CADRE NETWORK HEALTH FINANCIAL SERVICES
LIQUID ASSET FUND
AN INVESTMENT PORTFOLIO OF THE
CADRE NETWORK HEALTH FINANCIAL SERVICES TRUST
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
ECONOMIC OPINION
THE FEDERAL RESERVE
The Federal Open Market Committee met in late December and left the overnight
Fed Funds target rate unchanged at 4.75%. Minutes from the November meeting were
recently released and provide insight into the mindset of Fed officials at the
time. The minutes suggest that some members had a preference toward waiting for
more information before lowering rates for the third time in six weeks. In the
end the members voted 10-1 for the interest rate reduction as an insurance
policy against any unexpected weakening of the economic expansion. The committee
also adopted a symmetric policy stance which demonstrates that they feel further
easing would not be necessary over the coming months.
OVERVIEW
Indicators continue to point toward an expanding overall economy. Home sales are
at a peak, personal consumption is up, the employment rate continues to be low,
while inflation remains under control.
Many uncertainties lie in the year or two ahead. European monetary union is now
a reality, it's effect on how the dollar and U.S. Treasuries will trade in the
long and short run is the subject of much debate. The President's impeachment
trial will likely create its own volatility as foreign and domestic investors in
our debt markets try to predict the outcome, and its possible effect. The year
2000 is less than twelve months away. The economic impact this will have on
business spending patterns, and potential computer difficulties is uncertain.
Debt problems in Brazil may cause an occasional flight to quality during the
months ahead, and Asia, which has been moving in a more positive direction, is
far from out of the woods.
RATES
Yields on U.S. Treasury Bills have actually risen over the past several weeks as
the "flight to quality" motivated by risk aversion has subsided somewhat. As of
the 3-month T-Bill was yielding 4.45%, three month agency discount notes were at
4.82%, and top rated commercial paper in that period was yielding 4.98%.
OUTLOOK
Rate movements are now as closely tied to what is occurring internationally as
they are to U.S. indicators. Domestically, consumer-spending patterns are
expected to slow as households can not maintain their current savings depleting
spending levels. Internationally, a speedy recovery in Asia appears unlikely and
Brazil remains in recession.
These factors will point toward a slowing in our economic growth over the next
several months. The market, which had priced in a more substantial slowdown, is
likely to strengthen causing moderately higher rates than current levels.
Cadre Financial Services, Inc.
January 1999
2
<PAGE>
OFFICERS
William T. Sullivan, Jr. (IP) Chairman
Harvey A. Fein Vice Chairman
Jenete M. Maslonka (IP) Secretary/Treasurer
BOARD OF TRUSTEES
Alan H. Anderson South Coast Health Care Management, Inc.
Lori Bloomfield Sutter Health
Elizabeth Curtis Sharp Community Medical Group
Frank E. Gibson Hospital Consortium of San Mateo County
James O. Hillman Healthcare Assoc. of Southern California
Martin Hopp, M.D. Beverly Hills Care
Jay Hudson Community Hospital of the Monterey
Peninsula
Jerome Klusky John Muir/Mt. Diablo Health System
Frank G. McKenna McKenna and Associates
TEAM OF PROFESSIONALS
Manager and Investment Advisor Cadre Financial Services, Inc.
Custodian U.S. Bank, N.A.
Counsel Davis Wright Tremaine, LLP
Distributor Cadre Securities, Inc.
