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LIQUID ASSET FUND
A SERIES OF CADRE INSTITUTIONAL
INVESTORS TRUST
905 Marconi Avenue
Ronkonkoma, New York 11779
...............................................................................
Liquid Asset Fund (the "Fund") (formerly known as AMBAC U.S.
Government Money Market Fund) is a series of Cadre Institutional
Investors Trust (the "Trust") (formerly known as AMBAC Treasurers
Trust), a diversified, open-end management investment company.
The Fund is a money market fund and seeks to maintain a stable
net asset value of $1.00 per share. The investment objective of
the Fund is high current income, consistent with preservation of
capital and maintenance of liquidity. The Fund pursues this
objective by investing exclusively in short-term debt securities
that are issued or guaranteed by the U.S. government or an agency
or instrumentality of the U.S. government ("Government
Securities") and repurchase agreements collateralized by
Government Securities. See "Investment Objective and Policies."
Cadre Financial Services, Inc. (the "Investment Adviser") serves
as the investment adviser of the Fund.
...............................................................................
Shares of the Fund are offered for sale on a no-load basis to
states and municipalities, and their subdivisions and agencies,
as well as to other institutional investors. No sales commissions
or other charges are imposed upon the purchase or redemption of
shares. No minimum initial or subsequent investment in the Fund
is required. See "Purchasing Shares." Shares of the Fund are not
insured by Ambac Assurance Corporation.
...............................................................................
An investment in the Fund is neither insured nor guaranteed
by the U.S. government and there can be no assurance that the
Fund will be able to maintain a stable net asset value of $1.00
per share. See "Net Asset Value."
...............................................................................
This Prospectus sets forth concisely the information about
the Fund and the Trust that a prospective investor should know
before investing. Additional information about the Fund and the
Trust has been filed with the Securities and Exchange Commission
(the "SEC") in a Statement of Additional Information dated March
1, 1997, as supplemented August 1, 1997, which is incorporated
herein by reference and is available without charge by writing to
the transfer agent or by calling 1-800-221-4524.
...............................................................................
Investors are advised to read this Prospectus and retain it for
future reference.
...............................................................................
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.
...............................................................................
The date of this Prospectus is March 1, 1997 as supplemented
August 1, 1997
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SUMMARY OF EXPENSES
The following table is designed to assist prospective investors in
understanding the various direct and indirect costs and expenses that a
shareholder in the Fund will bear. The amounts set forth below under "Other
Expenses," as well as the amounts in the example below, are based upon estimates
of expenses for the current fiscal year.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases.................................. None
Maximum Sales Load Imposed on Reinvested Dividends....................... None
Deferred Sales Load...................................................... None
Redemption Fee........................................................... None
Exchange Fee............................................................. None
ANNUAL FUND OPERATING EXPENSES Net of Expense
(as a percentage of average net assets) Reimbursement
Management Fees (after waiver)........................................... 0%
12b-1 Fees............................................................... None
Other Expenses (estimated)............................................... .45%
Total Fund Operating Expenses............................................ .45%
</TABLE>
The Investment Adviser has voluntarily agreed to waive its fees or absorb
Fund expenses to the extent necessary to assure that the ordinary operating
expenses do not exceed annually .45% of the Fund's average daily net assets.
Absent this agreement, management fees, other estimated expenses and estimated
total operating expenses of the Fund annually would be .15%, .49% and .64%,
respectively, of the Fund's average daily net assets. The Investment Adviser
reserves the right to modify or terminate at any time its agreement to waive
fees and absorb expenses upon prior written notice to the Fund.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------- ------ -------
<S> <C> <C>
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: $5 $14
</TABLE>
The example is based upon estimated Total Fund Operating Expenses, as set
forth in the table above, after giving effect to the fee waiver and absorption
of expenses. Actual expenses and annual return may be greater or less than the
amounts shown above. The example should not be considered a representation of
past or future expenses.
For a more complete description of costs and expenses, see "Management of
the Fund."
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LIQUID ASSET FUND
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the audit of the financial statements of the Trust by KPMG Peat Marwick
LLP, independent auditors, which financial statements and report thereon are
incorporated by reference in the Statement of Additional Information, but not
included herein. This table should be read in conjunction with the Trust's
financial statements and notes thereto, which are an integral part of these
financial highlights and ratios.
PERIOD ENDED OCTOBER 31, 1996 (1)
<TABLE>
<S> <C>
Net Asset Value, Beginning of period....................................... $ 1.000
-------
Income from Investment Operations:
Net investment income (2)............................................. 0.027
-------
Less Dividends:
Dividends from net investment income.................................. (0.027)
-------
Net increase in net asset value............................................ --
-------
Net Asset Value, End of period............................................. $ 1.000
=======
Total Return............................................................... 2.72%*
Ratios/Supplemental Data:
Net Assets, End of period (000s)........................................... $70,881
Ratios to average net assets:
Net investment income including reimbursement/waiver.................. 5.18%**
Operating expenses including reimbursement/waiver..................... 0.20%**
Operating expenses excluding reimbursement/waiver..................... 0.75%**
</TABLE>
- ---------------
* Not Annualized
** Annualized
(1) The Fund commenced investment operations on April 24, 1996.
(2) Net investment income per share before reimbursement/waiver of fees and
expenses by the Investment Adviser for the period ended October 31, 1996 for
the Fund was $0.024.
SUITABLE INVESTORS
The Fund is specifically designed for investors concerned about the safety
of their investments and is a low-cost, professionally managed cash management
vehicle for states, municipalities, and their subdivisions and agencies,
including school and special purpose districts, and for other institutional
investors. It offers investment diversification, administrative convenience and
operating economies of scale to investors whose investment policies and
guidelines are consistent with those of the Fund.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high current income,
consistent with preservation of capital and maintenance of liquidity. The Fund
pursues this objective by investing exclusively in short-term debt securities
issued or guaranteed by the U.S. government or an agency or instrumentality of
the U.S. government ("Government Securities") and repurchase agreements
collateralized by Government Securities. The Fund maintains a dollar-weighted
average maturity of 90 days or less, and invests only in securities having
remaining maturities of 397 days or less. As a money market fund, the Fund seeks
to maintain a stable net asset value of $1.00 per share at all times. No
assurance can be given that the Fund will be able to achieve its investment
objective or maintain a stable net asset value. See "Net Asset Value."
Government Securities include obligations that are issued by the U.S.
Treasury. These obligations, which include Treasury bills, notes and bonds, are
backed by the full faith and credit of the U.S. government. Government
Securities also include obligations issued by federal agencies and
instrumentalities ("Agency Securities"). Certain Agency Securities, such as the
Export-Import Bank of the United States, the General Services Administration,
the Government National Mortgage Association, and the Small Business
Administration, are backed by the full faith and credit of the U.S. government.
Other Agency Securities, such as obligations of the Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association and Student Loan Marketing Association, are backed
by the right of the issuer to borrow from the U.S. Treasury under certain
circumstances or are backed by the credit of the agency or instrumentality
issuing the obligation. These types of Agency Securities are not deemed direct
obligations of the United States, and therefore involve more risk than
obligations which are backed by the full faith and credit of the U.S.
government. All securities purchased by the Fund, including repurchase
agreements, must be of high quality and be determined by the Investment Adviser
to present minimal credit risks pursuant to procedures adopted by the Board of
Trustees of the Trust.
THE FUND MAY INVEST IN CERTAIN VARIABLE AND FLOATING RATE SECURITIES, AS
DESCRIBED BELOW, BUT DOES NOT INVEST IN ANY OTHER SECURITIES COMMONLY KNOWN AS
DERIVATIVES.
The Fund's investment objective is fundamental and may not be changed
without the approval of the holders of a majority of the outstanding voting
securities of the Fund, as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act").
Repurchase Agreements. A repurchase agreement involves the purchase of a
security by the Fund with an agreement by the seller of the security to
repurchase it from the Fund at a mutually agreed upon day and price, frequently
the next business day. The resale price is in excess of the purchase price and
reflects the rate of return earned by the Fund. The maturities of repurchase
agreements entered into by the Fund normally do not exceed seven days. However,
the Fund may enter into a repurchase agreement maturing in more than seven days
provided that not more than 10% of the Fund's net assets would, as a result, be
invested in repurchase agreements having maturities in excess of seven days and
under which the Fund also does not have the right to repayment within seven
days. Repurchase agreements will at all times be fully collateralized by their
underlying securities ("collateral") in an amount at least equal to the purchase
price plus accrued interest, marked to market daily. The collateral for
repurchase agreements is held by the Trust's custodian (or a subcustodian) and
is required to consist of Government Securities (without regard to the maturity
of such obligations). If the seller defaults and the value of the collateral
securing a repurchase agreement declines, the Fund may incur a loss. The Fund,
however, enters into repurchase agreements only with banks or primary dealers
designated as such by the Federal Reserve Bank of New York and which have been
determined by the
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Investment Adviser to present minimal credit risk in accordance with guidelines
established by the Board of Trustees of the Trust.
Variable and Floating Rate Securities. Government Securities purchased by
the Fund may include variable and floating rate securities. The interest rates
payable on these securities are adjusted either at predesignated intervals or
whenever there is a change in an established benchmark rate of interest, and,
upon reset, the market value approximates par. These securities may also have a
demand feature under which the Fund can demand repayment of principal on
specified dates or after giving specified notice. The Fund only purchases
variable and floating rate Government Securities that are eligible for purchase
by money market funds under applicable regulations, and therefore does not
purchase securities such as inverse floaters, range floaters, COFI floaters,
capped floaters or dual index floaters. In determining the maturities of the
Fund's portfolio securities and calculating the Fund's dollar-weighted average
portfolio maturity, variable rate Government Securities are deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate. Floating rate Government Securities with demand features are
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
When-Issued and Delayed Delivery Securities. The Fund may purchase or sell
securities on a when-issued or delayed delivery basis. In these transactions,
securities are purchased or sold by the Fund with payment and delivery taking
place as much as a month or more in the future. The Fund engages in these
transactions to secure an advantageous price and yield at the time of entering
into the transactions. However, the value of securities purchased on a
when-issued basis is subject to market fluctuation and no interest accrues to
the purchaser during the period between purchase and settlement.
