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Filed Pursuant to Rule 497(e)
PROSPECTUS March 6, 1998
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. It is designed for and marketed to the healthcare industry,
including hospitals, health systems, health facilities, medical groups and
health insuring organizations.
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 March 6, 1998, 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.
TABLE OF CONTENTS
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EXPENSE SUMMARY......................................................................... 2
FINANCIAL HIGHLIGHTS.................................................................... 3
THE TRUST............................................................................... 3
DESCRIPTION OF THE FUND................................................................. 3
HOW TO INVEST IN THE FUND............................................................... 6
REDEMPTIONS............................................................................. 7
SHAREHOLDER SERVICES.................................................................... 7
MANAGEMENT OF THE FUND.................................................................. 8
YIELD INFORMATION....................................................................... 9
DISTRIBUTIONS AND TAXES................................................................. 9
GENERAL INFORMATION..................................................................... 10
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE SUMMARY
The purpose of the following table is to assist you in understanding the
various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
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Management Fees ........................................................ 40%
Other Expenses ......................................................... 39%
Total Fund Operating Expenses .......................................... 79%
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(1) Management fees are payable at an annual rate of .40% for the first
$250,000,000 of the average daily net assets, .3675% of the next
$250,000,000 of such assets, and .3350% of such assets in excess of
$500,000,000. Subject to revision or termination upon 90 days' notice to the
Fund, Cadre Financial Services, Inc. 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.
(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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<CAPTION>
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................ $ 8.10 $ 25.53 $ 44.74 $ 101.83
</TABLE>
The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be greater or
less than those indicated. While the example assumes a 5% annual return, the
Fund's actual performance will vary and may result in an actual return greater
or less than 5%.
Management fees are payable to Cadre Financial Services, Inc. ("Cadre
Financial") for managing the Fund's investments and business affairs and
distributing its shares. Cadre Financial has agreed to reimburse the Fund if and
to the extent that total operating expenses (including the management and
distribution fees, but excluding interest, taxes, and extraordinary expenses)
exceed an annual rate of .85% of the Fund's average daily net assets. Please
refer to footnote (1) above and "Management of the Fund" for further
information.
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FINANCIAL HIGHLIGHTS
The financial information in the table below for the years ended December
31, 1995, December 31, 1996 and December 31, 1997 has been audited by Price
Waterhouse LLP, independent auditors, whose report for the year ended December
31, 1997 is included in the Statement of Additional Information, and for the
years ended December 31, 1993 and December 31, 1994, has been audited by KPMG
Peat Marwick LLP, independent auditors.
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<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
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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 0.048 0.058 0.042 0.030
Less Distributions................ (0.048) (0.048) (0.058) (0.042) (0.030)
------- ------- ------- ------- -------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return.............. 4.91% 5.00% 5.83% 4.11% 3.06%
Ratio to Average Net Assets
(Annualized Basis):
Expenses, before
reimbursement/waiver........... 0.79% 0.68% 0.67% 1.24% 1.58%
Expenses, net of
reimbursement/waiver........... 0.79% 0.65% 0.27% 0.26% 0.19%
Net investment income, before
reimbursement/waiver........... 4.81% 4.78% 6.05% 3.24% 1.61%
Net investment income, net of
reimbursement/waiver........... 4.81% 4.81% 5.78% 4.22% 3.00%
Net Assets at end of period (in
thousands)..................... $42,828 $40,085 $41,864 $20,540 $ 8,914
======= ======= ======= ======= =======
</TABLE>
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THE TRUST
The Cadre Network Health Financial Services Trust (the "Trust") is a
California trust. The Fund is an investment portfolio of the Trust.
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.
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.
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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.
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 only 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 assets, the
Fund will not make any additional investments); (ii) will not pledge its assets
in an amount which exceeds 33 1/3% 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 except 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 25% 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 describes 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
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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
An initial investment in the Fund must be preceded or accompanied by a
properly completed registration form. A properly completed registration form
must be on file when making a redemption from an account. Registrations should
be forwarded to:
Cadre Financial Services, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
Participants may make an investment into their Fund account by the
following two methods:
- Wire Transfer -- Participants will begin earning on their investment the
same day by calling the Fund's toll-free number 1-800-221-4524, EXT 2, by
12:00 noon New York Time provided the Fund's custodian bank receives the
wire transfer through the Federal Reserve Wire System prior to its close
that day.
