliates performing services relating to research, statistical and
investment activities. In addition, Ambac 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.
Ambac 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 Ambac Cadre
Financial, including
4
<PAGE> 24
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. Ambac 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 Ambac 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 Ambac 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 Ambac 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, Ambac 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> 25
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 April 23, 1997, Ambac Cadre Securities, an affiliate of
Ambac 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 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
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 Ambac 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).
Ambac Cadre Securities provides services under the Distribution
Agreement in consideration of the fees paid by the Fund to its affiliate, Ambac
Cadre Financial, for the advisory and management services provided pursuant to
the Advisory Agreement.
6
<PAGE> 26
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> 27
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> 28
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> 29
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 Ambac 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 Ambac 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 Ambac Cadre Financial.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by Ambac Cadre Financial in advising other
funds it advises and, conversely, research services furnished to Cadre Financial
by brokers in connection with other funds Ambac Cadre Financial advises may be
used by Ambac Cadre Financial in advising the Fund. Although it is not possible
to place a dollar value on these services, it is the opinion of Ambac Cadre
Financial that the receipt and study of such services should not reduce the
overall expenses of its research department.
10
<PAGE> 30
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 under the name Hospital and Health
Facilities Trust. Effective April 30, 1997, the Trust's name was changed 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> 31
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, Minnesota 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> 32
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.
/s/ Price Waterhouse LLP
<PAGE> 33
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> 34
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> 35
(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> 36
(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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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 (Incorporated by reference from Form N-1A, Amendment
No. 9, filed on February 28, 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. (Incorporated by reference from Form
N-1A, Amendment No. 9, filed on February 28, 1997)
(6) Distribution Agreement dated April 23, 1997 between Cadre
Network Health Financial Services Trust, on behalf of its
portfolio known as Cadre Network Health Financial Services
Liquid Asset Fund, and Ambac Cadre Securities, Inc.
(8) Custodian Agreement dated April 30, 1997 between Cadre
Network Health Financial Services Trust, on behalf of its
portfolio known as Cadre Network Health Financial Services
Liquid Asset Fund, and First Trust National Association.
<PAGE> 49
(9) 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. (Incorporated by
reference from Form N-1A, Amendment No. 9, filed February 28,
1997)
(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
(Incorporated by reference from Form N-1A, Amendment No. 9,
filed February 28, 1997)
(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 Ambac Cadre Financial
Services, Inc., a Delaware corporation. Ambac 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 Ambac
Cadre Securities, Inc.
<PAGE> 50
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 Additional Information constituting
Part B of this Registration Statement.
<PAGE> 51
The officers and directors of Ambac 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 Ambac 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> 52
<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) Ambac 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 Ambac
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> 53
<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> 54
<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:
Ambac 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> 55
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 certifies that this Registration
Statement meets all of the requirements for effectiveness under Rule 485(b) and
that it 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 14th day of April, 1997.
CADRE NETWORK HEALTH
FINANCIAL SERVICES TRUST
By /s/ Jay Hudson
---------------------------------------
Its Chairman
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 April 14, 1997
- - ----------------------------- the Board of Trustees
(Jay Hudson) (Principal Executive
Officer)
/s/ * Treasurer and Member of April 14, 1997
- - ----------------------------- the Board of Trustees
(J. Kendall Anderson)
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ * Member of the Board of April 14, 1997
- - ----------------------------- Trustees
(Alan H. Anderson)
/s/ * Member of the Board of April 14, 1997
- - ----------------------------- Trustees
(Elizabeth S. Curtis)
/s/ * Member of the Board of April 14, 1997
- - ----------------------------- Trustees
(Joseph D.K. Diaz Jr.)
/s/ * Member of the Board of April 14, 1997
- - ----------------------------- Trustees
(Frank E. Gibson)
</TABLE>
*By /s/ William K. Piche'
----------------------
William K. Piche'
Attorney-in-Fact
Power of attorney was included on signature pages of Form N-1A, Amendment No.
9, filed on February 28, 1997.
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- - ------ ------- ----
<S> <C> <C>
(6) Distribution Agreement
(8) Custodian Agreement
(25) The powers of attorney for
execution of this Amendment
No. 10 to the Registration
Statement are contained in
the signature pages of
Amendment No. 9 to this
Registration Statement filed
on February 28, 1997.
</TABLE>
<PAGE> 1
Exhibit (6)
================================================================================
------------------------------------
DISTRIBUTION AGREEMENT
BETWEEN
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
AND
AMBAC CADRE SECURITIES, INC.