Borrowings. The Fund does not borrow for purposes of making investments (a
practice known as "leverage"). However, it may borrow money from banks in an
amount not exceeding one-third of the value of its total assets (calculated at
the time of the borrowing), for temporary extraordinary or emergency purposes.
The Fund may pledge its assets to secure these borrowings. Additional
investments will not be made by the Fund while any borrowings are outstanding.
Investment Restrictions. The Fund is subject to various additional
restrictions on its investments. Certain of these restrictions are deemed
fundamental policies and cannot be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities, as defined in the
Investment Company Act. See "Investment Restrictions" in the Statement of
Additional Information.
Investment Characteristics. The Fund invests solely in obligations issued or
guaranteed by the U.S. government or an agency or instrumentality of the U.S.
government, and repurchase agreements collateralized by such securities.
Government Securities are of very high credit quality. Shares of the Fund are
not insured or guaranteed by the U.S. government or any government agency. The
return on an investment in the Fund will increase or decrease in response to
changes in short-term market interest rates. The market value of the Fund's
investments will fluctuate, with investments increasing in value as interest
rates fall and decreasing in value as interest rates rise. However, due to the
method used by the Fund in valuing its assets, it is expected but cannot be
assured that the net asset value of shares of the Fund will be a stable $1.00
per share. See "Net Asset Value." Virtually all portfolio transactions for the
Fund will be effected on a principal basis with issuers, underwriters or dealers
serving as primary market-makers.
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<PAGE> 6
PURCHASING SHARES
Shares of the Fund are offered for sale, without sales charge, at the net
asset value per share next determined after receipt and acceptance of a purchase
order by Cadre Securities, Inc., as distributor of the Fund's shares (the
"Distributor"), subject to timely receipt of federal funds as described below.
Net asset value is computed as of 4:00 p.m. (Eastern time) on each day on which
both the New York Stock Exchange is open for trading and the Federal Reserve
Bank of New York is open (each, a "Business Day"), except on days for which the
Public Securities Association (the "PSA") recommends an early closing of the
U.S. government securities markets when the net asset value will be computed as
of such earlier closing time. See "Net Asset Value." There are no minimum
initial or subsequent investment requirements.
Shares become entitled to receive dividends beginning on the day of
purchase. For this reason, the Fund must have federal funds available to it
(i.e., monies credited to its custodian bank by a Federal Reserve bank) on the
day the purchase order is accepted. An order for the purchase of shares of the
Fund is accepted (i) immediately upon receipt of federal funds by wire as
described below or (ii) when a check is credited to the shareholder's account in
the form of federal funds (generally one Business Day after receipt of a check).
Shares will be issued at the net asset value next determined after acceptance of
the purchase order and will be entitled to that day's dividend. The Fund
reserves the right to reject any purchase order and to modify or suspend the
continuous offering of its shares.
In order to permit the Investment Adviser to manage the Fund most
effectively, investors should place purchase orders as early in the day as
possible by calling Cadre Financial Services, Inc., in its capacity as the
Fund's transfer agent (the "Transfer Agent"), toll-free at 1-800-221-4524.
Prior to making an initial investment by wire or check, an account number
must be obtained by calling the Transfer Agent toll-free at 1-800-221-4524, or
by mailing a completed registration form to:
Cadre Liquid Asset Fund
905 Marconi Avenue
Ronkonkoma, New York 11779
In order to receive an account number by telephone, an investor must provide
the name, address, and tax identification number of the account owner, the
amount being wired or mailed as the initial investment, and the name of the
wiring bank. Promptly after opening accounts by telephone, investors should mail
an original completed registration form for each account opened to the Transfer
Agent. Although share purchases can be made before a registration form is
submitted, shares may not be redeemed until a completed registration form has
been submitted.
Purchases by Federal Funds. Shares may be purchased by wiring federal funds
directly to the Fund in accordance with the instructions below. The Fund does
not impose any transaction charges; however, wire charges may be imposed by the
shareholder's transmitting bank. Shares will be issued at the net asset value
next determined after receipt of an order to purchase shares and will be
entitled to the dividend declared on the date the order is received if the
Trust's custodian receives payment in federal funds in the amount of the
purchase order not later than the close of the Federal Reserve wire on that day.
If a purchase order is not received and accepted prior to 4:00 p.m. (Eastern
time), or as of the closing time of the U.S. government securities markets on
days when the PSA recommends an early closing of such markets, or if federal
funds are not received by the close of the Federal Reserve wire, shares will not
be issued or entitled to receive dividends until the next computation of net
asset value following the receipt of the purchase order or of federal funds by
the Trust's custodian.
6
<PAGE> 7
Additional purchases of shares can be made by calling the Transfer Agent
toll-free at 1-800-221-4524, to place a purchase order and then wiring federal
funds in the amount of the purchase.
With respect to both initial and subsequent purchases of shares, the wiring
bank should be instructed to wire federal funds to:
Cadre Liquid Asset Fund
C/o BSD&T Co. ABA # 011001234
CR DDA # 05-338-4
CR CIIT A/C # ____________
[insert your account number]
Purchases by Check. Shares may be purchased by check in accordance with the
instructions below. Shares will be issued on the next Business Day after receipt
of a check at the net asset value determined on such day. Shareholders will
begin accruing dividends when a check is credited to the shareholder's account
in the form of federal funds (generally one Business Day after receipt of a
check).
Checks for both initial and subsequent purchases of shares should indicate
the account name and number and be made payable to Liquid Asset Fund and sent by
mail to the Transfer Agent at:
Cadre Liquid Asset Fund
905 Marconi Avenue
Ronkonkoma, New York 11779
SHAREHOLDER ACCOUNTS
The Trust does not issue certificates for shares of the Fund. Instead, one
or more accounts are maintained for each shareholder reflecting full and
fractional shares of the Fund the shareholder owns. Shareholders are sent
confirmations of each account transaction, and monthly statements showing
account balances.
Sub-Account Services. Special sub-accounting procedures are available for
investors wishing to open multiple accounts to meet requirements regarding the
commingling of funds or for accounting convenience. Sub-accounts can be
established at any time by calling the Transfer Agent. Please call toll-free at
1-800-221-4524 for further information and appropriate forms. Investors who have
established sub-accounts will receive periodic confirmations and statements of
holdings and transactions.
Minimum Account Balance. There is no minimum account balance for the Fund.
In order to avoid costs to the Fund that are associated with maintaining
inactive accounts, if there has been no activity in an account with no balance
for a period of six months, the Fund has the right to close the account.
However, a shareholder will first be sent written notice of the Fund's intention
to close the account, and given 60 days to purchase additional shares to
increase the account balance.
REDEEMING SHARES
Shareholders may redeem all or any portion of the shares in their accounts
at any time at the net asset value next computed after the receipt of a
redemption request in proper form. Redemptions may be made by telephone, mail,
or check, as described below. Redemption proceeds will be paid by federal funds
wire to one or more of the bank accounts that have been predesignated by the
shareholder, normally on the day the
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redemption request is received. If a redemption request is not received prior to
2:00 p.m. (Eastern time), or as of the closing time of the U.S. government
securities markets on days when the PSA recommends an early closing of such
markets, it will be processed on the following Business Day. Shares are not
entitled to receive dividends declared on the day the shares are redeemed. See
"Dividends and Distributions." In the case of complete redemption of all shares
in an account, the redemption payment will include the amount of all dividends
declared for the month-to-date on shares held in the account. Except in unusual
circumstances described in the Statement of Additional Information, the Fund
will not suspend the right of redemption or postpone the payment of redemption
proceeds for more than seven days; however, if shares have recently been
purchased by check (including, in each case, certified checks and cashiers
checks), the payment of redemption proceeds will be delayed until the purchase
check has cleared (the time varies from state to state) which may take up to 15
days. Shareholders who anticipate the need for immediate access to their
investment should purchase shares with federal funds.
A completed registration form must be on file with the Transfer Agent in
order to redeem shares. See "Purchasing Shares." Shareholders will be asked to
designate a primary recipient bank account on their registration form. The
primary recipient account may be changed at any time, and any number of
secondary recipient bank accounts can be added, provided proper written
instructions are on file. Please call the Transfer Agent to receive additional
information and appropriate forms.
In order to permit the Investment Adviser to manage the Fund most
effectively, investors should place telephone redemption requests as early in
the day as possible by calling the Transfer Agent toll-free at 1-800-221-4524.
Telephone Redemption Procedures. A request to redeem shares may be placed by
calling the Transfer Agent at 1-800-221-4524. The shareholder will be asked to
provide the account name and number, and the amount of the redemption. Proceeds
of the redemption will be sent to the primary recipient bank account designated
by the shareholder unless the shareholder requests that payment be made to a
predesignated secondary recipient bank account. Proceeds will be sent by Federal
Reserve wire, normally on the day the redemption request is received. Redemption
requests that are not received prior to 2:00 p.m. (Eastern time), or as of the
closing time of the U.S. government securities markets on days when the PSA
recommends an early closing of such markets, will be processed the following
Business Day.
The Transfer Agent employs reasonable procedures to confirm that telephone
redemption instructions are genuine such as recording telephone calls, providing
written confirmation of transactions, or requiring a form of personal
identification or other information prior to effecting a telephone redemption.
To the extent such procedures are used, neither the Trust or the Fund, nor the
Investment Adviser, or any of its affiliates, will be liable for a loss due to
fraudulent or unauthorized telephone instructions. A REDEMPTION BY TELEPHONE MAY
BE MADE ONLY IF THE TELEPHONE REDEMPTION PRIVILEGE HAS BEEN SELECTED ON THE
REGISTRATION FORM, OR WRITTEN INSTRUCTIONS HAVE BEEN FILED WITH THE TRANSFER
AGENT.