- 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.
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REDEMPTIONS
GENERAL. Participants may request redemption of shares at any time.
Redemptions requests should be transmitted to Cadre Financial Services, Inc.,
905 Marconi Avenue, Ronkonkoma, New York 11779. When a request is received in
proper form, the Fund will redeem the shares at the next determined net asset
value. Written redemption requests must be signed by an authorized person noted
on the registration form.
Redemption proceeds of $10,000 or more will be wired to any member bank of
the Federal Reserve System, for deposit in a Participant's account, in
accordance with the redemption request. Amounts under $10,000 will be paid by
check.
CHECK REDEMPTION PRIVILEGE. Participants may use the Fund's unlimited
checkwriting services by filling out 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.
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.
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MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees of the Trust is responsible for
the supervision of the management of the business and affairs of the Trust. The
Board of Trustees will perform duties and undertake responsibilities similar to
those of a board of directors of a corporation.
MANAGER AND INVESTMENT ADVISER. Cadre Financial Services, Inc., located at
905 Marconi Avenue, Ronkonkoma, New York 11779, serves as the Fund's investment
adviser and manager. Subject to the direction of the Board of Trustees, it is
responsible for the overall management of the Trust's business and investment
affairs under the terms of a Management and Investment Advisory Agreement.
Cadre Financial Services, Inc. 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. Cadre Financial Services, Inc. also
serves 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 $150 million as of December 31, 1997.
In addition, it 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, 1997.
None of those programs is registered under the Investment Company Act of 1940.
as investment adviser and manager calculated as a percentage of the Fund's
average daily assets. Such fees are payable at an annual rate of .40% for the
first $250,000,000 of such assets, .3675% of the next $250,000,000, and .3350%
of such assets in excess of $500,000,000.
Subject to revision or termination upon 90 days' notice to the Fund, Cadre
Financial Services, Inc. has agreed not to impose all or a portion of its
management fee and to take other action, to the extent necessary, to maintain
the Fund's aggregate operating expenses (excluding interest, taxes, and
extraordinary expenses) at an annual rate of not more than .85% of the average
daily net assets for any fiscal year. This has the effect of lowering the
overall expense ratio of the Fund and increasing the yield to the participants
at the time such amounts are reimbursed. The Fund will not pay Cadre Financial
Services, Inc. at a later time for any operating expenses which have been
previously reimbursed.
DISTRIBUTOR. Cadre Securities, Inc., an affiliate of Cadre Financial
Services, Inc., 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. Cadre Financial Services, Inc. is the Fund's transfer agent
and dividend disbursing agent.
TRUST EXPENSES. Pursuant to the Management and Investment Advisory
Agreement, Cadre Financial Services, Inc. will pay all of the costs and expenses
incurred to provide to the Fund the management and investment advisory services,
including the expense of all employees and office space and facilities necessary
to provide such services and all brokerage fees and commissions. The Fund will
pay expenses not assumed by Cadre Financial Services, Inc. , including
insurance, interest and taxes, expenses of those Trustees who are not
"interested persons" Cadre Financial Services, Inc. or the Trust, legal and
audit expenses and custodial fees.
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ADMINISTRATIVE SERVICES PLAN. The Trust has adopted an Administrative
Services Plan pursuant to which securities, dealers, brokers, financial
institutions, other industry professionals (such as investment advisors,
accountants, and estate planning firms) and others may be paid fees for
providing administrative support services to the Fund. Such fees may not exceed
.05% of the Fund's average daily assets and will be computed on the basis of
such assets attributable to Shares owned of record or beneficially by each
service provider's customers.
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.
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.
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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.
Cadre Financial Services, Inc. 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.