APRIL 23, 1997
-----------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1 DELIVERY OF DOCUMENTS.............................................. 1
1.1 Documents Delivered................................................ 1
ARTICLE 2 APPOINTMENT, DUTIES, ETC........................................... 2
2.1 Appointment as Distributor......................................... 2
2.2 Services as Distributor............................................ 2
2.3 Matters Related to Services........................................ 3
ARTICLE 3 EXPENSES........................................................... 4
ARTICLE 4 LIMITATION OF LIABILITY............................................ 5
4.1 Ambac Cadre Securities............................................. 5
4.2 Trust.............................................................. 5
ARTICLE 5 DURATION, TERMINATION AND AMENDMENT................................ 5
5.1 Duration of Agreement.............................................. 5
5.2 Amendments, Etc.................................................... 6
ARTICLE 6 MISCELLANEOUS...................................................... 6
6.1 Certain Relationships.............................................. 6
6.2 Third Parties...................................................... 6
6.3 Captions........................................................... 6
6.4 Severability....................................................... 7
6.5 Binding Effect..................................................... 7
6.6 Notices............................................................ 7
6.7 Entire Agreement................................................... 7
6.8 Applicable Law..................................................... 7
6.9 Counterparts....................................................... 7
<PAGE> 3
DISTRIBUTION AGREEMENT
This Agreement, executed on April 23, 1997, is made by and between the
Cadre Network Health Financial Services Trust, a California trust (the "Trust"),
on behalf of its Portfolio known as the Cadre Network Health Financial Services
Liquid Asset Fund (the "Fund"), and Ambac Cadre Securities, Inc., a Delaware
corporation ("Ambac Cadre Securities"):
RECITALS
The Fund is a Portfolio of the Trust existing pursuant to a
Declaration of Trust (Amended and Restated) dated as of March 14, 1997
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 (the "Shares") are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
The Trust has entered in a Management and Investment Advisory
Agreement with AMBAC Investment Management, Inc., now known as Ambac
Cadre Financial Services, Inc., an affiliate of Ambac Cadre Securities,
and Ambac Cadre Securities 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 Ambac Cadre Securities true and complete copies of the following
documents and all future amendments thereto:
(a) Declaration of Trust (Amended and Restated) dated as of March
14, 1997;
(b) Certified resolutions of the Board of Trustees of the Trust
authorizing the appointment of Ambac Cadre Securities as
distributor for the Fund pursuant to this Agreement and
approving this Agreement;
(c) Registration Statement of the Fund on Form N-1A including the
Prospectus contained in Part A thereof and the Statement of
Additional Information contained in Part B thereof, all
amendments to the Registration
<PAGE> 4
Statement and the current Prospectus and Statement of
Additional Information;
(d) Management and Investment Advisory Agreement between the Trust
and AMBAC Investment Management, Inc. dated December 30, 1996;
(e) Custody Agreement between the Trust and First Trust National
Association (the "Custodian") effective as of April 30, 1997;
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, ETC.
2.1 APPOINTMENT AS DISTRIBUTOR. The Trust hereby appoints Ambac Cadre
Securities as distributor of the Shares covered by the Registration Statement on
the terms and for the period set forth in this Agreement, and Ambac Cadre
Securities hereby accepts such appointment.
As used in this Agreement, the terms "Registration Statement,"
"Prospectus," and "Statement of Additional Information" shall mean any
registration statement and prospectus, including the statement of additional
information incorporated by reference therein, filed with the Securities and
Exchange Commission ("SEC"), and any amendments supplemental thereto which at
any time shall have been filed with the SEC. The Trust represents and warrants
to Ambac Cadre Securities that any Registration Statement, when it becomes
effective, will contain all statements required to be stated therein in
conformity with the 1933 Act, and the rules and regulations thereunder, that all
statements of fact contained in any such Registration Statement will be true and
correct when the Registration Statement becomes effective, no Registration
Statement will include an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Trust may make such amendments or supplements to the
Registration Statement as the Trust may determine to be necessary or advisable.
2.2 SERVICES AS DISTRIBUTOR. Subject to the direction and control of
the Board of Trustees of the Trust, Ambac Cadre Securities shall:
(a) Use its best efforts to solicit orders for the purchase of
Shares of the Fund in accordance with the
2
<PAGE> 5
Registration Statement, Prospectus and Statement of Additional Information.
(b) Transmit promptly advice regarding all orders received for
the purchase or redemption of Shares to Ambac Cadre Financial Services, Inc., or
as otherwise directed by the Trust.
(c) Comply with all applicable laws, rules and regulations,
including without limitation, all rules and regulations made or adopted pursuant
to the 1940 Act, the Securities Exchange Act of 1934, as amended, and the 1933
Act, and the rules and regulations of the Securities and Exchange Commission
under each of said Acts.
(d) Act only on behalf of Ambac Cadre Securities as principal
if Ambac Cadre Securities chooses to enter into selling agreements with selected
dealers or others. In this regard, Ambac Cadre Securities is hereby authorized
to enter into selling agreements with selected dealers and other financial
institutions with respect to the offering of Shares of the Fund.
(e) The Trust agrees to execute on behalf of the Fund all
documents and to furnish all information and otherwise take all actions which
may be reasonably necessary in the discretion of the Trust officers or Board of
Trustees of the Trust in connection with the qualification of the Shares in such
states as Ambac Cadre Securities may designate to the Trust and the Trust may
approve.
2.3 MATTERS RELATED TO SERVICES.
(a) Whenever in their judgment such action is warranted by
market, economic or political conditions, or by abnormal circumstances of any
kind, the Board of Trustees of the Trust or its officers may decline to accept
any orders for, or make any sales of, any of the Shares until such time as they
deem it advisable to accept such orders and to make such sales and the Trust
shall advise Ambac Cadre Securities promptly of such determinations.
(b) The Trust shall furnish to Ambac Cadre Securities from
time to time, for use in connection with the distribution of the Shares, such
information with respect to the Fund and its Shares as Ambac Cadre Securities
may reasonably request. The Trust also shall furnish Ambac Cadre Securities upon
request with:
(i) Semiannual unaudited and annual audited reports
of the Fund's books and accounts made by independent
accountants regularly retained by the Trust on behalf of the
Fund; and
3
<PAGE> 6
(ii) From time to time such additional information
regarding the Fund's financial condition and investments as
Ambac Cadre Securities may reasonably request.
(c) The Trust authorizes Ambac Cadre Securities to use any
Prospectus and Statement of Additional Information which is then effective with
the SEC in the form furnished to Ambac Cadre Securities from time to time in
connection with the distribution of the Shares.
(d) No Shares shall be offered by Ambac Cadre Securities or
the Trust under any of the provisions of this Agreement, and no orders for the
purchase or sale of such Shares shall be accepted by the Trust, if and so long
as the effectiveness of the Registration Statement then in effect shall be
suspended under any of the provisions of the 1933 Act, or if and so long as a
current prospectus is required by Section 10 of said Act is not on file with the
SEC; provided, that nothing contained in this subsection (d) shall restrict or
have any application or bearing upon the Fund's obligation to repurchase any of
the Shares from any Shareholder in accordance with the provisions of the
Prospectus.