During periods of severe market or economic conditions, it may be difficult
to contact the Transfer Agent by telephone. In such an event a shareholder
should send a written redemption request by overnight delivery to the Transfer
Agent and follow the procedures for written redemption requests described below.
Written Redemption Requests. Shares of the Fund may be redeemed by written
redemption request. A written redemption request must be signed by each of the
persons who the shareholder has specified as required to sign such requests. The
request must include the complete account name and address, the amount of the
redemption, and the predesignated primary or secondary recipient bank account to
which the proceeds of the redemption are to be sent. The signature of each
person signing the request must be guaranteed by an
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eligible guarantor institution. Organizations that may qualify as eligible
guarantor institutions include banks, brokers, dealers, national securities
exchanges, clearing agencies, credit unions, and savings associations. The
Transfer Agent reserves the right to request additional information from, and to
make reasonable inquiries of, any eligible guarantor institution.
Written redemption requests should be sent to:
Cadre Liquid Asset Fund
905 Marconi Avenue
Ronkonkoma, New York 11779
Check Redemption Privilege. Commencing on or about September 1, 1997,
shareholders may make arrangements to redeem shares of the Fund by check by
filling out a checkwriting authorization form and signing the subcustodian
bank's certificate of authority form. Shareholders may write checks in any
dollar amount. Checks will be honored only if they are properly signed by a
person authorized on the certificate of authority. Checks will be furnished
without charge, and may be written in any amount (not exceeding the balance of
the shareholder's account) and made payable to any person. Redemption checks
will not be honored if there is an insufficient share balance to pay the check
or if the check requires the redemption of shares recently purchased by check
which has not cleared. 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.
NET ASSET VALUE
The Fund's share price, or net asset value per share, is calculated as of
4:00 p.m. (Eastern time) each Business Day, except on days for which the PSA
recommends an early closing of the U.S. government securities markets when the
net asset value will be computed as of such earlier closing time. Net asset
value per share is determined by subtracting the Fund's liabilities (including
accrued expenses and dividends payable) from the total value of the Fund's
investments and other assets and dividing the result by the total number of
outstanding shares of the Fund.
For purposes of calculating net asset value per share, the Fund's portfolio
securities are valued using the "amortized cost" method of valuation. This
method involves valuing each investment at 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 investment.
Amortized cost valuation provides certainty in valuation, but may result in
periods during which the value of an investment, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
investment. Use of this valuation method permits the maintenance of the Fund's
net asset value at $1.00 per share. There can be no assurance, however, that the
Fund will be able to maintain a stable net asset value of $1.00 per share.
In using this method, the Trust has adopted certain procedures and adheres
to various investment limitations as required by Rule 2a-7 under the Investment
Company Act. These procedures, among other things, require the Investment
Adviser to monitor the deviation between the Fund's net asset value determined
by using available market quotations or market equivalents and its net asset
value determined by using amortized cost.
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FUND EXPENSES
The Fund's expenses are deducted from total income before dividends are
paid. The Fund bears all expenses of its operations other than those expressly
assumed by the Investment Adviser, including the Fund's proportionate share of
the Trust's expenses. Expenses borne by the Fund include but are not limited to:
the fees of the Investment Adviser, the Administrator and Transfer Agent; the
fees and expenses of the Trust's independent auditors, legal counsel, accounting
services agent and custodian; taxes; brokerage fees and commissions; interest;
costs incident to meetings of Trustees and shareholders, printing and mailing
prospectuses and reports to shareholders, and the filing of reports with
regulatory bodies and the maintenance of the Trust's legal existence; federal
and state registration fees; the fees and expenses of non-interested Trustees of
the Trust; and any extraordinary expenses of a non-recurring nature.
As discussed under "Summary of Expenses," the Investment Adviser has
voluntarily undertaken to waive its fee or to absorb expenses of the Fund as may
be necessary to limit total ordinary operating expenses of the Fund to a
specified percentage of the Funds average daily net assets. The Investment
Adviser may modify or terminate this undertaking at any time upon prior written
notice to the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and accrued daily on each Business Day based upon the
Fund's net investment income (i.e., income other than net realized capital
gains), and are paid monthly. Distributions of net realized capital gains, if
any, are declared and paid annually at the end of the Fund's fiscal year in
which they have been earned. All dividends and other distributions are
automatically reinvested in full and fractional shares of the Fund at net asset
value unless otherwise requested by the shareholder. A shareholder can request
that dividends and other distributions be paid by wire transfer to a
predesignated bank account by sending a written request to the Transfer Agent.
Any such request must be received by the Transfer Agent at least five Business
Days prior to a payment date in order to be effective on such date.
Dividends are payable to all shareholders of record as of the time of
declaration. Shareholders will begin receiving dividends on shares the day the
shares are purchased, but will not be entitled to receive dividends declared on
shares the day the shares are redeemed. Shares purchased through dividend
reinvestment will begin earning dividends the day after they are credited to the
shareholder's account.
The Fund does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually. In addition, in order
to satisfy certain distribution requirements of the Tax Reform Act of 1986, the
Fund may declare special or regular year-end dividend and capital gains
distributions during December. Such distributions, if received by shareholders
by January 31, are deemed to have been paid by the Fund and received by
shareholders on December 31 of the prior year.
TAXES
Taxation of the Fund. The Fund has elected and intends to qualify each year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code (the "Code"). If so qualified, the Fund will not be subject to federal
income tax to the extent it distributes its net income to shareholders. Certain
federal income and excise taxes would be imposed on the Fund if it failed to
make certain required distributions of income to shareholders. The Fund intends
to make distributions in a manner which will avoid the imposition of such tax.
If the Fund should fail to qualify as a "regulated investment company," it would
be subject to
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regular federal income tax on its taxable income, and its distributions
generally would be taxable. The Fund intends to carry on its operations so that
it will continue to qualify as a regulated investment company.
Federal Taxation of Shareholders. Dividend distributions, whether received
in cash or reinvested in additional shares, will be taxable as ordinary income.
Although the Fund does not expect to distribute any long-term capital gains,
investors will also be subject to tax on any capital gains distributions they
receive. Since the Fund does not expect to earn dividend income, dividends and
other distributions from the Fund will generally not qualify for the
dividends-received deduction available to corporate investors. In January of
each year, the Fund sends each shareholder a statement showing the tax status of
distributions for the past calendar year.
Section 115(1) of the Code provides, in part, that gross income does not
include income derived from the exercise of any essential government function
accruing to a state or any political subdivision thereof. Shareholders are urged
to consult their own tax advisors to determine any limitations on the
applicability of Section 115(1) to earnings from their investment in the Fund. A
portion of the earnings derived from funds which are subject to the arbitrage
limitations or rebate requirements of the Code may be required to be paid to the
U.S. Treasury as computed in accordance with such requirements.
A sale of shares of the Fund, by redemption, is a taxable event, and may
result in a capital gain or loss. However, because the Fund seeks to maintain a
stable net asset value of $1.00 per share for both purchases and redemptions, it
is generally expected that shareholders will not ordinarily realize any capital
gain or loss upon redemptions of shares.
The Fund is required to withhold 31% of all taxable distributions and
redemption proceeds paid to shareholders who either have not complied with IRS
taxpayer identification regulations or are otherwise subject to backup
withholding. Shareholders are asked to certify on their registration forms that
their taxpayer identification numbers are correct and that they are not subject
to backup withholding. Failure to so certify will result in backup withholding.
State and Local Taxes. Investors may be subject to state and local taxes on
their investment. For example, dividends and other distributions made by the
Fund and received by an investor may be subject to state and local taxes.
Although shareholders of the Fund do not directly receive interest on Government
Securities held by the Fund, certain states may allow the character of the
Fund's income to pass through to shareholders. If so, the portion of dividends
paid by the Fund that is derived from interest on Treasury securities may be
exempt from state and local taxes. Applicable rules vary from state to state,
and interest on certain Agency Securities may not qualify for exemption from
income tax in some states. The United States Supreme Court has ruled that income
from certain types of repurchase agreements involving Government Securities does
not constitute interest on Government Securities for this purpose. However, it
is not clear whether the Court's holding extends to all types of repurchase
agreements involving Government Securities in which the Fund may invest. Any
exemption from state and local income taxes does not preclude states from
assessing other taxes (such as intangible property taxes) on the ownership of
Government Securities.
The tax discussion set forth above regarding federal and state income
taxation is included for general information only. Prospective investors should
consult their own tax advisors concerning the federal and state tax consequences
of an investment in the Fund.
11
<PAGE> 12
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust is responsible for supervising the
operations and affairs of the Trust and the Fund. The Trust's officers, who are
all officers or employees of the Investment Adviser, are responsible for the
daily management and administration of the Fund's operations.
Investment Adviser. The Investment Adviser, Cadre Financial Services, Inc.,
905 Marconi Avenue, Ronkonkoma, New York 11779, is a wholly-owned subsidiary of
Ambac Capital Corporation which, in turn, is a wholly-owned subsidiary of Ambac
Financial Group, Inc. ("Ambac"). Through its subsidiaries, Ambac is a leading
insurer of municipal and structured finance obligations and a provider of
investment contracts, and investment advisory and administration services to
state municipalities and municipal authorities. Ambac is a publicly held company
whose shares are traded on the New York Stock Exchange.
As of May 31, 1997, the Investment Adviser provided investment management
services to 19 investment accounts and had aggregate assets under management in
excess of $2 billion. In addition, through its subsidiaries, Ambac manages its
own investment portfolios of approximately $5 billion.
Subject to overall supervision of the Board of Trustees, the Investment
Adviser is responsible for managing the investment operations of the Fund in
accordance with the Fund's investment objective and policies. The Investment
Adviser formulates a continuing investment program for the Fund and makes all
decisions regarding securities to be purchased or sold for the Fund. The
Investment Adviser is required to provide certain administrative services to the
Trust to the extent those services are not provided by other organizations
retained by the Fund, and furnishes, without expense to the Fund, the services
of its personnel to serve as officers and Trustees of the Trust. The Fund pays
the Investment Adviser a monthly fee computed at the annual rate of 0.15% of the
Fund's average daily net assets during the month.
