<PAGE>
As filed with the Securities and Exchange Commission on
October 31, 1996.
1933 Act Registration No. 33-18781
1940 Act Registration No. 811-5407
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 17 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 20 ( X )
(Check appropriate box or boxes)
__________
Trust for Credit Unions
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 800-621-2550
____________
Michael J. Richman
Goldman, Sachs & Co.
85 Broad Street - 12th Floor
New York, New York 10004
212-902-0841
(Name and address of agent for service)
____________
It is proposed that this filing will become effective (check appropriate box).
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) On (date) pursuant to paragraph (b) of Rule 485
(X ) 60 days after filing pursuant to paragraph (a) (i) of Rule 485 or
earlier upon acceleration of the effective date by the Commission
( ) on (date) pursuant to paragraph (a)(i) of Rule 485
( ) 60 days after filing pursuant to paragraph (a) (ii) of Rule 485 or
earlier upon acceleration of the effective date by the Commission
( ) on December 31, 1996 pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
( ) this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
____________
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of units of beneficial interest under
the Securities Act of 1933. Registrant filed a Rule 24f-2 Notice for most
recent fiscal year on October 30, 1996. Registrant continues its election
to register an indefinite number of units of beneficial interest pursuant
to Rule 24f-2 under the Investment Company Act of 1940, as amended
The Index to Exhibits is located at page _______.
Page 1 of _______ total pages.
<PAGE>
TRUST FOR CREDIT UNIONS
------------
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
Part A Caption
- ------- -------
<S> <C> <C>
1. Cover Page Outside Front Cover Page
2. Synopsis Highlights
3. Condensed Financial Financial Highlights
Information
4. General Description Outside Front Cover Page; of
Registrant Highlights; Investment Objective;
Description of Investments; Other
Investment Practices, Policies and
Restrictions
5. Management of the Fund Highlights; Management
5a. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Reports to Unitholders; Income; Taxes;
Other Securities Income; Taxes; Management; Exchange
Privilege; Additional Information
7. Purchase of Securiites Outside Front Cover Page; Highlights;
Being Offered Purchase of Units; Net Asset Value;
Management
8. Redemption or Repurchase Highlights; Redemption of Units
9. Pending Legal Proceedings Not Applicable
<CAPTION>
Part B
- ------
<S> <C> <C>
10. Cover Page Outside Front Cover Page
11. Table of Contents Outside Front Cover Page
12. General Information and Not Applicable
History
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
13. Investment Objectives Introduction; Adjustable and Fixed Rate
and Policies Mortgage Loans and Mortgage-Related
Securities; Investment Restrictions
14. Management of the Fund Management
15. Control Persons and Description of Units; Management
Principal Holders of
Securities
16. Investment Advisory and Introduction; Advisory Other Services
Other Services
17. Brokerage Allocation and Advisory and Other Services
Other Services
18. Capital Stock and Other Description of Units
Securities
19. Purchase, Redemption and Not Applicable
Pricing of Securities
Being Offered
20. Tax Status Not Applicable
21. Underwriters Advisory and Other Services
22. Calculation of Performance Calculation of Performance Quotations
Data
23. Financial Statements Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement
<PAGE>
LOGO
Prospectus
December 30, 1996
MONEY MARKET PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
and
MORTGAGE SECURITIES PORTFOLIO
<PAGE>
TRUST FOR CREDIT UNIONS
----------------
Trust for Credit Unions (the "Fund") is an open-end diversified, management
investment company (commonly known as a "mutual fund") offered only to state
and federally chartered credit unions. The Fund seeks to achieve a high level
of income to the extent consistent with the investment objectives of its in-
vestment portfolios, which include: the Money Market Portfolio, the Government
Securities Portfolio, the Mortgage Securities Portfolio, the Target Maturity
Portfolio (Feb 97) and the Target Maturity Portfolio (May 97). This Prospectus
relates to the offering of units of the Fund's Money Market Portfolio, Govern-
ment Securities Portfolio and the Mortgage Securities Portfolio (individually,
a "Portfolio" and collectively, the "Portfolios"). The Money Market Portfo-
lio's objective is to maximize current income to the extent consistent with
the preservation of capital and the maintenance of liquidity. The Money Market
Portfolio invests in high quality money market instruments authorized under
the Federal Credit Union Act. The Government Securities Portfolio's objective
is to achieve a high level of current income, consistent with low volatility
of principal. The Government Securities Portfolio invests primarily in obliga-
tions of the United States Government ("U.S. Government"), its agencies, in-
strumentalities or sponsored enterprises authorized under the Federal Credit
Union Act with a maximum duration equal to that of a two-year U.S. Treasury
security and a target duration to be no shorter than that of a 6-month U.S.
Treasury security and no longer than that of a 1-year U.S. Treasury security.