(e) The Trust agrees to advise Ambac Cadre Securities
immediately in writing (i) of any requests by the SEC for amendments to the
Registration Statement then in effect; (ii) in the event of the issuance by the
SEC of any stop orders suspending the effectiveness of the Registration
Statement then in effect or the initiation of any proceedings for that purpose;
(iii) of the happening of any event which makes untrue any statement of material
fact made in the Registration Statement then in effect or which requires the
making of a change in such Registration Statement in order to make the
statements therein not misleading; and (iv) all actions of the SEC with respect
to any amendments to the Registration Statement which may from time to time be
filed with the SEC.
(f) Ambac Cadre Securities represents and warrants that it is
authorized by, and has received all approvals and licenses under all applicable
federal and state laws, and the regulations thereunder, including without
limitation, registration as a broker/dealer under applicable federal and state
law, necessary to lawfully perform its duties hereunder.
ARTICLE 3
EXPENSES
Ambac Cadre Securities shall pay all costs and expenses connected with
its qualification as a dealer under applicable state and federal laws and,
except as otherwise specifically provided in this Agreement, all other costs and
expenses incurred by it in connection with the performance of its duties under
this
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Agreement, including without limitation, expenses of maintaining shareholder
transfer records.
The Fund shall pay, or cause to be paid, all costs and expenses in
connection with registration of the Shares under the Securities Act of 1933, as
amended, and qualification of the Shares for sale in those states determined as
provided in Section 2.2(e), and all expenses in connection with maintaining
facilities for the issuance of the Shares and for supplying information, prices
and other data to be furnished by the Fund hereunder, and all expenses in
connection with the preparation and printing of the Fund's Prospectus and
statements of additional information for regulatory purposes and for
distributing to shareholders; provided, that nothing contained herein shall be
deemed to require the Fund to pay any of the costs of advertising the sale of
the Shares.
ARTICLE 4
LIMITATION OF LIABILITY
4.1 AMBAC CADRE SECURITIES. Ambac Cadre Securities 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 Ambac
Cadre Securities of its obligations and duties under this Agreement; provided,
the foregoing shall not limit Ambac Cadre Securities' liability to the Fund with
respect to any breaches by Ambac Cadre Securities 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.
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 the Board of
Trustees, including the vote of a majority of the outstanding shares of the Fund
and by 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
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Agreement shall remain in effect for two years after the date it becomes
effective 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), 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 Ambac Cadre Securities or the Trust 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 Ambac Cadre Securities 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.
ARTICLE 6
MISCELLANEOUS
6.1 CERTAIN RELATIONSHIPS. Nothing in this Agreement shall prevent
Ambac Cadre Securities or any officer, director or employee thereof from acting
as distributor for any other person, firm, corporation or entity and shall not
in any way limit or restrict Ambac Cadre Securities 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 Ambac Cadre Securities
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, Ambac Cadre Securities shall include such recitals in written documents as
may be reasonably requested by the Trust regarding the limitation of liability
of the Board of Trustees, the Fund's shareholders, and the Trust's officers,
employees and agents to third parties.
6.3 CAPTIONS. The captions in this Agreement are included for
convenience of reference only and shall in no way define or
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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 Fund or Trust:
Cadre Network Health Financial Services Trust
c/o SharePlus
7901 Stoneridge Drive, Suite 500
Pleasanton, CA 94588
b. If to the Distributor:
Ambac Cadre Securities, 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 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.
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IN WITNESS WHEREOF, the authorized representatives of the parties
hereto have executed this Agreement as of the date first above written.
AMBAC CADRE SECURITIES, INC.
By /s/ William T. Sullivan, Jr.
--------------------------------------
Its Chairman
CADRE NETWORK HEALTH FINANCIAL
SERVICES TRUST
By /s/ Jay Hudson
--------------------------------------
Its Chairman
8
<PAGE> 1
Exhibit (8)
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT is made effective as of April 30, 1997,
between CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST, a California trust (the
"Trust"), on behalf of its portfolio known as Cadre Network Health Financial
Services Liquid Asset Fund (the "Fund"), and FIRST TRUST NATIONAL ASSOCIATION, a
national banking association (the "Custodian").
The Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), authorized to establish several series of portfolios,
each having its own investment policies, the first of which is the
Fund; and
The Trust has appointed CADRE FINANCIAL SERVICES, INC. as
investment advisor and manager, transfer, dividend disbursing agent and
shareholder servicing agent for the Fund; and
The Trust desires to retain the Custodian to hold and
administer the Fund's securities, cash and other assets ("Property")
pursuant to the terms of this Agreement, as it way be amended from time
to time, and the Custodian desires to provide such services to the
Trust and the Fund.
In consideration of the mutual agreements contained herein, the Trust
and the Custodian agree as follows:
SECTION 1
EMPLOYMENT OF CUSTODIAN
The Trust hereby employs Custodian as the custodian of the Fund's
Property. The Trust agrees to deliver to Custodian all Securities owned by the
Fund, and all payments of income, payments of principal or capital distributions
received by it from time to time with respect to all such Securities, and the
cash consideration received by it for such shares of the Fund ("Shares") as may
be issued or sold from time to time. Custodian shall not be responsible for any
Property of the Fund held or received by the Trust or the Fund and not delivered
to Custodian.
Upon receipt of Written Orders, Custodian shall from time to time
employ one or more sub-custodians, but only in accordance with an applicable
vote by the Board of Trustees of the Trust, and provided that Custodian shall
have no more or less responsibility or liability to the Trust on account of any
actions or omissions of any sub-custodian so employed than such sub-custodian
has to Custodian.
<PAGE> 2
SECTION 2
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings, which apply to both the singular and plural forms of the terms
defined:
"Government Issues" means securities issued or guaranteed by the United
States, its agencies or instrumentalities.
"Investment Advisor" means Cadre Financial Services, Inc. or any
successor investment advisor appointed by the Trust; provided, however, that
Trust shall notify the Custodian of the identity of any successor investment
advisor pursuant to a Written Order, and the Custodian shall be entitled to rely
on the directions of any appointed investment advisor until notified of the
investment advisor's removal pursuant to a Written Order from the Trust.