Evelyn R. Robertson, a Vice President of the Investment Adviser, is the
person primarily responsible for managing the Fund's investments. Ms. Robertson
has over 14 years of experience managing money market funds. Prior to joining
the Investment Adviser in June, 1995, Ms. Robertson was a Vice President of
Smith Barney, Inc., where she served as portfolio manager of various money
market funds.
Administrator. The Investment Adviser also provides administration services
to the Trust pursuant to a separate Administration Agreement. The administrative
services provided include, but are not limited to: overseeing the preparation
and maintenance of all documents and records required to be maintained by the
Trust; preparing and updating required regulatory filings, prospectuses and
shareholder reports; providing, at its own expense, the services of its
personnel to serve as officers of the Trust; and preparing and disseminating
material for meetings of the Board of Trustees. For these services, the Fund
pays the Investment Adviser a monthly fee calculated at an annual rate of 0.10%
of the Fund's average daily net assets on the first $500 million of net assets
of the Fund, 0.075% on the next $750 million of net assets of the Fund and 0.05%
on net assets of the Trust in excess of $1 billion. The Investment Adviser also
provides the Trust with fund accounting services for which it is not paid any
additional compensation.
PERFORMANCE INFORMATION
The Fund may publish its "current yield" and "effective yield" in
advertisements, sales materials and shareholder reports. Current yield refers to
the income generated by an investment in the Fund over a seven-day period; the
income is then annualized. In annualizing income, the amount of income generated
by the investment during the period 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 in the same manner, but when annualized, the
12
<PAGE> 13
income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the current yield because of the
compounding effect of the assumed reinvestment. All quotations of investment
performance are based upon historical investment results and are not intended to
predict future performance.
In addition, comparative performance information may be used from time to
time in advertisements, sales literature and shareholder reports. This
information may include data, ratings and rankings from Lipper Analytical
Services, Inc., IBC Financial Data Money Fund Report, The Bank Rate Monitor,
Morningstar and other industry publications, business periodicals and services.
Comparisons to recognized market indices and to the returns on specific money
market securities or types of securities or investments may also be used. The
Fund may disseminate yields for periods longer than seven days, and may report
its total return. The "total return" of the Fund refers to the average annual
compounded rate of return over a specified period (as stated in the
advertisement) that would equate an initial amount invested at the beginning of
the period to the end of period redeemable value of the investment, assuming the
reinvestment of all dividends and distributions.
GENERAL INFORMATION
Description of Shares. The Trust is a Delaware business trust organized
pursuant to a Certificate of Trust dated June 27, 1995, as amended June 30,
1997, and is authorized to issue an unlimited number of shares of beneficial
interest, $.001 par value. As of the date of this Prospectus, the Trust has one
series of its shares outstanding, representing interests in the Fund. The Board
of Trustees has the power to establish additional series of shares, representing
interests in separate investment portfolios and, subject to applicable laws and
regulations, to issue two or more classes of shares of each series. Shares are
fully paid and non-assessable, and have no preemptive or conversion rights.
Shareholders of the Fund are entitled to vote on the election of Trustees
and the ratification of the Trust's independent auditors when those matters are
voted upon at a meeting of shareholders, and will be entitled to vote, as a
separate class on certain other matters in the event that more than one series
of shares of the Trust are outstanding. Each share (and fractional share) is
entitled to that number of votes which equals the net asset value of such share
(or fraction thereof). All shares have non-cumulative voting rights, meaning
that shareholders entitled to cast more than 50% of the votes for the election
of Trustees can elect all of the Trustees standing for election if they choose
to do so.
Under Delaware law, shareholders of the Fund could, under certain
circumstances, be held personally liable for the obligations of the Trust but
only to the extent of the shareholder's investment. However, the Declaration of
Trust disclaims liability of the shareholders, Trustees or officers of the Trust
for acts or obligations of the Trust, which are binding only on the assets and
property of the Trust and requires that notice of the disclaimer be given in
each contract or obligation entered into or executed by the Trust or the
Trustees. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and should be considered remote.
Annual meetings of shareholders will not be held except as required by the
Investment Company Act or other applicable law. A meeting will be held on the
removal of a Trustee or Trustees of the Trust if requested in writing by holders
of not less than 10% of the outstanding shares of the Trust.
13
<PAGE> 14
Transfer Agent. The Investment Adviser serves as the Trust's transfer agent,
shareholder servicing agent and dividend disbursing agent. Shareholders of the
Fund should call 1-800-221-4524 with their questions regarding transactions in
shares of the Fund and share account balances.
Custodian. Bankers Trust Company, 130 Liberty Street, New York, New York
10006, serves as custodian of the Trust, and in that capacity maintains custody
of all securities and cash assets of the Fund. The custodian is authorized to
hold the Fund's investments in securities depositories and to use subcustodians
approved by the Trust.
Distributor. Cadre Securities, Inc., 905 Marconi Avenue, Ronkonkoma, New
York, 11779, serves as Distributor of the Fund's shares. The Distributor may,
from time to time, enter into selling agreements with dealers or other financial
institutions, and in accordance therewith, pay to such dealers or institutions,
in connection with sales or the distribution of shares of the Fund, material
compensation or promotional incentives, in the form of cash or other
compensation. Such compensation and incentives are not paid by the Fund and will
not be a Fund expense.
Additional Information. This Prospectus, including the Statement of
Additional Information which has been incorporated by reference herein, does not
contain all the information set forth in the Registration Statement filed by the
Trust with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.
Shareholder Reports. The Trust sends shareholders annual and semi-annual
reports without charge. These reports include further information regarding the
Fund's performance. The financial statements of the Fund appearing in the
Trust's annual reports are audited by KPMG Peat Marwick LLP, the Trust's
independent auditors.
Shareholder Inquiries. For questions concerning shareholder accounts,
dividends and share purchase and redemption procedures, contact the Transfer
Agent toll free at 1-800-221-4524 or at 905 Marconi Avenue, Ronkonkoma, New York
11779.
14
<PAGE> 15
INVESTMENT ADVISER, ADMINISTRATOR
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
Bankers Trust Company
130 Liberty Street
New York, New York 10006
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
LEGAL COUNSEL
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
<PAGE> 16
Investors are advised to read this
Prospectus and retain it for future
reference.
NO DEALER, SALES REPRESENTATIVE OR
ANY OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. IN
CONNECTION WITH THE OFFER CONTAINED
HEREIN, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER BY THE TRUST OR
BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OR AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION.
........................................
TABLE OF CONTENTS
........................................
<TABLE>
<S> <C>
SUMMARY OF EXPENSES 2
...............................................................
FINANCIAL HIGHLIGHTS 3
...............................................................
SUITABLE INVESTORS 3
...............................................................
INVESTMENT OBJECTIVE AND POLICIES 4
...............................................................
PURCHASING SHARES 6
...............................................................
SHAREHOLDER ACCOUNTS 7
...............................................................
REDEEMING SHARES 7
...............................................................
NET ASSET VALUE 9
...............................................................
FUND EXPENSES 10
...............................................................
DIVIDENDS AND DISTRIBUTIONS 10
...............................................................
TAXES 10
...............................................................
MANAGEMENT OF THE FUND 12
...............................................................
PERFORMANCE INFORMATION 12
...............................................................
GENERAL INFORMATION 13
...............................................................
</TABLE>
LIQUID ASSET FUND
A SERIES OF CADRE
INSTITUTIONAL INVESTORS TRUST
-----------------------------------------
PROSPECTUS
MARCH 1, 1997 AS SUPPLEMENTED
AUGUST 1, 1997
-----------------------------------------
<PAGE> 17
LIQUID ASSET FUND
(A SERIES OF CADRE INSTITUTIONAL INVESTORS TRUST)
905 Marconi Avenue
Ronkonkoma, New York 11779-7255
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1997, AS SUPPLEMENTED
AUGUST 1, 1997
- --------------------------------------------------------------------------------
Cadre Institutional Investors Trust (the "Trust") (formerly known as
AMBAC Treasurers Trust) is a diversified, open-end, management investment
company. Liquid Asset Fund (the "Fund") (formerly known as AMBAC U.S.
Government Money Market Fund) is a series of the Trust. The Fund is a money
market fund which seeks to maintain a stable net asset value of $1.00 per
share. The Fund seeks high current income, consistent with preservation of
capital and maintenance of liquidity. See "Investment Policies and
Practices." Cadre Financial Services, Inc. (the "Investment Adviser") serves
as the investment adviser of the Fund. See "Investment Advisory Arrangements."
Shares of the Trust are offered for sale on a no-load basis to states
and municipalities, and their sub-divisions and agencies, as well as to other
institutional investors. No sales commissions or other charges are imposed
upon the purchase or redemption of shares. No minimum initial investment in
the Fund is required. See "Purchasing Shares." Shares of the Fund are not
insured by Ambac Assurance Corporation.
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE. SEE "DETERMINATION OF NET ASSET VALUE."
- --------------------------------------------------------------------------------
Information about the Fund is set forth in the Prospectus dated March 1, 1997,
as supplemented August 1, 1997 for the Fund, which provides the basic
information you should know before investing. The Prospectus may be obtained
without charge by writing to the Transfer Agent or by calling 1-800-221-4524.
This Statement of Additional Information is not a prospectus, but contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide you with additional information
regarding the activities and operations of the Fund and the Trust, and should
be read in conjunction with the Fund's Prospectus.
<PAGE> 18
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT POLICIES AND PRACTICES . . . . . . . . . . . . . . . . . 3
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . 5
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . 6
PURCHASING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 7
SHAREHOLDER ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . 9
REDEEMING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 9
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . 10
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . 12
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . 13
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . 16
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
<PAGE> 19
INVESTMENT POLICIES AND PRACTICES
The sections below provide additional information regarding the types
of investments that may be made by the Fund and the investment practices in
which the Fund may engage. The investment objective and general investment
policies of the Fund are described in the Fund's Prospectus.