The Mortgage Securities Portfolio's objective is to achieve a high level of
current income, consistent with relatively low volatility of principal. The
Mortgage Securities Portfolio invests primarily in privately issued mortgage-
related securities rated, at the time of purchase, in one of the two highest
rating categories by a nationally recognized statistical rating organization
("NRSRO") and in mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises. The
Mortgage Securities Portfolio's maximum duration will not exceed that of a 3-
year U.S. Treasury security and its target duration will be equal to that of a
2-year U.S. Treasury security. With respect to the Government Securities Port-
folio and the Mortgage Securities Portfolio, it is expected that over the long
term the volatility of each Portfolio will be low in relation to longer-term
bond funds; however, there may be a loss of principal.
(continued on next page)
UNITS OF THE PORTFOLIOS ARE NOT ENDORSED BY, INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, ANY CREDIT UNION
OR BY THE NATIONAL CREDIT UNION SHARE INSURANCE FUND, THE NATIONAL CREDIT
UNION ADMINISTRATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
PORTFOLIOS INVOLVES RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE MONEY
MARKET PORTFOLIO SEEKS TO MAINTAIN ITS NET ASSET VALUE PER UNIT AT $1.00,
ALTHOUGH THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO ON A
CONTINUOUS BASIS.
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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(continued from previous page)
Goldman, Sachs & Co., through Goldman Sachs Asset Management, a separate op-
erating division, serves as the Fund's investment adviser. Goldman, Sachs &
Co. also serves as the transfer agent. Callahan Credit Union Financial Serv-
ices Limited Partnership serves as the Fund's administrator. Callahan Finan-
cial Services, Inc., the general partner of Callahan Credit Union Financial
Services Limited Partnership, and Goldman, Sachs & Co. serve as the Fund's co-
distributors. This Prospectus dated December 30, 1996, which sets forth con-
cisely the information about the Fund that a prospective investor ought to
know before investing, should be retained for future reference.
A Statement of Additional Information (the "Additional Statement") dated the
same date, containing further information about the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated herein by reference in its entirety,
and may be obtained without charge from Goldman, Sachs & Co. or Callahan
Credit Union Financial Services Limited Partnership by calling the applicable
telephone number listed below.
GOLDMAN, SACHS & CO. Toll Free.......................800-342-5828
Adviser and Co-Distributor (800-DIAL-TCU)
One New York Plaza
New York, New York 10005
CALLAHAN CREDIT UNION FINANCIAL Toll Free.......................800-237-5678
SERVICES LIMITED PARTNERSHIP
Administrator
c/o Callahan Financial Services, Inc.
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
CALLAHAN FINANCIAL SERVICES, INC. Toll Free.......................800-237-5678
Co-Distributor
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................. 1
FEES AND EXPENSES.......................................................... 5
FINANCIAL HIGHLIGHTS....................................................... 7
INVESTMENT OBJECTIVES AND PORTFOLIOS....................................... 10
DESCRIPTION OF INVESTMENTS................................................. 12
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS...................... 20
REPORTS TO UNITHOLDERS..................................................... 24
PURCHASE OF UNITS.......................................................... 24
REDEMPTION OF UNITS........................................................ 25
EXCHANGE PRIVILEGE......................................................... 27
INCOME..................................................................... 27
NET ASSET VALUE............................................................ 28
TAXES...................................................................... 29
MANAGEMENT................................................................. 30
PERFORMANCE AND YIELD INFORMATION.......................................... 33
ADDITIONAL INFORMATION..................................................... 34
</TABLE>
i
<PAGE>
HIGHLIGHTS
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") offered solely to state and federally
chartered credit unions. Units of each of the Fund's Portfolios are designed
to qualify as eligible investments for Federally chartered credit unions
pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union
Act, Part 703 of the National Credit Union Administration ("NCUA") Rules and
Regulations and NCUA Letter Number 155. The Fund intends to review changes in
the applicable laws, rules and regulations governing eligible investments for
federally chartered credit unions, and to take such action as may be necessary
so that the investments of the Fund qualify as eligible investments under the
Federal Credit Union Act and the regulations thereunder. Units of the
Portfolios, however, may or may not qualify as eligible investments for
particular state chartered credit unions. The Fund encourages each state
chartered credit union to consult qualified legal counsel concerning whether
the Portfolios are permissible investments under the laws applicable to it.
INVESTMENT OBJECTIVES AND PORTFOLIOS Pages 10 through 12
The Fund seeks to achieve a high level of income to the extent consistent
with the investment objectives of the Portfolios offered in this Prospectus.
Money Market Portfolio--seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of
liquidity by investing in high quality money market instruments authorized
under the Federal Credit Union Act. The Money Market Portfolio invests
exclusively in (a) securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies, instrumentalities or
sponsored enterprises, (b) U.S. dollar denominated obligations issued or
guaranteed by U.S. banks with total assets exceeding $1 billion (including
obligations issued by foreign branches of such banks) but only to the
extent permitted under the Federal Credit Union Act and the rules and
regulations promulgated thereunder, (c) repurchase agreements pertaining
thereto and (d) federal funds.