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<PAGE> 11
MANAGER AND INVESTMENT ADVISER
AND TRANSFER AGENT
Cadre Financial Services, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
DISTRIBUTOR
Cadre Securities, Inc.
905 Marconi Avenue
Ronkonkoma, New York 11779
CUSTODIAN
First Trust National Association
Pioneer Building, 6th Floor
336 North Robert Street
St. Paul, MN 55164
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
201 North Service Road
Melville, New York 11747
LEGAL COUNSEL
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101-1688
- ------------------------------------------------------
PROSPECTUS
- ------------------------------------------------------
March 6, 1998
CADRE NETWORK HEALTH FINANCIAL SERVICES
LIQUID ASSET FUND
(800) 221-4524
[LOGO]
CADRE NETWORK HEALTH FINANCIAL SERVICES
---------------------------------------
LIQUID ASSET FUND
<PAGE> 12
================================================================================
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 March 6, 1998. To obtain a
copy of the Prospectus, please write to Cadre Financial Services, Inc. at 905
Marconi Avenue, Ronkonkoma, New York 11779 or call (800) 221-4524, Ext. 2. This
Statement of Additional Information is not a prospectus.
The Fund operates as a money market mutual fund which seeks to maintain
a stable net asset value of $1.00 per share and to provide as high a level of
current income as is consistent with the preservation of capital and liquidity.
Investors may invest or redeem shares at any time without charge or penalty.
Investment in the Fund is limited to investors who are either a hospital, health
system, health facility, medical group, health insuring organization, or other
health care institution, provider or payor.
An investment in the Fund is neither insured or guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
Cadre Financial Services, Inc. serves as the Fund's investment adviser
and transfer and dividend disbursing agent. Cadre Securities, Inc., an affiliate
of Cadre Financial Services, Inc., 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
ADMINISTRATIVE SERVICES PLAN...................................... 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
March 6, 1998
================================================================================
<PAGE> 13
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
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<PAGE> 14
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> 15
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., CHAIR AND TRUSTEE*. Chairman and CEO,
Cadre Financial Services, Inc. since 1996. Chairman and CEO of
Cadre Financial Services, Inc.'s predecessor since 1983. His
address is 905 Marconi Avenue, Ronkonkoma, New York 11779. Age: 51.
HARVEY A. FEIN, VICE CHAIR AND 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: 51.
JENETE M. MASLONKA, SECRETARY, 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: 43.
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.
LORI BLOOMFIELD, TRUSTEE. Chief Operating Officer, The Medical
Quality Commission. Her address is 3010 Old Ranch Parkway, Suite 205, Seal
Beach, California 90740. Age: 33.
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> 16
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 3120 Lake Center Drive, P.O. Box 25186, Santa Ana,
California 92799. 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 1996-1997;
Executive Director, Unified Medical Group Association 1988-1996. His address
is 515 S. Figueroa Street, Suite 1300, Los Angeles, California 90071. 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. President and Chief
Executive Officer of Community Hospital Foundation since 1995. His address is
P.O. Box HH, Monterey, California 93942. Age: 60.
* Mr. Sullivan is an "interested person" of the Trust, as defined in the
Investment Company Act of 1940, by virtue of his affiliation with Cadre
Financial Services, Inc.
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
Cadre Financial Services, Inc., 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> 17
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.
Cadre Financial Services, Inc. also serves 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 $150 million as of December 31, 1997. In addition, it manages and
is investment adviser to collective, short-term investment programs for a number
of local governmental and municipal entities. Those programs are not registered
under the Investment Company Act of 1940 and had total assets of approximately
$1.8 billion as of December 31, 1997.