Treasury, Government and Agency Securities. The Fund invests in
short-term debt securities that are issued or guaranteed by the U.S. government
or an agency or instrumentality of the U.S. government ("Government
Securities"), and repurchase agreements collateralized by Government
Securities.
These securities include obligations issued by the U.S. Treasury
("Treasury Securities"), including Treasury bills, notes and bonds. These are
direct obligations of the U.S. government and differ primarily in their rates
of interest and the length of their original maturities. Treasury Securities
are backed by the full faith and credit of the U.S. government. Government
Securities include Treasury Securities as well as securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities
("Agency Securities"). As described in the Prospectus, Agency Securities are
in some cases backed by the full faith and credit of the U.S. government. In
other cases, Agency Securities are backed solely by the credit of the
governmental issuer. Certain issuers of Agency Securities have the right to
borrow from the U.S. Treasury, subject to certain conditions. Government
Securities purchased by the Funds may include variable and floating rate
securities, which are described in the Prospectus.
Repurchase Agreements. As discussed in the Prospectus, the Fund may
enter into repurchase agreements. A repurchase agreement, which may be viewed
as a type of secured lending by the Fund, involves the acquisition by the Fund
of a security from a selling financial institution such as a bank or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral") at a specified price and at a fixed time in the future. The
Fund will receive interest from the institution until the time when the
repurchase is to occur. Although such date is deemed to be the maturity date
of a repurchase agreement, the maturities of securities that are purchased by
the Fund through repurchase agreements are not subject to any limitation as to
maturity. The Fund may enter into repurchase agreements maturing in more than
seven days. However, the Fund may not enter into such a repurchase agreement
if, as a result, more than 10% of the value of its net assets would be invested
in repurchase agreements under which the Fund does not have the right to obtain
repayment in seven days or less.
Because repurchase agreements involve certain risks not associated
with direct investment in securities, the Trust follows procedures designed to
minimize these risks. These procedures include requirements that the
Investment Adviser effect repurchase transactions only with banks or primary
dealers designated as such by the Federal Reserve Bank of New York, and that
the bank or dealer has been determined by the Investment Adviser to present
minimal credit risk in accordance with guidelines established and monitored by
the Board of Trustees of the Trust. In addition, the collateral underlying a
repurchase agreement is required to be held by the Trust's custodian (or a
subcustodian) in a segregated account on behalf of the Fund. The collateral is
marked to market daily and required to be maintained in an amount at least
equal to the repurchase price plus accrued interest. In the event of a default
or bankruptcy by a selling
3
<PAGE> 20
financial institution, the Trust will seek to liquidate the collateral.
However, the exercise of the Trust's right to liquidate collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss.
When-Issued and Delayed Delivery Securities. As noted in the
Prospectus, the Fund may purchase and sell securities on a when-issued or
delayed delivery basis. These transactions arise when the Fund purchases or
sells a security, with payment and delivery taking place in the future beyond
the normal settlement period. A transaction of this type will be effected in
order to secure for the Fund an attractive price or yield at the time of
entering into the transaction. When purchasing securities on a when-issued or
delayed delivery basis, the Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. Because the Fund is not
required to pay for securities until the delivery date, these risks are in
addition to the risks associated with the Fund's other investments. If the
Fund remains fully invested at a time during which when-issued or delayed
delivery purchases are outstanding, such purchases will result in a form of
leverage. When the Fund enters into purchase transactions of this type, the
Trust's custodian maintains, in a segregated account for the Fund, cash and
debt obligations held by the Fund and having a value equal to or greater than
the Fund's purchase commitments. When the Fund has sold a security on a
when-issued or delayed delivery basis, the Fund does not participate in further
gains or losses with respect to the security. If the counterparty fails to
deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity, or could suffer a loss. When the Fund enters into a sales
transaction of this type, the Trust's custodian segregates the securities sold
on a delayed delivery basis to cover the Fund's settlement obligations.
Investment Characteristics. In managing the Fund, the Investment
Adviser attempts to balance the Fund's goal of seeking high income with its
goal of seeking to preserve capital. For this reason, the Fund does not
necessarily invest in securities offering the highest available yields. The
maturities of the securities purchased by the Fund and the Fund's average
portfolio maturity will vary from time to time as the Investment Adviser deems
consistent with the Fund's investment objective and the Investment Adviser's
assessment of risks, subject to applicable limitations on the maturities of
investments and dollar-weighted average portfolio maturity.
When market rates of interest increase, the market value of debt
obligations held by the Fund will decline. Conversely, when market rates of
interest decrease, the market value of obligations held by the Fund will
increase. Debt obligations having longer maturities generally pay higher rates
of interest, but the market values of longer term obligations can be expected
to be subject to greater fluctuations from general changes in interest rates
than shorter term obligations. These changes will cause fluctuations in the
amount of daily dividends of the Fund and in extreme cases, changes in interest
rates could cause the net asset value per share of the Fund to decline. See
"Determination of Net Asset Value." In the event of unusually large redemption
demands, securities may have to be sold at a loss prior to maturity or the Fund
may have to borrow money and incur interest expense. The Investment Adviser
seeks to manage investment risk by purchasing and selling investments for the
Fund consistent with its best judgment and expectations regarding anticipated
changes in interest rates. However, there can be no assurance that the Fund
will achieve its investment objective.
4
<PAGE> 21
INVESTMENT RESTRICTIONS
The Fund is subject to a variety of investment restrictions. Certain
of these restrictions are deemed fundamental, and may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities. A "majority of the outstanding voting securities" of the Fund for
this purpose means the lesser of (i) 67% of the shares of the Fund represented
at a meeting at which holders of more than 50% of the outstanding shares are
present in person or represented by proxy or (ii) more than 50% of the
outstanding shares of the Fund. As fundamental investment restrictions, the
Fund may not:
(1) Purchase a security, other than a Government Security, if as a
result of such purchase more than 5% of the value of the
Fund's assets would be invested in the securities of any one
issuer, or the Fund would own more than 10% of the voting
securities, or of any class of securities, of any one issuer.
(For purposes of this restriction, all outstanding
indebtedness of an issuer is deemed to be a single class.)
(2) Purchase a security, other than a Government Security, if as a
result of such purchase 25% or more of the value of the Fund's
total assets would be invested in the securities of issuers
engaged in any one industry.
(3) Issue senior securities as defined by the Investment Company
Act of 1940 (the "1940 Act") or borrow money, except that the
Fund may borrow from banks for temporary extraordinary or
emergency purposes (but not for investment) in an amount up to
one-third of the value of its total assets (calculated at the
time of the borrowing). The Fund may not make additional
investments while it has any borrowings outstanding. This
restriction shall not be deemed to prohibit the Fund from
purchasing or selling securities on a when-issued or delayed
delivery basis, or entering into repurchase agreements.
(4) Purchase or sell commodities or commodity contracts, or real
estate or interests in real estate (including limited
partnership interests), except that the Fund, to the extent
not prohibited by other investment policies, may purchase and
sell securities of issuers engaged in real estate activities
and may purchase and sell securities secured by real estate or
interests therein. .
(5) Underwrite the securities of other issuers, except to the
extent that, in connection with the disposition of securities,
the Fund may be deemed to be an underwriter under the
Securities Act of 1933.
(6) Make loans of money or securities, except through the purchase
of permitted investments, including repurchase agreements.
(7) Make short sales of securities or purchase securities on
margin, except for such short-term credits as may be necessary
for the clearance of transactions.
5
<PAGE> 22
(8) Pledge, hypothecate, mortgage or otherwise encumber the Fund's
assets, except as may be necessary to secure permitted
borrowings. (Collateral and other arrangements incident to
permissible investment practices are not deemed to be subject
to this restriction.)
The Fund has the following additional investment restrictions which
are not fundamental and may be changed by the Board of Trustees, without a vote
of shareholders. Under these restrictions, the Fund may not:
(1) Make investments for the purpose of exercising control or
management of another company.
(2) Participate on a joint or joint and several basis in any
trading account in securities.
(3) Purchase any illiquid securities, except that the Fund may
invest in repurchase agreements maturing in more than seven
days provided that the Fund may not enter into such a
repurchase agreement if more than 10% of the value of the
Fund's net assets would, as a result, be invested in
repurchase agreements under which the Fund does not have the
right to obtain repayment in seven days or less. The Fund is
authorized to invest in restricted securities which can be
sold in transactions pursuant to Rule 144A under the
Securities Act of 1933 and which have been determined to be
liquid under procedures adopted by the Board of Trustees.
However, the Fund does not intend to invest in any such
restricted securities during the coming year.
(4) Invest in oil, gas or other mineral leases, rights, royalty
contracts, or exploration or development programs.
(5) Invest in warrants or rights.
(6) Purchase the securities of another investment company, except
in connection with a merger, consolidation, reorganization or
acquisition of assets.
All percentage and other restrictions, requirements and limitations on
investments set forth in this Statement of Additional Information, and those
set forth in the Prospectus, apply immediately after purchase of an investment,
and subsequent changes and events do not constitute a violation or require the
sale of any investment by the Fund unless otherwise specified.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees of the
Trust, the Investment Adviser is responsible for decisions to buy and sell
securities for the Fund and for the selection of dealers to effect those
transactions. Purchases of securities for the Fund will be made from issuers,
underwriters and dealers. Sales of securities will be made to dealers and
issuers. The Fund does not normally incur brokerage commissions on
transactions in the types of securities in
6
<PAGE> 23
which it invests. These transactions are generally traded on a "net" basis,
with dealers acting as principal in such transactions. However, the price at
which securities are purchased from and sold to dealers will usually include a
spread which represents a profit to the dealer. Securities purchased in
underwritten offerings include a fixed amount of compensation to the
underwriter (an underwriting concession).