"Money Market Instruments" means instruments generally identified as
money market instruments, including but not limited to bankers' acceptances,
certificates of deposit, fixed time deposits and letters of credit issued by
banks and savings institutions, and commercial paper issued by corporations.
"Receipt of Payment by Custodian," or words to that effect, means
either the receipt of (a) a certified or official bank check, (b) a written or
telegraphic advice from a bank, registered clearing agency or a Federal Reserve
Bank that funds have been or will be credited to the account of Custodian at
either the registered clearing agency or the Federal Reserve Bank, or (c) a bank
wire from a correspondent bank of Custodian.
"Receipt of Securities by Custodian," or words to that effect, means
the receipt by Custodian of (a) Securities in bearer from or in proper form for
transfer or (b) a written or telegraphic advice from a registered clearing
agency or a Federal Reserve Bank that Securities have been credited to the
account of Custodian at either the registered clearing agency or the Federal
Reserve Bank.
"Securities" means Government Issues, money market instruments, stocks,
shares, bonds, debentures, notes, mortgages, or other obligations and any
certificates, receipts, book credit advices, warrants, or other instruments
representing rights to receive, purchase, or subscribe for the same, or
evidencing or representing any other rights or interests therein, or in any
property or assets.
"Written Order" means a request, direction or certification from the
Trust or the Investment Advisor reasonably believed by the Custodian to have
been signed in the name of the Trust or the Investment Advisor by a person
authorized and certified as provided in this Section 2 or in Section 3. As
directed by the Investment Advisor or the Trust, Written Orders may include
communications effected directly between electro-mechanical or electronic
devices provided that the Investment Advisor and Custodian are satisfied that
such procedures
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afford adequate safeguards for the Fund's assets. The Investment Advisor shall
certify to the Custodian the names and signatures of those persons authorized to
sign Written Orders on behalf of the Investment Advisor and the Custodian shall
be entitled to rely on such identity until notified otherwise in writing by the
Investment Advisor.
Notwithstanding any provision to the contrary hereunder, no person may
sign or countersign a Written Order if it would make any portion of the Fund
payable to him or her individually, or if the sums to be paid thereby are,
according to the tenor of such instrument, to be deposited to his or her
individual account, or if any Property deliverable pursuant thereto is to be
delivered to him or her individually or to his or her account.
SECTION 3
NAMES, TITLES AND SIGNATURES OF THE TRUST'S OFFICERS
An officer of the Trust shall certify to Custodian the names and
signatures of those persons authorized to sign the Written Orders on behalf of
the Trust and the names of the members of the Board of Trustees, together with
any changes which may occur from time to time.
SECTION 4
DISBURSEMENT AND RECEIPT OF MONEY
Section 4.1. Custodian shall open and maintain a separate account or
accounts with Custodian in the name of the Fund, subject only to draft or order
by Custodian acting pursuant to the terms of this Agreement. Custodian shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund. The Custodian shall not
permit any Trustee, officer, employee or agent of the Trust or the Fund to
withdraw any Securities or other investments upon his or her mere receipt.
Section 4.2. Custodian shall make payments of cash to, or for the
account of, the Fund from such cash only (a) for the purchase of Securities for
the Fund upon the Receipt of such Securities by Custodian, (b) for the purchase
or redemption of Shares, including but not limited to honoring redemption checks
or drafts drawn by the Fund's shareholders or their agents, settled through the
banking system in the usual and customary manner, (c) for the payment of
interest, dividends, taxes, management or supervisory fees or operating expenses
(including, without limitation thereto, fees for legal, accounting and auditing
services), (d) for the payments in connection with the conversion, exchange,
exercise of an option contract or surrender of Securities owned or subscribed to
by the Fund held by or to be delivered to the Custodian, (e) for payments in
connection with the return of Securities loaned by the Fund or the reduction of
cash collateral held by Custodian, or (f) for other proper purposes.
Section 4.3. Before making any payment the Custodian shall receive and
may rely only upon a Written Order directing such payment and stating that it is
for such a purpose permitted under Section 4.2 and, in respect of clause (f)
thereof, a copy of a resolution of the
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<PAGE> 4
Board of Trustees or of the Executive Committee of the Board of Trustees of the
Trust signed by an officer of the Trust and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to whom such payment is made.
Section 4.4. Custodian is hereby authorized to endorse and collect all
checks, drafts, or other orders for the payment of money received by Custodian
for the account of the Fund, and to receive payments and receipts for requested
additional collateral in connection with Securities of the Fund on loan.
SECTION 5
SEGREGATION OF PROPERTY
Custodian shall hold in a separate account, and segregate at all times
from those of any other persons, firms or corporations, pursuant to the
provisions hereof, all Property received by it from or for the account of the
Fund unless deposited by the Custodian to its account with a registered clearing
agency, a Federal Reserve Bank pursuant to Section 9 or a sub-custodian
previously approved by a Written Order. The Custodian may hold securities of the
Fund in the name of a nominee or nominees or in registered or bearer form.
Custodian shall upon receipt of a Written Order establish and maintain a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and Securities, including Securities
maintained in an account by Custodian pursuant to Section 8, (i) in accordance
with the provisions of any agreement among the Trust, Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASO (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Trust, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the Fund,
(iii) for the purposes of compliance by the Fund with the procedures required by
1940 Act Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies, and (iv) for other proper purposes,
but only, in the case of clause (iv), upon receipt of, in addition to a Written
Order, a certified copy of a resolution of the Board of Trustees signed by an
officer of the Trust and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and declaring
such purposes to be proper purposes.
All such Property is to be held or disposed of by Custodian for, and
subject at all times to the instructions of, the Trust pursuant to the terms of
this Agreement. Custodian shall have no power or authority to assign,
hypothecate, pledge, or otherwise dispose of any Property except as set forth in
this Agreement. Notwithstanding the above, unless otherwise
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<PAGE> 5
directed by a Written Order, Custodian shall simultaneously with the payment to
a registered clearing agency or a Federal Reserve Bank for the receipt of
Securities by Custodian, direct such agency or Federal Reserve Bank to deliver
such Securities to or for the account of Custodian.
