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
July 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. (formerly known as AMBAC Investment Management, Inc.)
(the "Investment Adviser") serves as the investment adviser of the Fund. See
"Investment Advisory Arrangements." First Data Investor Services Group, Inc.
serves as the administrator of the Fund (the "Administrator").
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 Indemnity Corporation.
Investments in the Fund are 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 July 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 1-800-311-2622. 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>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND PRACTICES........................ 3
INVESTMENT RESTRICTIONS.................................. 5
PORTFOLIO TRANSACTIONS AND BROKERAGE..................... 6
PURCHASING SHARES........................................ 7
SHAREHOLDER ACCOUNTS..................................... 8
REDEEMING SHARES......................................... 9
DETERMINATION OF NET ASSET VALUE......................... 10
TAXES 11
INVESTMENT ADVISORY ARRANGEMENTS......................... 11
TRUSTEES AND OFFICERS.................................... 13
EXPENSES 16
PERFORMANCE INFORMATION.................................. 16
GENERAL INFORMATION...................................... 18
<PAGE>
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 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.
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.
(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 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.
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 January 31, 1997:
Net Assets Shares Outstanding Offering Price
Liquid Asset Fund $70,880,667 70,879,960 $1.00
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, Inc. The
Distributor's address is 905 Marconi Avenue, Ronkonkoma, New York 11779.
SHAREHOLDER ACCOUNTS
First Data Investor Services Group, Inc., as 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. A single master account may be
opened by filing an application form with the Distributor, signed by personnel
authorized to act for the institution. Individual sub-accounts may be opened at
the time the master account is opened by listing them, or they may be added at a
later date by written advice or by filing forms supplied by the Transfer Agent.
Procedures are available to identify sub-accounts by name and number within the
master account name.
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 the master account, and monthly statements for
each sub-account setting forth transactions in the sub-account for the
year-to-date, the total number of shares owned and the dividends paid 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
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 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., 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
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 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 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 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 November 1, 1995.
For the period April 24, 1996 (commencement of operations) through October 31,
1996, the Fund paid the Administrator $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 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
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 Inc., AMBAC Indemnity
Suite 2602 Corporation, Fort Dearborn Income New York,
New York 10152 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, CPA Vice President and Controller of Cadre
Treasurer, 30 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 Inc.; Senior Vice One State
Street Plaza President, AMBAC Indemnity Corporation; New York,
New York 10004 Secretary, AMBAC Investment Management,
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 Inc.; Vice President,
One State Street Plaza Assistant General Counsel and Assistant
New York, New York 10004 Secretary, AMBAC Indemnity Corporation;
Assistant Secretary, AMBAC Investment Management,
Inc.; formerly, from 1988 to 1993, Associate,
Hughes Hubbard & Reed
Gail A. Hanson Counsel, First Data Investor Services Group,
Assistant Secretary, 55 Inc.; formerly, from 1988 to 1994, One
Exchange Place Associate, Bingham, Dana & Gould
Boston, Massachusetts 02109
Therese M. Hogan Manager, State Regulation, First Data Assistant
Secretary, 34 Investor Services Group, Inc.; formerly,
One Exchange Place from 1992 to 1994, Senior Legal Assistant, Boston,
Massachusetts 02109 Palmer & Dodge; prior thereto, from 1984 to
1992, Blue Sky Paralegal, Robinson & Cole
Richard H. Rose Senior Vice President, First Data Investor
Assistant Treasurer, 41 Services Group, Inc. (since May 6, 1994). One
Exchange Place Formerly, Senior Vice President, The Boston Boston,
Massachusetts 02109 Company Advisors, Inc. since November 1989.
</TABLE>
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 are reimbursed for reasonable out-of-pocket expenses
incurred in connection with the performance of their responsibilities, including
travel related 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.
<TABLE>
<CAPTION>
Compensation Table*
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
<FN>
*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.
</FN>
</TABLE>
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 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.
Effective yield = [(base period return + 1)365/7]-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:
P (1+T)n = 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 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 June 11,
1997:
City of Bridgeport 20%
45 Lyons Terrace
Bridgeport, Connecticut 06604
AMBAC Indemnity Corporation 18%
One State Street Plaza
New York, New York
City of New Britain 15%
7 West Main Street
New Britain, Connecticut 06051
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.