In placing orders for the purchase and sale of investments for the
Fund, the Investment Adviser gives primary consideration to the ability of
dealers to provide the most favorable prices and efficient executions on
transactions. If such price and execution are obtainable from more than one
dealer, transactions may be placed with dealers who also furnish research
services to the Trust or the Investment Adviser. Such services may include,
but are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investments; wire services; and
appraisals or evaluations of securities. These research services may be of
benefit to the Investment Adviser or its affiliates in the management of
accounts of other clients, or the accounts of the Investment Adviser and its
affiliated companies, and may not in all cases benefit the Fund. While such
services are useful and important in supplementing the Investment Adviser's own
research and facilities, the Investment Adviser believes the value of such
services is not determinable and does not significantly reduce its expenses.
The Investment Adviser serves as the investment adviser to other
clients, including other investment funds and companies, and follows a policy
of allocating investment opportunities and purchase and sale transactions
equitably among its clients. In making such allocations, the primary factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, and the availability
of cash for investment. This procedure may have an adverse effect on a client,
including the Fund, in a particular transaction, but is expected to benefit all
clients on a general basis.
The Investment Adviser and its affiliates may invest in the same
securities that are purchased for its clients. However, in the case of
simultaneous orders to purchase or sell the same securities, client orders will
be given preference by the Investment Adviser so that client transactions will
not be adversely affect by transactions effected for the accounts of the
Investment Adviser or its affiliates. Investments made on behalf of the
Investment Adviser or its affiliates are effected in transactions which are
separate from any transactions for the accounts of clients in the same
securities.
PURCHASING SHARES
As described under "Purchasing Shares" in the Fund's Prospectus,
shares of the Fund are offered for sale, without a sales charge, at the net
asset value per share next computed after receipt of a purchase order by Cadre
Securities, Inc., as distributor of the Fund's shares (the "Distributor"). Net
asset value is computed once daily for the Fund, on each day on which both the
New York Stock Exchange is open for trading and the Federal Reserve Bank of New
York is open (each, a "Business Day"). See "Determination of Net Asset Value."
The following shows the calculation of the offering price of shares of the Fund
as of July 1, 1997:
7
<PAGE> 24
<TABLE>
<CAPTION>
Net Assets Shares Outstanding Offering Price
---------- ------------------ --------------
<S> <C> <C> <C>
Liquid Asset Fund $125,258,700 125,257,472 $1.00
</TABLE>
Distribution Arrangements. The Distributor has the exclusive right,
pursuant to a distribution agreement with the Trust dated as of July 1, 1997
(the "Distribution Agreement"), to purchase shares of the Fund for distribution
and to enter into selling agreements with dealers and other financial
institutions for the distribution of shares. Shares of the Fund are available
for purchase from the Distributor and from organizations which have entered
into selling agreements. The Distributor may, from time to time, pay to such
dealers and institutions, in connection with sales or the distribution of
shares of the Fund, material compensation or promotional incentives, in the
form of cash or other compensation. Such compensation and incentives are not
paid by the Fund and will not be an expense of the Fund.
The Board of Trustees, including a majority of the Trustees who are
not parties to the Distribution Agreement or "interested persons" of the
Investment Adviser or the Distributor, as defined by the 1940 Act (the
"Independent Trustees"), approved the Distribution Agreement at a meeting held
in person on February 26, 1997. The Distribution Agreement will remain in
effect until June 30, 1999, and may be continued in effect from year to year
thereafter if approved annually by the Board of Trustees, including a majority
of the Independent Trustees, by vote cast in person at a meeting called for
such purpose. The Distribution Agreement may be terminated at any time,
without penalty, by either party upon 60 days written notice and terminates
automatically in the event of an "assignment" as defined by the 1940 Act and
the rules thereunder. Under the Distribution Agreement, the Distributor is
required to bear all of the costs associated with distribution of shares of the
Fund, including the incremental cost of printing prospectuses, annual reports
and other periodic reports for distribution to prospective investors and the
costs of preparing, distributing and publishing sales literature and
advertising materials. Unlike many other mutual funds, the Fund does not bear
expenses relating to the distribution of shares, and thus, does not make any
payments pursuant to a Rule 12b-1 plan or a services plan. In the Distribution
Agreement, the Trust has agreed to indemnify the Distributor to the extent
permitted by applicable law against certain liabilities under the Securities
Act of 1933, as amended.
The Distributor is a wholly owned subsidiary of Ambac Capital
Corporation, which in turn is a wholly owned subsidiary of Ambac Financial
Group, Inc. The Distributor's address is 905 Marconi Avenue, Ronkonkoma, New
York 11779.
Purchases by Check. Shares of the Fund may be purchased by check as
described in the Fund's Prospectus. If a check to purchase shares does not
clear, the shares purchased may be redeemed by the Distributor and the investor
will be responsible for any loss or expenses incurred by the Fund or the
Distributor as a result of the redemption or non-clearance.
8
<PAGE> 25
SHAREHOLDER ACCOUNTS
Cadre Financial Services, Inc., in its capacity as the Fund's transfer
agent (the "Transfer Agent"), maintains one or more accounts for each
shareholder reflecting the amount of full and fractional shares of the Fund the
shareholder owns. Shareholders are sent confirmations of each account
transaction, and monthly statements showing account balances. The Trust does
not issue certificates for shares of the Fund.
Sub-Account Services. Special procedures have been designed for
investors wishing to open multiple accounts to meet requirements regarding the
commingling of funds or for accounting convenience. Individual sub-accounts
may be opened at any time by written advice or by filing forms supplied by the
Transfer Agent. Procedures are available to identify sub-accounts by name and
number.
When sub-accounts have been established, the Transfer Agent provides
written confirmations of transactions in sub-accounts. The Transfer Agent also
provides monthly statements setting forth the share balance of and the
dividends and other distributions paid to each sub-account for the current
month, as well as for the year-to-date. Further information on this service is
available from the Transfer Agent.
Minimum Account Balance. Under the Declaration of Trust, the Trust
has the right to redeem all shares of the Fund held by a shareholder if as a
result of one or more redemptions the aggregate value of shares held in the
shareholder's account is less than $100,000 or such lesser amount, as
determined by the Trustees, no greater than the then applicable minimum initial
investment amount. There is currently no minimum account balance for the Fund.
For this reason, accounts having a value less than $100,000 are not presently
subject to this redemption procedure. However, an inactive account with no
balance for a period of six months may be closed at the discretion of the
Trust. The applicable procedures are described in the Prospectus. The Trust
is under no obligation to compel the redemption of any account.
REDEEMING SHARES
Redemption proceeds are normally paid as described in the Prospectus.
However, the payment of redemption proceeds may be postponed for more than
seven days or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on the New York Stock Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund to determine fairly the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission (the "SEC"), by order, so
permits for the protection of shareholders. Applicable rules and regulations of
the SEC will govern as to whether the conditions described in (b) or (c) exist.
In addition, in the event that the Board of Trustees of the Trust determines
that it would be detrimental to the best interests of remaining shareholders of
the Fund to pay any redemption or redemptions in cash, a redemption payment may
be made in whole or in part by a distribution in kind of portfolio securities
held by the Fund, subject to applicable rules of the SEC. Any securities
distributed in kind will be readily marketable and will be valued, for purposes
of the
9
<PAGE> 26
redemption, in the same manner as such securities are normally valued by the
Fund in computing net asset value per share. In the unlikely event that shares
are redeemed in kind, the redeeming shareholder would incur transaction costs
in converting the distributed securities to cash. The Trust has elected to be
governed by Rule 18f-1 under the 1940 Act and is therefore obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90 day period for any one shareholder.
DETERMINATION OF NET ASSET VALUE
The Fund's Prospectus describes the days on which the net asset value
per share of the Fund is computed for purposes of purchases and redemptions of
shares by investors, and also sets forth the times as of which such
computations are made. Net asset value is computed once daily as of 4:00 p.m.
(Eastern time) on each day on which both the New York Stock Exchange is open
for trading and the Federal Reserve Bank of New York is open, except as
described below. The New York Stock Exchange currently observes the following
holidays: New Year's Day; Martin Luther King's Birthday (third Monday in
January); Presidents' Day (third Monday in February); Good Friday (Friday
before Easter); Memorial Day (last Monday in May); Independence Day; Labor Day
(first Monday in September); Thanksgiving Day (fourth Thursday in November);
and Christmas Day. The Federal Reserve Bank of New York currently observes all
the holidays listed above except Good Friday, and also observes Columbus Day
(second Monday in October) and Veterans Day.
Net asset value is computed as of the closing time of the U.S.
government securities markets on days when the Public Securities Association
recommends an early closing of such markets. Early closings may occur the
Fridays preceding the following holidays: Martin Luther King's Birthday,
Presidents' Day, Memorial Day, Labor Day and Columbus Day, and the business
days preceding the following holidays: Independence Day, Veterans Day,
Thanksgiving Day, Christmas Day, and New Year's Day, and the Friday succeeding
Thanksgiving Day.
In accordance with rules adopted by the SEC, the amortized cost method
of valuation is used to determine the value of the investments held by the
Fund. This method of valuation is used by the Fund in seeking to maintain a
stable net asset value of $1.00 per share. However, no assurance can be given
that the Fund will be able to maintain a stable share price.
Amortized cost involves valuing a security at its cost and amortizing
any discount or premium over the period remaining until the maturity of the
security. This method of valuation does not take into account unrealized
capital gains and losses resulting from changes in the market values of the
securities. The market values of debt securities purchased by the Fund will
generally fluctuate as a result of changes in prevailing interest rate level
and other factors.
In order to use the amortized cost method of valuation, the Fund is
required to maintain a dollar-weighted average maturity of 90 days or less, to
purchase securities with remaining maturities of 397 days or less and to invest
only in securities which have been determined by the Investment Adviser, under
procedures adopted by the Board of Trustees, to present minimal credit risks
and to be of eligible credit quality under applicable regulations. In
addition, procedures have been adopted by the Board of Trustees which are
designed to stabilize, to the extent reasonably possible, the price of shares
of the Fund as computed for purposes of sales and
10
<PAGE> 27
redemptions at $1.00. These procedures include review by the Board of
Trustees, at such intervals as it deems appropriate, to determine whether the
net asset value per share calculated by using available market quotations
deviates from the net asset value per share of $1.00 computed by using the
amortized cost method. If such deviation exceeds 1/2 of 1%, the Board will
promptly consider what action, if any, should be taken. The Trustees will take
such action as they deem appropriate to eliminate or to reduce, to the extent
reasonably practicable, any material dilution or other unfair results which
might arise from differences between the two valuation methods. Such action
may include selling instruments prior to maturity to realize capital gains or
losses or to shorten average maturity, redeeming shares in kind, withholding
dividends, paying distributions from capital gains, or utilizing a net asset
value per share based upon available market quotations.