SECTION 6
BANK ACCOUNTS
The Custodian is authorized to open and maintain bank accounts in the
name of the Fund on the Custodian's books, including without limitation, deposit
accounts and specifically zero balance accounts. These accounts will be utilized
in order to provide what are commonly referred to as cash management services to
the Fund. The cash management services for each Portfolio will be provided by
the Custodian's affiliate, First Bank, in accordance with the terms and
conditions set forth in applicable cash management agreements (collectively
referred to as the "Cash Management Agreements").
SECTION 7
TRANSFER, EXCHANGE, DELIVERY, ETC. OF SECURITIES
Section 7.1. Custodian agrees to transfer, exchange or deliver any
Securities of the Trust held by Custodian hereunder only (a) for sales of such
Securities for the account of the Trust upon Receipt of Payment by Custodian
therefor, (b) to the issuer thereof, or its agents, when such Securities are
called, redeemed or retired or otherwise become payable, provided that in any
such case the cash or other consideration is to be delivered to the Custodian,
(c) in exchange for or upon conversion into other Securities alone or other
Securities and cash whether pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise of the Securities
of the issuer of such Securities, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the Custodian, (d) upon
exercise of subscription, purchase or other similar rights represented by such
Securities, provided that, in any such case the new Securities are to be
delivered to the Custodian, (e) for the purpose of exchanging interim receipts
or temporary Securities for definitive Securities, (f) for loans of Securities
by the Fund, but only against receipt of adequate collateral as agreed upon from
time to time by Custodian and the Fund, which may be in the form of cash or
obligations issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for which collateral
is to be credited to Custodian's account in the book-entry system authorized by
the U.S. Department of the Treasury, Custodian will not be held liable or
responsible for the delivery of Securities owned by the Fund prior to the
receipt of such collateral, (g) for the purpose of redeeming in kind Shares of
the Fund, provided that, in any such case the cash or other consideration is to
be delivered to the Custodian, or (h) for other proper purposes.
Section 7.2. Before making any such transfer, exchange or delivery of
Securities for a purpose permitted under the terms of Section 7.1, Custodian
shall receive and may rely upon a Written Order requesting such transfer,
exchange or delivery and stating that it is for such a
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<PAGE> 6
purpose permitted under Section 7.1 and, in respect of clause (h) thereof, a
copy of a resolution of the Board of Trustees or of the Executive Committee of
the Board of Trustees of the Trust signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary, specifying the Securities,
setting forth the purpose for which such payment, transfer, exchange or delivery
is to be made, declaring such purpose to be a proper purpose, and naming the
person or persons to whom such transfer, exchange or delivery of such Securities
shall be made.
SECTION 8
CUSTODIAN'S ACTS WITHOUT INSTRUCTION
Unless and until Custodian receives a Written Order to the contrary,
Custodian shall: (a) present on a timely basis all Securities for redemption
when called, redeemed, retired or otherwise become payable; (b) endorse for
collection, in the name of the Fund, checks, drafts and other negotiable
payments and present for payment on a timely basis all coupons and other income
items held by it for the account of the Fund which call for payment upon
presentation and hold cash received by it upon such payment for the account of
the Fund and sweep such idle cash balances into an overnight investment fund to
the extent permitted by the 1940 Act; (c) collect on a timely basis interest and
cash dividends, with notice to the Fund, for the account of the Fund; (d)
collect on a timely basis all other income and payments with respect to the
Securities held hereunder to which the Fund shall be entitled either by law or
by custom in the securities business; (e) hold for the Custodial account of the
Fund hereunder all stock dividends, rights and similar Securities issued with
respect to any Securities held by it hereunder; (f) execute as agent on behalf
of the Fund all necessary ownership certificates required by the Internal
Revenue Code or the Income Tax Regulations of the United States Treasury
Department or for any other federal tax purposes, or under the laws of any state
now or hereafter in effect, inserting the Fund's name on such certificates as
the owner of the Securities covered thereby, to the extent it may lawfully do
so; (g) surrender Securities in temporary form for Securities in definitive
form; (h) make payments to itself or others for minor expenses of handling
Securities or other similar items relating to its duties under this Agreement,
provided that all such payments shall be accounted for to the Trust; and (i) in
general. attend to all nondiscretionary details in connection with the sale,
exchange, substitution, purchase, transfer and other dealings with the
Securities of the Trust except as otherwise directed by the Board of Trustees of
the Trust.
With respect to clauses (a) through (e) above, the Custodian shall
credit the account of the Fund on the payable or effective date unless a
particular issue has a history of delayed payment by the issuer, in which case
the Custodian shall credit the account on the date of Receipt of Payment by
Custodian. Custodian shall be under no obligation or duty to take action to
effect collection of any amount if the Property upon which such payment is due
is in default, or if payment is refused after due demand and presentation.
Custodian shall have no responsibility to notify the Trust or the Investment
Advisor in the event of such default, but if Custodian receives notice of
default or refusal to pay from an issuer or transfer agent, Custodian shall so
advise the Investment Advisor.
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Any credits to the account of the Fund made on the payable or effective
date shall be conditional upon actual receipt by the Custodian of final payment
and may be reversed any time prior to the date of Receipt of Payment by the
Custodian. The Custodian may, in its sole discretion and from time to time,
permit a Portfolio to use funds so credited to its account in anticipation of
Receipt of Payment. Any such funds shall be repayable immediately upon demand
made by the Custodian at any time prior to Receipt of Payment by the Custodian.
SECTION 9
REGISTRATION OF SECURITIES
Section 9.1. Except as otherwise directed by a Written Order, Custodian
shall register all Securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any regulations of the Treasury Department issued thereunder, unless the Trust
has authorized in writing the appointing of a nominee to be used in common with
other registered investment companies having the same investment adviser as the
Trust and shall execute and deliver all such certificates in connection
therewith as may be required by such laws or regulations or under the laws of
any state. All Securities accepted by Custodian on behalf of the Trust pursuant
to this Agreement shall be in "street name" or other good delivery form.