Independent Accountants PricewaterhouseCoopers LLP
IP - Interest Party
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
FEBRUARY 4, 1999
MELVILLE, NEW YORK
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 (the "Fund") at December 31, 1998, the result of its
operations for the period then ended, the changes in its net assets and the
financial highlights for 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 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
audit, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
4
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT DESCRIPTION MATURITY ON DATE VALUE
(IN THOUSANDS) MATURITY DATE OF PURCHASE (NOTE 2)
- -------------- ------------- ----------- --------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 53.8%
<C> <S> <C> <C>
$ 3,848 Federal Home Loan Mtge. Corp. 4.77 % $ 3,846,493
January 4, 1999
5,000 Federal Home Loan Mtge. Corp. 5.15 4,980,323
January 29, 1999
5,400 Federal Home Loan Mtge. Corp. 5.15 5,373,447
February 5, 1999
6,000 Federal Home Loan Mtge. Corp. 5.13 5,953,177
February 26, 1999
5,987 Federal National Mtge. Assoc. 4.93 5,961,232
February 2, 1999
5,000 Federal National Mtge. Assoc. 5.14 4,967,834
February 16, 1999
6,000 Federal National Mtge. Assoc. 5.12 5,959,030
February 19, 1999
-----------
Total U.S. Government Agency Obligations 37,041,536
(amortized cost $37,041,536)
-----------
COMMERCIAL PAPER - 46.2%
2,000 Akzo Nobel Inc. 5.24 1,976,733
March 24, 1999
2,000 BankAmerica Corp. 5.09 1,986,437
February 19, 1999
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS
December 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT DESCRIPTION MATURITY ON DATE VALUE
(IN THOUSANDS) MATURITY DATE OF PURCHASE (NOTE 2)
- -------------- ------------- ----------- --------
COMMERCIAL PAPER - CONTINUED
<C> <S> <C> <C>
$ 2,000 Ciesco LP 5.39 % $ 1,990,008
February 4, 1999
2,000 Du Pont (EI) De Nemours 5.14 1,984,639
February 25, 1999
2,000 Ford Motor Credit Company 5.26 1,980,305
March 11, 1999
2,000 G.E. Capital Corp. 5.34 1,988,066
February 11, 1999
1,000 General Motors Acceptance Corp. 5.60 995,720
January 29, 1999
2,000 Golden Peanut Co. 5.30 1,985,880
February 19, 1999
2,000 Goldman Sachs Group LP 5.37 1,979,610
March 12, 1999
1,000 J.P. Morgan 5.31 996,088
January 28, 1999
2,000 Merrill Lynch & Co. 5.37 1,987,719
February 12, 1999
2,000 Morgan Stanley Dean Witter 5.26 1,993,965
January 22, 1999
6
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
SCHEDULE OF INVESTMENTS
December 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT DESCRIPTION MATURITY ON DATE VALUE
(IN THOUSANDS) MATURITY DATE OF PURCHASE (NOTE 2)
- -------------- ------------- ----------- --------
COMMERCIAL PAPER - CONTINUED
<C> <S> <C> <C>
$ 2,000 Motorola Credit Corp. 5.35 % $ 1,985,742
February 19, 1999
2,000 Proctor & Gamble Co. 5.40 1,991,744
January 29, 1999
2,000 Riverwoods Funding Corp. 5.26 1,994,252
January 21, 1999
2,000 Salomon Smith Barney Holdings 5.26 1,995,977
January 15, 1999
2,000 Virginia Electric & Power 5.46 1,991,962
January 28, 1999
-----------
Total Commercial Paper 31,804,847
(amortized cost $31,804,847)
-----------
Total investments - 100.02%
(amortized cost $68,846,383) 68,846,383
Liabilities in excess of cash and
other assets - (0.02%) (12,510)
-----------
Total net assets - 100.00% $68,833,873
===========
7
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
Investment in securities, at value (Note 2):
<S> <C>
U.S. Government Agency Obligations $37,041,536
Commercial Paper 31,804,847
-----------
Total investments 68,846,383
Cash 233,636
Receivable for cash disbursed pending
liquidation of participants shares 37,799
Interest receivable 1,800
Other assets 19,025
-----------
Total assets 69,138,643
-----------
LIABILITIES
Cash received from participants
pending investment in Fund shares 251,826
Management and Investment advisory fee payable 24,694
Audit fee payable 13,000
Custodian fee payable 9,923
Trustee expenses payable 2,740
Legal fees payable 2,587
-----------
Total liabilities 304,770
-----------
Commitments and contingencies
Net assets (equivalent to $1.00 per share on
68,833,873 shares of beneficial interest outstanding) $68,833,873
===========
Composition of Net Assets
Paid-in Capital $68,833,873
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
8
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income $3,365,097
----------
Expenses (Note 3):
Management and investment advisory fees 245,942
Custodian fees 26,506
Trustee expenses 25,446
Liability insurance expenses 22,726