TAXES
It is the policy of the Trust to distribute each fiscal year
substantially all of the Fund's net investment income and net realized capital
gains, if any, to shareholders. The Trust intends that the Fund will qualify
as a regulated investment company under the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"). If so qualified, the Fund will not be
subject to federal income tax on that part of its net investment income and net
realized capital gains which it distributes to its shareholders. To qualify
for such tax treatment, the Fund must generally, among other things: (a) derive
at least 90% of its gross income from dividends, interest, payments received
with respect to loans of stock and securities, and gains from the sale or other
disposition of stock or securities and certain related income; (b) derive less
than 30% of its gross income from the sale or other disposition of stock or
securities or options, forwards or futures thereon held less than three months;
and (c) diversify its holdings so that at the end of each fiscal quarter (i)
50% of the market value of the Fund's assets is represented by cash, Government
Securities and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's assets or 10% of the voting securities
of any issuer, and (ii) not more than 25% of the value of its assets is
invested in the securities of any one issuer (other than Government
Securities).
The Code requires regulated investment companies to pay a
nondeductible 4% excise tax to the extent they do not distribute 98% of their
ordinary income, determined on a calendar year basis, and 98% of their capital
gains, determined on an October 31 year end. The Trust intends to distribute
the income and capital gains of the Fund, in the manner necessary, to avoid
imposition of the 4% excise tax by the end of each calendar year.
Fund dividends declared in October, November or December and paid the
following January will be taxable to shareholders as if received on December
31 of the year in which they are declared.
In general, any gain or loss realized on a taxable disposition of
shares of the Fund by a shareholder that holds such shares as a capital asset
will be treated as long-term capital gain or loss if the shares have been held
for more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a redemption of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under the rules of
Section 1091 of the Code relating to "wash sales" (i.e.,
11
<PAGE> 28
purchase of substantially identical securities within a 61-day period beginning
30 days before such disposition).
INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Adviser, a Delaware corporation, with offices at 905
Marconi Avenue, Ronkonkoma, New York 11779, is a wholly-owned subsidiary of
Ambac Capital Corporation which, in turn, is a wholly-owned subsidiary of Ambac
Financial Group, Inc. ("Ambac"). Through its subsidiaries, Ambac is a leading
insurer of municipal and structured finance obligations and a provider of
investment contracts, and investment advisory and administration services to
state municipalities, and municipal authorities. Ambac is a publicly held
company whose shares are traded on the New York Stock Exchange.
Pursuant to an Investment Advisory Agreement with the Trust dated
November 1, 1995 (the "Agreement"), the Investment Adviser manages the
investment of the Fund's assets and places orders for the purchase and sale of
investments for the Fund. The Investment Adviser is also responsible under the
Agreement for monitoring services provided by the Administrator, the Transfer
Agent and the Trust's custodian. The Investment Adviser provides such
additional management and administrative services as the Trust or the Fund may
require beyond those furnished by the Administrator and furnishes, at its own
expense, such office space, facilities, equipment, clerical help, and other
personnel and services as may reasonably be necessary to render the services
under the Agreement. In addition, the Investment Adviser pays the salaries of
officers of the Trust and any fees and expenses of Trustees of the Trust who
are also officers, directors or employees of the Investment Adviser, or, who
are officers or employees of any company affiliated with the Investment
Adviser, and bears the cost of telephone service, heat, light, power and other
utilities associated with the services it provides. As compensation for
services rendered and expenses assumed by the Investment Adviser, the Agreement
provides for the payment by the Fund of a monthly fee to the Investment
Adviser, which fee is calculated daily and computed at the annual rate of 0.15%
of the net assets of the Fund.
For the period April 24, 1996 through October 31, 1996, fees payable
to the Investment Adviser by the Fund were $48,338, all of which were waived.
In addition, the Investment Adviser reimbursed expenses of the Fund in the
amount of $129,216.
The Agreement provides that in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of its obligations thereunder, the
Investment Adviser is not liable to the Trust or any of its shareholders for
any act or omission by the Investment Adviser or for any losses sustained by
the Trust or its shareholders. The Agreement in no way restricts the
Investment Adviser from acting as investment adviser to others.
The Agreement was approved by the Board of Trustees of the Trust,
including a majority of the Independent Trustees, who are not parties to the
Agreement or interested persons of the Investment Adviser, at a meeting held in
person on October 9, 1995. The Agreement was also approved on that date by the
Investment Adviser, as the then sole shareholder of the Trust. The Agreement
will continue in effect until September 30, 1997, and may be continued in
effect from year to year thereafter upon the approval of the Trust's
shareholders or the Board of Trustees. Each annual continuance also requires
approval by a vote of a majority of the Independent
12
<PAGE> 29
Trustees cast in person at a meeting called for the purpose of voting on such
continuance. The Agreement may be terminated at any time, without penalty, on
sixty days' written notice by the Board of Trustees of the Trust, by vote of
the holders of a majority (as defined in the 1940 Act) of the outstanding
shares of the Fund, or by the Investment Adviser. The Agreement will
automatically terminate in the event of its assignment (as defined in the 1940
Act and the rules thereunder).
The Trust has acknowledged that the name "Cadre" is a property right
of the Investment Adviser and other affiliates of Ambac Financial Group, Inc.,
and has agreed that the Investment Adviser and its affiliated companies may use
and permit others to use that name. The Trust has also agreed that, in the
event the Agreement is terminated, the Trust will cease using the name Cadre as
part of its name or the name of any series of the Trust unless otherwise
consented to by Ambac Financial Group, Inc. or any successor to its interest in
such name.
Administration services are provided to the Trust by the
Administrator, pursuant to an administration agreement with the Trust dated
August 1, 1997. Prior to that date, an organization which is not affiliated
with the Investment Adviser served as the Trust's Administrator. For the
period April 24, 1996 (commencement of operations) through October 31, 1996,
the Fund paid that organization $47,686.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust has the overall responsibility for
monitoring the operations of the Trust and the Fund and supervising the
services provided by the Investment Adviser and other organizations. The
officers of the Trust are responsible for managing the day-to-day operations of
the Trust and the Fund.
Set forth below is information with respect to each of the Trustees
and officers of the Trust, including their principal occupations during the
past five years.
<TABLE>
<CAPTION>
Name, Position with Trust, Age Principal Occupations
and Address During Last Five Years
- ---------------------------------- ----------------------
<S> <C>
*William T. Sullivan, Jr. Chairman and Chief Executive Officer,
Trustee, Chairman, CEO and Cadre Financial Services, Inc. and Cadre
President, 52 Securities, Inc. (brokerage services)
905 Marconi Avenue
Ronkonkoma, New York 11779-7255
Eugene J. McDonald President and Chief Executive Officer, Duke
Trustee, 64 Management Co. (investment management
2200 West Main Street, Suite 1000 affiliate of Duke University); Director,
Durham, North Carolina 27705 Central Carolina Bank, Key Group of
Mutual Funds and Flag Group of Mutual
Funds
</TABLE>
13
<PAGE> 30
<TABLE>
<S> <C>
Donald W. Green Chief Financial Officer, Managing Director
Trustee, 53 and Director, PlanEcon, Inc. (economic
305 Hartford Road consulting and publications); formerly, from
South Orange, New Jersey 07079 1988 to 1991, Executive Vice President and
Director, The Mercator Corporation
(financial advisory and merchant banking)
*C. Roderick O'Neil Chairman, O'Neil Associates (investment
Trustee, 66 and financial consulting firm); Director,
375 Park Avenue Ambac Financial Group, Inc., AMBAC
Suite 2602 Assurance Corporation, Fort Dearborn
New York, New York 10152 Income Securities, Inc. and Beckman
Instruments, Inc.; Trustee, Memorial
Drive Trust (finance)
Russell E. Galipo Vice President and Manager of Shawmut
Trustee, 64 Bank CT., N.A. from 1973 to 1994
4538 Alpine Drive
Lakeland, Florida 33801-0502
Brian G. Clarke Vice President and Controller of Cadre
Treasurer, 37 Financial Services, Inc.; formerly, from
905 Marconi Avenue 1994 to 1995, Group Manager, Kidder
Ronkonkoma, New York 11779-7255 Peabody & Co., Inc.; prior thereto,
from 1991 to 1994 Controller, Swiss
Bank Investment Banking, Inc.
Richard B. Gross Senior Vice President, General Counsel and
Secretary, 49 Secretary, Ambac Financial Group, Inc.;
Senior Vice One State Street Plaza President, Ambac Assurance Corporation;
New York, New York 10004 Secretary, Cadre Financial Services, Inc.;
formerly, from 1990 to 1991, Senior Vice
President and General Counsel of Citicorp
Insurance Group, Inc.
Anne G. Gill Vice President, Counsel and Assistant
Assistant Secretary, 34 Secretary, Ambac Financial Group, Inc.;
Vice President, One State Street Plaza Assistant General Counsel and Assistant
New York, New York 10004 Secretary, Ambac Assurance Corporation;
Assistant Secretary, AMBAC Investment
Management, Inc.; formerly, from 1988 to
1993, Associate, Hughes Hubbard & Reed
</TABLE>
- --------------------
* Trustee who is an "interested person" of the Trust, as defined in the 1940
Act.
14
<PAGE> 31
Except as otherwise indicated above, the address of each Trustee and
officer of the Trust is 905 Marconi Avenue, Ronkonkoma, New York 11779. Mr.