Securities held by Custodian hereunder shall be at all times identifiable in its
records.
Section 9.2. The Fund shall from time to time furnish to Custodian
appropriate instruments to enable Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered nominee, any
Securities which it may hold for the account of the Fund and which may from time
to time be registered in the name of the Fund.
SECTION 10
DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
Subject to and in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, Custodian may deposit
all or any part of the securities owned by the Fund in (1) a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 ("clearing agency") which acts as a securities
depository, and/or (2) the book-entry system as provided in Subpart O of
Treasury Circular No. 300, 31 C.F.R. 306, Subpart B of 31 C.F.R. Part 350, and
the book-entry regulations of federal agencies substantially in the form of
Subpart O. For the purpose herein, a "securities depository" is a system for the
central handling of securities where all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of the
securities. Any deposits made by Custodian of the Trust's Securities in a
clearing agency which acts as a securities depository or the book-entry system,
or both, shall be under an arrangement that contains the following elements:
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(a) Custodian may deposit the Securities directly or through one or
more agents which are also qualified to act as custodians for investment
companies.
(b) Upon request, Custodian, or its agent which deposits the
Securities, shall promptly send to the Trust reports it receives from the
Federal Reserve Bank on its system of internal accounting control. Custodian and
all the agents through which the Securities are deposited shall send to the
Trust such reports on their own systems of internal accounting control as the
Trust may reasonably request from time to time.
(c) The underlying agreement between Custodian and the clearing agency,
or the agreements between Custodian and its agent and the agreement of said
agent and the clearing agency, and any amendments thereto, shall be submitted to
the Fund for its review and approval prior to Custodian making any deposits of
the Fund's Securities with such clearing agencies.
SECTION 11
VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of the
Securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in a Written Order. Custodian shall
promptly deliver, or cause to be executed and delivered, to the Trust or such
other entity(ies) designated by Investment Advisor or the Trust, all notices
proxies and proxy soliciting materials with relation to such Securities (if
registered otherwise than in the name of the Trust), but without indicating the
manner in which such proxies are to be voted. Custodian shall also promptly
deliver to the Investment Advisor all other communications it may receive with
respect to the Securities held by it hereunder.
SECTION 12
COMMUNICATIONS RELATING TO TRUST PORTFOLIO SECURITIES
Custodian shall transmit promptly to the Investment Advisor all written
information relating to the Fund's Securities (including, without limitation,
pendency of calls and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put options written by
the Trust and the maturity of futures from issuers of the Securities being held
for the Fund). With respect to capital changes or reorganizations the Custodian
shall transmit promptly to the Investment Advisor all information received or
reasonably available from industry sources, depositories, and issuers or their
agents which requires an action by the Trust or its Investment Advisor. If the
Trust desires to take action with respect to any tender offer, exchange offer of
any other similar transactions, the Trust or its Investment Advisor at least
three business days prior to the date on which action is required to be taken
shall notify the Custodian of the action to be taken. The Custodian shall have
no liability for or responsibility to respond to the Trust's instructions with
regard to tender offers, exchange offers or similar transaction received upon
less than three business days' notice.
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SECTION 13
TRANSFER TAX AND OTHER DISBURSEMENTS
Section 13.1. The Trust shall pay or reimburse Custodian from time to
time for any transfer taxes payable upon transfers for Securities made
hereunder, and for all other necessary and proper disbursements and
out-of-pocket expenses made or incurred by Custodian in the performance of this
Agreement acting upon a Written Order.
Section 13.2. Custodian shall execute and deliver such certificates in
connection with Securities delivered to it or by it under this Agreement as may
be required under the provisions of the Internal Revenue Code and any
regulations of the Treasury Department issued thereunder, or under the laws of
any state, to exempt from taxation any exemptible transfer and/or deliveries of
any such Securities.
SECTION 14
CONCERNING CUSTODIAN
Section 14.1. Custodian shall be paid as compensation for its services
pursuant to this Agreement such compensation as provided for in the Fee Schedule
attached hereto as Exhibit A. This fee schedule may be modified or amended only
by mutual agreement of the parties hereto in writing.
Section 14.2. Custodian shall not be liable for any action taken in
good faith and with reasonable care, in accordance with this Agreement, upon any
Written Order from the Trust or certified copy of any resolution of the Board of
Trustees or of the Executive Committee of the Board of Trustees and may rely on
the genuineness of any such document which it may in good faith believe to have
been validly executed.
Section 14.3. The Custodian shall be held to the exercise of reasonable
care in carrying out the provisions of this Agreement and shall be liable for
its own and its nominees' negligent or bad faith acts or failures to act or
willful misconduct.
The Fund shall indemnify and hold harmless the Custodian from and
against any loss, damage, taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) suffered or incurred by it or its nominee
resulting or arising from its performance in accordance with the terms of this
Agreement and from any action or omission to act of the Trust, its Investment
Advisor, any transfer, dividend disbursing or shareholder servicing agent of the
Trust or the Fund, administrator, or other agent, employee or independent
contractor of the Trust in connection with the performance of this Agreement,
except such as may arise from the Custodian's or its nominee's own negligence,
willful misconduct or bad faith acts or failures to act.
In addition, Custodian shall not be liable for any loss of data or any
delay in its performance under this Agreement to the extent such loss or delay
is due to causes beyond its
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control, including but not limited to: acts of God, interruption in, loss of or
malfunction in power, significant computer hardware or systems software or
telephone communication service; acts of civil or military authority; sabotage;
war or civil commotion; fire; explosion; or strike except for minimum critical
activities. Custodian shall use its best efforts to take all practical steps to
minimizes any such loss or delay and to replace any lost data promptly.