Pursuant to a Management and Investment Advisory Agreement (the
"Advisory Agreement") with the Trust dated December 30, 1996, Cadre Financial
Services, Inc. acts as investment adviser and, subject to the supervision of the
Board of Trustees, directs the investments of the Fund in accordance with its
investment objective, policies and limitations. Cadre Financial Services, Inc.
also acts as the Fund's transfer and dividend disbursing agent. It provides the
Fund with all necessary office facilities and personnel for servicing the Fund's
investments, and pays the salaries of all personnel of Cadre Financial Services,
Inc. and its affiliates performing services relating to research, statistical
and investment activities. In addition, Cadre Financial Services, Inc. or its
affiliates, subject to the supervision of the Board of Trustees, provides the
management and administrative services necessary for the operation of the Fund,
including transfer and dividend disbursing agent services. These services
include providing facilities for maintaining the Fund's organization,
supervising relations with custodians, accountants, and other persons dealing
with the Fund, preparing all general shareholder communications and conducting
shareholder relations, maintaining the Fund's records and the registration of
the Fund's shares under federal and state law, developing management and
shareholder services for the Fund and furnishing reports, evaluations and
analysis for the Board of Trustees.
Cadre Financial Services, Inc. is responsible for the payment of
expenses and costs incurred to provide the Fund with management and investment
advisory services, brokerage fees and commissions in connection with the Fund's
investments. The expenses of the Fund which have not been assumed by Cadre
Financial Services, Inc., including
4
<PAGE> 18
interest and taxes, expenses of those Trustees who are not "interested
persons," legal and audit expense, custodial fees, insurance and expenses of
preparing and filing (but not printing and mailing) amendments to the Fund's
registration statements, reports, notices and meeting material to shareholders,
are paid by the Fund. Cadre Financial Services, Inc. also provides portfolio and
general accounting record maintenance.
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 in the Investment Company Act of 1940) of the outstanding shares of the
Fund, or by Cadre Financial Services, Inc., in each case on 60 days' written
notice. The Advisory Agreement will automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940 and rules
thereunder).
For the services of Cadre Financial Services, Inc. under the Advisory
Agreement, the Fund pays Cadre Financial Services, Inc. a monthly management fee
at an annual rate of .40% of the first $250,000,000 of its average net assets,
.3675% of the next $250,000,000 of such average assets, and .3350% of such
assets in excess of $500,000,000.
During the period ending December 31, 1997, and thereafter subject to
revision or termination upon 90 days' notice to the Fund, Cadre Financial
Services, Inc. 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> 19
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 current and prior adviser and manager fees for
advisory and management services during the years ended December 31, 1997, 1996
and 1995 of $167,367, $177,658 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, Cadre Securities, Inc., an affiliate of
Cadre Financial Services, Inc., 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 Cadre
Securities, Inc., in each case on sixty (60) days' written notice. The
Distribution Agreement will automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940 and rules
thereunder).
Cadre Securities, Inc. provides services under the Distribution
Agreement in consideration of the fees paid by the Fund to its affiliate, Cadre
Financial Services, Inc., for the advisory and management services provided
pursuant to the Advisory Agreement.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan pursuant to which
securities, dealers, brokers, financial institutions, other industry
professionals (such as investment advisors, accountants, and estate planning
firms) and others may be paid fees for providing administrative support
services to the Fund. Such fees may not exceed .05% of the Fund's average
daily assets and will be computed on the basis of such assets attributable to
Shares owned of record or beneficially by each service provider's customers.
6
<PAGE> 20
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.
7
<PAGE> 21
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, 1997 was 5.15% and the effective yield for the same period was 5.28%.
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> 22
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> 23
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> 24
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> 25
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 LLP, 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> 26
[PRICE WATERHOUSE LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
JANUARY 21, 1998
TO THE BOARD OF TRUSTEES AND PARTICIPANTS OF THE
CADRE NETWORK HEALTH FINANCIAL SERVICES 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 Cadre Network Health Financial
Services Liquid Asset Fund (formerly the California Hospital and Health
Facilities Liquid Asset Fund) (the "Fund"), one of the portfolios constituting
the Cadre Network Health Financial Services Trust at December 31, 1997, 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 each of the five years in the period then ended, 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 owned at December 31, 1997 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, were audited by other independent accountants
whose report dated February 17, 1995, expressed an unqualified opinion on those
statements.