Sullivan and Mr. O'Neil are Trustees who are "interested persons" of the Trust,
as defined in the 1940 Act, by virtue of their affiliations with the Investment
Adviser and/or companies affiliated with the Investment Adviser.
Trustees (other than Independent Trustees who are affiliated with an
investor in a series of the Trust) who are not employees of the Investment
Adviser, or its affiliated companies, are paid fees by the Trust. Such
Trustees are paid an annual retainer of $5,000 and receive an attendance fee of
$750 for each meeting of the Board of Trustees they attend. If such Trustees
serve as members of the Audit Committee they receive an attendance fee of $750
for each Audit Committee meeting they attend, with the Chairman of the Audit
Committee receiving an additional $1,000 annual fee. The Audit Committee is
comprised of the Independent Trustees. Officers of the Trust receive no
compensation from the Trust. All Trustees not affiliated with the Investment
Adviser are reimbursed for reasonable out-of-pocket expenses incurred in
connection with the performance of their responsibilities, including travel
related expenses. Effective August 1, 1997, Independent Trustees who are
affiliated with shareholders of the Fund will not be paid any fees by the Fund,
but will receive reimbursement for out-of-pocket expenses. As of the date of
this Statement of Additional Information, the Trustees and officers of the
Trust, as a group, owned less than 1% of the outstanding shares of the Trust
and the Fund.
The following table summarizes the compensation paid by the Trust to
the Trustees of the Trust for the fiscal year ended October 31, 1996.
Compensation Table*
<TABLE>
<CAPTION>
Name of Person Aggregate Pension or Retirement Total Compensation
Compensation Benefits Accrued from Trust Paid
from Trust as Part of Fund Expenses to Trustees
<S> <C> <C> <C>
W. Dayle Nattress $0 $0 $0
David E. A. Carson* $4,000 $0 $4,000
Donald W. Green $4,000 $0 $4,000
Eugene J. McDonald* $0 $0 $0
C. Roderick O'Neil $4,000 $0 $4,000
</TABLE>
15
<PAGE> 32
*David E. A. Carson resigned as a Trustee, effective September 17, 1996, and
was replaced by Eugene J. McDonald, who was appointed on such date by the Board
of Trustees to fill the vacancy created by Mr. Carson's resignation.
EXPENSES
All expenses of the Trust and the Fund not expressly assumed by the
Investment Adviser, the Administrator or the Distributor are paid by the Trust.
Expenses borne by the Trust include, but are not limited to: fees paid to the
Investment Adviser and the Administrator; the fees and expenses of any
registrar, custodian, accounting agent, transfer agent or dividend disbursing
agent; brokerage commissions; taxes; registration costs of the Trust and its
shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing prospectuses and supplements
thereto to shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Adviser or any
affiliate of the Investment Adviser; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing shares of the Trust; fees and expenses of legal counsel; fees
and expenses of the Trust's independent auditors; membership dues of industry
associations; interest on Trust borrowings; postage; insurance premiums on
property or personnel (including officers and Trustees) of the Trust which
inure to its benefit; and extraordinary expenses (including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
relating thereto). Certain of the expenses of organizing the Trust and the
Fund and of the initial registration and qualification of shares of the Fund
under federal and state securities laws are being charged to the Fund's
operations, as an expense, over a period not exceeding five years from the date
of commencement of the Trust's operations.
PERFORMANCE INFORMATION
Calculation of Yield. The Fund may publish quotations of "current
yield" and "effective yield" in advertisements, sales materials and shareholder
reports. Current yield is the simple annualized yield for an identified seven
calendar day period. This yield calculation is based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return is the net change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the shares but excluding any capital
changes. Yield will vary as interest rates and other conditions change. The
yield for the seven-day period ended October 31, 1996 for the Fund was 5.16%,
which is equivalent to an effective yield of 5.29%. Yields also depend on the
quality, length of maturity and type of instruments held and operating expenses
of the Fund. For the fiscal year ended October 31, 1996, the Investment
Adviser had voluntarily agreed to waive its fees and to reimburse expenses of
the Fund to the extent necessary to assure that the ordinary operating expenses
of the Fund did not exceed 0.20% of the Fund's average daily net assets. The
yield of the Fund quoted above reflects the effect of this fee waiver and
reimbursement of expenses without which the yield would have been lower. This
agreement was modified, effective July 1, 1997. As so modified, the Investment
Adviser has voluntarily agreed to waive its fee and to
16
<PAGE> 33
reimburse expenses of the Fund to the extent necessary to assure that the
ordinary operating expenses of the Fund do not exceed 0.45% of the Fund's
average daily net assets.
Effective yield is computed by compounding the unannualized seven-day
period return as follows: by adding 1 to the unannualized seven-day base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
365/7
Effective yield = [(base period return + 1) ]-1
Calculation of Total Return. The Fund may also disseminate quotations
of its average annual total return and other total return data from time to
time. Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
investments over such periods) that would equate the initial amount invested to
the redeemable value of such investment at the end of each period. In making
these computations, all dividends and distributions are assumed to be
reinvested and all applicable recurring and non-recurring expenses are taken
into account. The Fund also may quote annual, average annual and annualized
total return and aggregate total return performance data, both as a percentage
and as a dollar amount based on a hypothetical investment amount, for various
periods.
Total return quotations will be computed in accordance with the
following formula, except that as required by the periods of the quotations,
actual annual, annualized or aggregate data, rather than average annual data,
may be quoted:
n
P (1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000
payment made at the beginning of the period.
Actual annual or annualized total return data generally will be lower than
average annual total return data because the average rates of return reflect
compounding of return. Aggregate total return data, which is calculated
according to the following formula, generally will be higher than average
annual total return data because the aggregate rates of return reflect
compounding over longer periods of time:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
Yield and total return quotations are based upon the Fund's historical
performance and are not intended to indicate future performance. The Fund's
yield and total return fluctuate and will
17
<PAGE> 34
depend upon not only changes in prevailing interest rates, but also upon any
realized gains and losses and changes in the Fund's expenses.
GENERAL INFORMATION
Description Of Shares. Interests in the Fund are represented by
shares of beneficial interest, $.001 par value. The Trust is authorized to
issue an unlimited number of shares, and may issue shares in series, with each
series representing interests in a separate portfolio of investments (a
"fund").
Each share of each fund would represent an equal proportionate
interest in that fund with each other share of such fund, without any priority
or preference over other shares. All consideration received for the sales of a
particular fund, all assets in which such consideration is invested, and all
income, earnings and profits derived therefrom are allocated to and belong to
that fund. As such, the interest of shareholders in each fund would be
separate and distinct from the interest of shareholders of the other funds, if
any, comprising the Trust, and shares of a fund would be entitled to dividends
and distributions only out of the net income and gains, if any, of that fund as
declared by the Board of Trustees. The assets of each fund are segregated on
the Trust's books and are charged with the expenses and liabilities of that
fund and with a share of the general expenses and liabilities of the Trust not
attributable to other funds. The Board of Trustees would determine those
expenses and liabilities deemed to be general, and these items would be
allocated among funds in a manner deemed fair and equitable by the Board of
Trustees in its sole discretion.
The following entities owned of record or are known by the Trust to
own beneficially 5% or more of the outstanding shares of the Fund as of July
15, 1997:
<TABLE>
<S> <C>
City of Bridgeport 21%
45 Lyons Terrace
Bridgeport, Connecticut 06604
Ambac Assurance Corporation and its affiliates 21%
One State Street Plaza
New York, New York
City of New Britain 15%
7 West Main Street
New Britain, Connecticut 06051
Town of Waltham 10%
610 Main Street
Waltham, Massachusetts 02154
Town of Quincy 9%
1305 Hancock Street
Quincy, Massachusetts 02169
</TABLE>
18
<PAGE> 35
<TABLE>
<S> <C>
Town of Southbridge 8%
41 Elm Street
Southbridge, Massachusetts 01550
</TABLE>
Trustee and Officer Liability. Under the Trust's Declaration of Trust
and its By-Laws, and under Delaware law, the Trustees, officers, employees and
agents of the Trust are entitled to indemnification under certain circumstances
against liabilities, claims and expenses arising from any threatened, pending
or completed action, suit or proceeding to which they are made parties by
reason of the fact that they are or were such Trustees, officers, employees or
agents of the Trust, subject to the limitations of the 1940 Act which prohibit
indemnification which would protect such persons against liabilities to the
Trust or its shareholders to which they would otherwise be subject by reason of
their own bad faith, willful misfeasance, gross negligence or reckless
disregard of duties.
Independent Auditors. KPMG Peat Marwick LLP, 99 High Street, Boston,
Massachusetts 02110, are the independent auditors of the Trust. The
independent auditors are responsible for auditing the financial statements and
prepare the tax returns of the Fund. The selection of the independent auditors
is approved annually by the Board of Trustees.
Custodian. Bankers Trust Company, 130 Liberty Street, New York, New
York 10006, serves as custodian of the Trust's assets and maintains custody of
the Fund's cash and investments. Cash held by the custodian, which may at
times be substantial, is insured by the Federal Deposit Insurance Corporation
up to the amount of available insurance coverage limits (presently, $100,000).
Shareholder Reports. Shareholders of the Trust are kept fully
informed through annual and semi-annual reports showing diversification of
investments, securities owned and other information regarding the Fund's
activities. The financial statements of the Fund are audited each year by the
Trust's independent auditors.
Legal Counsel. Schulte Roth & Zabel LLP, New York, New York, serves
as counsel to the Trust.
Registration Statement. This Statement of Additional Information and
the Prospectus do not contain all of the information set forth in the
Registration Statement the Trust has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by the rules and regulations of the SEC.
Financial Statements. The statement of assets and liabilities of the
Fund and the portfolio of investments as of October 31, 1996, and the related
statements of operations and changes in net assets, together with the notes to
financial statements and the report of independent auditors, all as set forth
in the Trust's 1996 Annual Report to Shareholders, are incorporated by
reference into this Statement of Additional Information. No other information
or statement contained in the Annual Report, other than those referred to
above, is incorporated by reference or is a part of this Statement of
Additional Information.
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