Custodian agrees not to discriminate against the Trust in favor of any other
customer of Custodian in making computer time and its personnel available to
input and process the transactions hereunder when a loss or delay occurs.
Section 14.4. The Custodian will create, maintain, preserve for the
specified periods and make available upon request all records relating to its
activities and obligations under this Agreement as such will meet the
obligations of the Trust under the 1940 Act, including records required by Rule
31a-1 of the General Rules and Regulations under the 1940 Act and under other
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Trust. All such records shall be
the property of the Trust and shall at all times during the regular business
hours of Custodian be open for inspection by duly authorized officers, employees
or agents of the Trust and employees and agents of the Securities and Exchange
Commission.
Section 14.5. Custodian shall take all reasonable action, as the Trust
may from time to time request, to obtain from year to year favorable opinions
from the Trust's independent accountant with respect to its activities hereunder
in connection with the preparation by the Trust of the Trust's Form N-lA, and
Form N-SAR or other annual reports to the Securities and Exchange Commission and
with respect to any other requirements of such Commission.
Section 14.6. Custodian shall provide the Trust, at such times as the
Trust may reasonably require, with reports by independent public accountants on
the accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a securities depository,
relating to the services provided by Custodian under this Agreement: such
reports shall be of sufficient scope and in sufficient detail as may reasonably
be required by the Trust to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and if there are no such
inadequacies, the reports shall so state.
Section 14.7. The Trust and the Custodian acknowledge that, except to
the extent set forth in any separate instrument signed by the parties with
respect to this Agreement, Custodian's duties hereunder do not include any
discretionary authority, control or responsibility with respect to the
management or disposition of any Property; that Custodian has no authority or
responsibility to render investment advice with respect to any Property; and
that Custodian is not a fiduciary with respect to the Trust. Custodian shall
have no duty or responsibility to monitor or otherwise investigate the actions
or omissions of the Trust or the Investment Advisor.
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SECTION 15
REPORTS BY CUSTODIAN
Custodian shall furnish the Trust at the end of every month with a list
of the Property and a statement of all transactions and entries for the month
then ended. Custodian shall furnish the Trust, at the close of each of the
Fund's fiscal years, with a list of the Property held by it for the Fund
hereunder certified by a duly authorized officer of the Custodian. The books and
records of Custodian pertaining to its actions under this Agreement, including
reports reflecting individual security transactions, shall be open to inspection
and audit at reasonable times by officers of and auditors employed by the Trust.
Custodian shall include in its regular account statements the market
value of Property held for the Trust. Market valuations are provided for
informational purposes only. Custodian shall have the right to rely upon pricing
information received from pricing services or other pricing sources which it
deems reliable, and shall not be liable to the Trust for incorrect prices or
valuations received from such services or sources.
SECTION 16
SECURITY FOR PAYMENT
In order to secure payment of all fees and expenses payable to the
Custodian hereunder, including but not limited to any amounts payable under the
Trust's indemnity obligations set forth in this Agreement or in any of the Cash
Management Agreements, the Trust, on behalf of the Fund, hereby grants the
Custodian a right of setoff against any account established in the name of the
Fund and all Property held therein, including all amounts held in the custody
account and the various cash management accounts. If the Trust, on behalf of the
Fund, fails to promptly pay any amounts owed under this Agreement, the Custodian
shall be entitled to apply such cash or to dispose of such other Property held
for the benefit of such Portfolio as is necessary to discharge the obligations
of that Portfolio.
If any advance of funds is made by Custodian on behalf of the Trust to
purchase, or to take payment on or against delivery of securities or there shall
arise for whatever reason an overdraft in the Trust's account, the Trust agrees
to repay Custodian on demand the amount of the advance, overdraft or other
indebtedness, reserve requirements and accrued interest at a rate per annum
equal to the Federal Funds effective rate in effect from time to time (based on
a 360-day year for the actual number of days involved). To secure such payment
obligations, the Trust does hereby grant to Custodian a security interest in all
Property held in for the Trust from time to time.
SECTION 17
REPRESENTATIONS AND WARRANTIES
Section 17.1. The Trust hereby represents and warrants that (i) the
Trust is duly organized under the laws of its jurisdiction of organization and
is registered as an open-end
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management investment company under the 1940 Act and (ii) the execution,
delivery and performance of this Agreement and the Cash Management Agreements
(a) are within its power, (b) have been duly authorized by all necessary action,
(c) will not contribute to or result in a breach or default under or conflict
with any existing law, order, regulation or ruling or any governmental or
regulatory agency or authority, and (d) will not violate any provision of the
Trust's Declaration of Trust or other organizational document, or bylaws, or any
amendment thereof, or any provision of its current prospectus or statement of
additional information. These representations and warranties shall be continuing
and shall survive the termination of this Agreement.
Section 17.2. Custodian hereby represents and warrants that (i) it is a
duly organized and existing national banking association and (ii) the execution,
delivery and performance of this Agreement (a) are within its power, (b) have
been duly authorized by all necessary action, (c) will not contribute to or
result in the breach or default under or conflict with any existing law, order,
regulation or ruling of any governmental or regulatory agency or authority, and
(d) will not violate any provision of the Custodian's organizational documents,
bylaws, or any amendment thereof. These representations and warranties shall be
continuing and shall survive the termination of this Agreement.
SECTION 18
TERMINATION OR ASSIGNMENT
Section 18.1. This Agreement may be amended only by mutual agreement of
the parties hereto in writing.