Price Waterhouse LLP
F-1
<PAGE> 27
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<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 - 22.64%
$ 250 Bank Boston 5.81% $ 248,172
February 17, 1998
1,000 Bank of America 5.92 996,605
January 22, 1998
1,000 Bank of America 5.92 996,443
January 23, 1998
105 Citibank 5.95 104,398
January 9, 1998
129 Citibank 6.19 128,857
January 12, 1998
177 Citibank 5.99 176,050
January 20, 1998
1,000 Citibank 5.83 995,013
February 2, 1998
171 Citibank 6.14 169,859
February 10, 1998
159 Citibank 6.18 156,854
March 16, 1998
400 Citibank 6.06 391,171
May 18, 1998
310 Fifth Third Bank 5.84 308,686
February 2, 1998
190 Fifth Third Bank 5.91 188,298
February 26, 1998
2,000 Morgan Guaranty 5.84 1,982,329
February 26, 1998
1,000 Nationsbanc 5.82 994,775
February 3, 1998
1,864 PNC Bank 5.90 1,862,742
January 6, 1998
------ ----------
$9,755 Total bankers' acceptances $9,700,252
====== (amortized cost - $9,700,252) ----------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-2
<PAGE> 28
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<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 - 63.36%
$2,000 AKZO Nobel 5.86% $1,984,800
February 18, 1998
1,200 Associates Corporation 5.85 1,189,965
February 23, 1998
1,214 Bankers Trust, NY 5.88 1,190,184
May 6, 1998
1,000 Bear Stearns 5.87 994,449
February 5, 1998
2,000 Beneficial Finance 5.83 1,987,333
February 10, 1998
2,000 CIT Group Holdings 5.85 1,992,042
January 26, 1998
1,000 CS First Boston 5.86 996,504
January 23, 1998
1,168 Fingerhut Owner Trust 6.32 1,163,977
January 21, 1998
2,000 Ford Motor Credit Europe PLC 5.85 1,992,083
January 26, 1998
1,600 General Electric Capital Services 5.85 1,590,880
February 6, 1998
1,000 Goldman Sachs 5.92 997,583
January 16, 1998
1,000 Goldman Sachs 5.88 993,144
February 13, 1998
1,000 Household Finance 5.87 990,325
March 3, 1998
1,000 IBM Credit Corporation 5.96 997,725
January 15, 1998
2,000 Merrill Lynch & Company 5.78 1,998,745
January 5, 1998
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
F-3
<PAGE> 29
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<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)
$ 2,000 Morgan Stanley 5.86% $ 1,993,008
January 23, 1998
1,500 National Rural Utilities 5.91 1,497,342
January 12, 1998
600 New Center Asset Trust 5.87 595,908
February 13, 1998
2,000 Riverwoods Funding Corporation 5.83 1,991,465
-----------
- ------ January 28, 1998
$27,282 Total commercial paper 27,137,462
======= ===========
(amortized cost - $27,137,462)
Securities Purchased Under Agreement to Resell - 11.66%
$ 4,992 HSBC Securities 6.59 4,992,000
6.50% dated December 31, 1997,
maturing January 2, 1998 to be
repurchased at $4,993,803, collateralized
by $5,180,000 in FNMA Discount
Notes, due April 2, 1998, value
$5,106,444, (cost $4,992,000)
- ------- -----------
$ 4,992 4,992,000
======= ===========
U.S. government agency obligation - 2.33%
$ 1,000 Federal Home Loan Bank 5.88 996,789
January 21, 1998
- ------- -----------
$ 1,000 (amortized cost - $996,789 996,789
======= ===========
Total investments - 99.99% $42,826,503
Cash and other assets in
excess of liabilities - .01% 1,982
-----------
Net assets - 100% $42,828,485
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-4
<PAGE> 30
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in securities, at value (Note 2):
Bankers' acceptances $ 9,700,252
Commercial paper 27,137,462
Securities purchased under agreement to resell 4,992,000
U.S. government agency obligation 996,789
------------
Total investments 42,826,503
Receivable for cash disbursed pending liquidation of participant shares 514,318
Other assets 18,701
------------
Total assets 43,359,522
------------
LIABILITIES
Cash received from participants pending investment in Fund shares 358,685
Payable to custodian bank 115,565
Management and Investment advisory fee payable 14,953
Custodian fee payable 22,066
Audit fee payable 15,000
Legal fees payable 4,768
------------
Total liabilities 531,037
------------
NET ASSETS
Net assets (equivalent to $1.00 per share on
42,828,485 shares of beneficial interest outstanding) $ 42,828,485
============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-5
<PAGE> 31
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Investment income $ 2,346,353
Expenses (Note 3):
Manager and investment advisory fee 167,367
Custodian fee 62,629