Audit fees 13,000
Legal fees 6,383
Other expenses 3,533
----------
Total expenses 343,536
----------
Net investment income $3,021,561
==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
9
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1998 1997
---- ----
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,021,561 $ 2,013,974
------------- -------------
DIVIDENDS TO PARTICIPANTS FROM:
Net investment income (Note 4) (3,021,561) (2,013,974)
------------- -------------
SHARE TRANSACTIONS:
Net proceeds from sale of shares 743,889,068 398,472,454
Net asset value of shares issued to participants
in reinvestment of dividends 3,021,561 2,013,974
Cost of shares redeemed (720,905,241) (397,742,811)
------------- -------------
Net increase in net assets resulting from
share transactions 26,005,388 2,743,617
------------- -------------
Total increase in net assets 26,005,388 2,743,617
NET ASSETS
Beginning of year 42,828,485 40,084,868
------------- -------------
End of year $ 68,833,873 $ 42,828,485
============= =============
OTHER INFORMATION:
Share Transactions:
Shares sold 743,889,068 398,472,454
Shares issued to participants in
reinvestment of dividends 3,021,561 2,013,974
Shares redeemed (720,905,241) (397,742,811)
------------- -------------
Net increase in shares outstanding 26,005,388 2,743,617
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
10
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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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),
which was established on February 12, 1992, as a common law trust organized
under the laws of the state of California 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. 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. The amortized cost method involves valuing a security at its cost on the
date of purchase and recording a constant amortization to maturity of any
discount or premium.
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.
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.
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.
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<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Repurchase agreements entered into with broker/dealers are secured by U.S.
government or agency obligations. The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. Repurchase
agreements are collateralized at 102% of the obligation's principal and interest
value. 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 collateral declines,
realization of the value of the obligation by the Fund may be delayed. In the
event of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
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 Financial Services, Inc. ("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.
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 and legal fees.
12
<PAGE>
CADRE NETWORK HEALTH FINANCIAL SERVICES LIQUID ASSET FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
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 - SUBSEQUENT EVENT
At a special meeting of the Board of Trustees held on November 3, 1998, the
Board approved Cadre's proposal to request each of the Fund's shareholders to
redeem their shares and consider investing the proceeds in one or more new funds
to be offered by Cadre Securities. As a result, the Fund's registration
statement and prospectus will not be amended and updated to include these
financial statements and the Fund will not accept any new investments (including
the reinvestment of dividends) after April 30, 1999.
13
<PAGE>
Cadre Network Health Financial Services Liquid Asset Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding for each of the
five years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.049 0.048 0.048 0.058 0.042
Dividends to participants (Note 4) (0.049) (0.048) (0.048) (0.058) (0.042)
---------- ---------- ---------- ----------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========== ========== =========== ==========
(unchanged during the year)
Total investment return 5.03% 4.91% 5.00% 5.83% 4.11%
Expenses, before reimbursement/waiver 0.56% 0.79% 0.68% 0.67% 1.24%
Expenses, net of reimbursement/waiver 0.56% 0.79% 0.65% 0.27% 0.26%
Net investment income, before
reimbursement/waiver 4.91% 4.81% 4.78% 5.38% 3.24%
Net investment income, net of
reimbursement/waiver 4.91% 4.81% 4.81% 5.78% 4.22%
Number of shares outstanding at end
of year (000's) 68,834 42,828 40,085 41,864 20,540
</TABLE>
14