Section 18.2. This Agreement may be terminated by the Trust or by
Custodian, on sixty (60) days' notice given in writing and sent by registered
mail to the Custodian or to the Trust at the address specified in Section 19.1
or 19.2, as the case may be; provided, however, that the Trust may at any time
by action of its Board of Trustees immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction. Upon any termination of this Agreement, pending appointment of a
successor to Custodian or a vote of the shareholders of the Fund to dissolve or
to function without a custodian of its Property, Custodian shall not deliver
Property of the Trust to the Trust, but may deliver it to a bank or trust
company of its own selection, having an aggregate capital, surplus and undivided
profits, as shown by Its last published report of not less than One Hundred
Million Dollars ($1OO,000,000) as a custodian for the Fund to be held under
terms similar to those of this Agreement: provided however, that Custodian shall
not be required to make any such delivery or payment until full payment shall
have been made by the Trust of all liabilities constituting a charge on or
against the Property then held by Custodian or on or against Custodian, and
until full payment shall have been made to Custodian for all its fees,
compensation, costs and expenses, subject to the provisions of Section 14. If a
successor custodian shall be appointed by the Board of Trustees of the Trust,
Custodian shall, upon termination, deliver to such
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successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all Property then held by it hereunder and shall transfer to
an account of the successor custodian-ill of the Trust's Property held in
Securities Depositories pursuant to Section 10.
Section 18.3. This Agreement may not be assigned by Custodian without
the consent of the Trust authorized or approved by a resolution of its Board of
Trustees unless such transfer shall be pursuant to operation of law.
SECTION 19
MISCELLANEOUS
Section 19.1. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to Custodian, shall be sufficiently given
if addressed to Custodian and mailed or delivered to it at its office at:
First Trust National Association
Pioneer Building, 6th Floor
336 North Robert Street
St. Paul, Minnesota 55164
or at such other place as Custodian may from time to time designate in writing.
Section 19.2. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Trust, shall be sufficiently given
if addressed to the Trust and mailed or delivered to it at its office at:
Hospital Council of Northern and Central California
7901 Stoneridge Drive, Suite 500
Pleasanton, California 94588
Attention: William K. Piche
with copy to:
Cadre Financial Services, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
or at such other place as the Trust may from time to time designate in writing.
Section 19.3. This Agreement shall be construed in accordance with the
laws of the State of New York.
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Section 19.4. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall together constitute only one instrument.
Section 19.5. 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; provided, however, that this provision shall not be construed as
limiting the Custodian's recourse to any property of the Fund.
Section 19.6. This Agreement constitutes the entire Agreement between
the parties with respect to the subject matter hereof and supersedes and
terminates, as of the date hereof, all prior agreements between the Trust and
Custodian relating to the activity of the Fund's assets.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
Executed in several counterparts, each of which is an original.
CADRE NETWORK HEALTH
FINANCIAL SERVICES TRUST
By: /s/ Jay Hudson
-------------------------------------
Name: Jay Hudson
----------------------------------
Title: Chairman
----------------------------------
FIRST TRUST NATIONAL ASSOCIATION
By: /s/ Alice Weibye
-------------------------------------
Name: Alice Weibye
----------------------------------
Title: Vice President
----------------------------------
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EXHIBIT A
FEE SCHEDULE
<PAGE> 16
FIRST BANK CASH MANAGEMENT SERVICES
CASH MANAGEMENT SERVICES PER ITEM CHARGE
Wire xfer customer maintenance $8.000
Wire in without phone $5.000
Wire in with phone $12.000
CMT - monthly fixed charge $65.000
CMT out non-repetitive $4.500
Wire out CMT repeat $3.500
Internal wire debit $5.000
Internal wire credit $3.000
WIRE TRANSFERS
Control Disbursement Accounts - 1st $175.000
Control Disbursement Accounts - Remaining $20.000
Checks Presented - 1 - 9,999 $0.100
Checks Presented - 10,000 - 24,999 $0.090
Checks Presented - 25,000 - 74,999 $0.080
Checks Presented - 75,000 and greater $0.075
Cash Fax CD Sum $75.000
Cash Fax CD Sum $7.500
Terminal Connect $0.700
CONTROL DISBURSEMENT
Two day ACH item $0.040
One day ACH item $0.050
ACH received item $0.150
Process run $10.000
On us items $0.030
Received government items $0.150
Add, delete, change, reversal $15.000
ACH returns $5.000
ACH SERVICE
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FIRST BANK CASH MANAGEMENT SERVICES
CASH MANAGEMENT SERVICES PER ITEM CHARGE
ARP Partial Fixed $30.000
ARP Full Basic $0.080
ARP Partial Basic $0.065
ARP Partial Sorting $0.100
Check Sorting $0.030
ARP Audit Journal $0.000
ARP Tape or Floppy Output $30.000
Check Sort Fixed $20.000
ARP Full Fixed $35.000
Deposit Recon Items $0.060
Additional Recons $0.000
Deposit recon fixed $35.000
Range Accounts $0.000
ACCOUNT RECONCILEMENT SERVICES
Cashfax Plus BR summary $40.000
Cashfax plus BR tran $40.000
Cashfax Plus IR summary $50.000
Cashfax Plus IR tran $50.000
Cashfax Plus ZBA report $0.273
Cashfax Plus history $20.000
Cashfax Plus term connect $0.700
Fastline inquiry $0.000
INFORMATION REPORTING
CCS reporting logon $1.250
CCS input variable cost $1.250
CCS voice input $0.750
CCS reports - mailed $40.000
CCS/ATS location setup $1.500
CCS location maintenance $1.000
CCS reporting variable charges $1.100
CASH CONCENTRATION
Credit Formula - Credit Dollar Amount X 90% X Federal Funds Rate/360 Days
Compensation Formula: Overdraft Dollar Amount X FNB Ref Rate Less One
percent/360 Days
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<PAGE> 18
FIRST TRUST CUSTODIAL SERVICES FEE SCHEDULE
CUSTODIAL SERVICES CHARGE
Annual Administration Per Account - Marked to Market $7,200.00
Annual Administration Per account - Non-valued $1,500.00
Market Value - Basis Point 1/3 B.P.
ADMINISTRATION CHARGES
DTC Book Entry Trade Transaction $10.00
Fed Book Entry Trade Transaction $10.00
Physical Trade Transaction $25.00
TRANSACTION CHARGES
Compensation Formula: Overdraft Dollar Amount X FNB Ref Rate Less one
Percent/360 Days
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