Audit fee 15,000
Legal fee 36,977
Liability insurance 24,655
Amortization of deferred organization cost (Note 2) 13,151
Other expenses 12,600
-----------
Total expenses 332,379
-----------
Investment income - net and net increase
in net assets resulting from operations $ 2,031,974
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-6
<PAGE> 32
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------
From operations: 1997 1996
-------------- --------------
<S> <C> <C>
Investment income - net $ 2,013,974 $ 2,334,835
------------- -------------
Net increase in net assets resulting from
operations 2,013,974 2,334,835
Dividends and distributions
to participants (Note 4) (2,013,974) (2,334,835)
------------- -------------
- -
------------- -------------
From transactions in shares of beneficial
interest (at $1 per share):
Proceeds from sales of shares 398,472,454 334,687,508
Net asset value of shares issued to
participants in reinvestment of
dividends and distributions 2,013,974 2,334,835
------------- -------------
400,486,428 337,022,343
Cost of shares repurchased (397,742,811) (338,801,089)
------------- -------------
Change in net assets derived from
transactions in shares of beneficial interest 2,743,617 (1,778,746)
------------- ------------
Net (increase)/decrease in net assets 2,743,617 (1,778,746)
Net assets:
Beginning of year 4O,084,868 41,863,614
------------- -------------
End of the year $ 42,828,485 $ 40,084,868
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-7
<PAGE> 33
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
CADRE NETWORK HEALTH FINANCIAL SERVICES
LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - DESCRIPTION OF THE FUND
The Cadre Network Health Financial Services Liquid Asset Fund (the "Fund")
(formerly the California Hospital and Health Facilities Liquid Asset 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 Cadre Network
Health Financial Services Trust (the "Trust") (formerly, the Hospital and Health
Facilities 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 to hospitals, 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.
F-8
<PAGE> 34
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 recorded.
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Securities purchased under agreement to resell entered into with certain 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, which 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 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
obligation by the Fund may be delayed.
DEFERRED ORGANIZATION COSTS
Deferred organization costs were 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 has reimbursed Cadre
for such costs rateably 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 those 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.
F-9
<PAGE> 35
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 for these management consulting services.
OTHER FUND EXPENSES
The Fund pays 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 period ended December 31, 1997, sales and purchases U.S. government
securities were $3,596,065 and $56,109,996, respectively.
F-10
<PAGE> 36
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding for each of the
five years in the period ended December 31 is as follows:
<TABLE>
<CAPTION>
Period Ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<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 0.048 0.058 0.042 0.030
Dividends and distributions
to participants (0.048) (0.048) (0.058) (0.042) (0.030)
------- ------ ------ ------ ------
Change in net asset value - - - - -
------- ------ ------ ------ ------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ====== ====== ======
Total investment return 4.91% 5.00% 5.83% 4.11% 3.06%
Expenses, before
reimbursement/waiver 0.79% 0.68% 0.67% 1.24% 1.58%
Expenses net of
reimbursement/waiver 0.79% 0.65% 0.27% 0.26% 0.19%
Net investment income, before
reimbursement waiver 4.81% 4.78% 5.38% 3.24% 1.61%
Net investment income, net
or reimbursement/waiver 4.81% 4.81% 5.78% 4.22% 3.00%
Number of shares outstanding
at end of year (in thousands) 42,828 40,085 41,864 20,540 8,914
</TABLE>
F-11
<PAGE> 37
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> 38
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> 39
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> 40
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