Government Securities Portfolio--seeks to achieve a high level of current
income, consistent with low volatility of principal, by investing in
obligations authorized under the Federal Credit Union Act with a maximum
duration equal to that of a two-year U.S. Treasury security and a target
duration to be no shorter than that of a 6-month U.S. Treasury security and
no longer than that of a 1-year U.S. Treasury security. The Government
Securities Portfolio invests exclusively in (a) securities issued or
guaranteed as to principal and interest by the U.S. Government or by its
agencies, instrumentalities or sponsored enterprises, (b) repurchase
agreements pertaining thereto and (c) short-term obligations that are
permitted investments for the Money Market Portfolio. Under normal market
and interest rate conditions, at least 65% of the total assets of the
Government Securities Portfolio will consist of adjustable rate mortgage-
backed obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises. While there will be
fluctuations in the net asset value of the Government Securities Portfolio,
the Portfolio is expected to have less interest rate risk and asset value
fluctuation than funds investing primarily in longer-term mortgage-backed
securities paying a fixed rate of interest.
1
<PAGE>
Mortgage Securities Portfolio--seeks to achieve a high level of current
income, consistent with relatively low volatility of principal, by
investing in obligations authorized under the Federal Credit Union Act with
a maximum duration not to exceed that of a 3-year U.S. Treasury security
and a target duration equal to that of a 2-year U.S. Treasury security.
Under normal circumstances, the Mortgage Securities Portfolio will invest
primarily (and at least 65% of its assets) in privately-issued mortgage-
related securities rated, at the time of purchase, in one of the two
highest rating categories by an NRSRO and in mortgage-related securities
issued or guaranteed by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises. These securities will include
both adjustable rate and fixed rate mortgage pass-through securities,
collateralized mortgage obligations and other multiclass mortgage-related
securities (collectively, "CMOs") as well as other securities that are
collateralized by or represent direct or indirect interests in mortgage-
related securities or mortgage loans. The Mortgage Securities Portfolio may
also invest in (a) other securities issued or guaranteed as to principal
and interest by the U.S. Government or by agencies, instrumentalities or
sponsored enterprises thereof, (b) repurchase agreements pertaining thereto
and (c) short-term obligations that are permitted investments for the Money
Market Portfolio. The Mortgage Securities Portfolio seeks to provide
investors with a higher level of current income than they could receive
from a money market fund, and although the Portfolio's net asset value will
fluctuate more than that of a portfolio of money market securities, it will
attempt, through the purchase of securities with short or negative
durations, to limit the effect of interest rate fluctuations on the
Portfolio's net asset value. See "Risk Factors."
Each Portfolio is represented by a separate series of units of beneficial
interest and investors may elect to invest in any or all three Portfolios.
PURCHASE OF UNITS Pages 24 and 25
Purchases of units of any Portfolio may be made only by Federal Reserve
wire. There is no minimum for initial or subsequent investments nor are
minimum balances required.
Orders for Money Market Portfolio units received before 2:30 p.m., New York
time on a Business Day (as such term is defined under "Additional
Information") earn same day income if federal funds are received that day.
Orders for Government Securities Portfolio and Mortgage Securities Portfolio
units received before 4:00 p.m., New York time, on a Business Day earn income
commencing the next Business Day provided that federal funds have been
received by the next Business Day.
REDEMPTION OF UNITS Pages 25 through 27
Redemptions of units of the Portfolios may be made at the net asset value
next determined after the request therefor has been received by the Fund.
Redemption requests with respect to Money Market Portfolio units so received
before 2:30 p.m., New York time on a Business Day normally provide same day
federal funds at the unitholder's designated account. Redemption requests with
respect to Government Securities Portfolio and Mortgage Securities Portfolio
units so received before 4:00 p.m., New York time, normally provide federal
funds on the next Business Day at the unitholder's designated account.
INCOME AND CAPITAL GAINS DISTRIBUTION POLICY Pages 27 and 28
Dividends from net investment income are declared daily and paid monthly by
each Portfolio of the Fund. The Fund intends that net realized capital gains,
if any, after offset by any available capital
2
<PAGE>
loss carryforwards from prior years of each Portfolio will be declared at
least annually as a dividend. In the case of the Money Market Portfolio, net
short-term capital gains, if any, may be reflected in daily dividend
declarations. In the case of the Government Securities Portfolio and the
Mortgage Securities Portfolio, over the course of the fiscal year, dividends
accrued and paid will constitute all or substantially all of the Portfolio's
net investment income. In addition, from time to time in order to enhance
stability of principal and to stabilize the monthly rate of distributions to
unitholders, a portion of such dividends may constitute a return of capital.
Unitholders of each Portfolio will receive dividends in additional units of
that Portfolio or may elect to receive cash.
NET ASSET VALUE Page 28 and 29
The net asset value per unit of each Portfolio is determined by dividing the
excess of the value of all securities and other assets over liabilities by the
number of units outstanding. The Money Market Portfolio is valued on the basis
of amortized cost, and will normally maintain a net asset value per unit of
$1.00; however, there can be no assurance that the Money Market Portfolio will
be able at all times to maintain a net asset value per unit of $1.00. The net
asset value per unit of the Government Securities Portfolio and the Mortgage
Securities Portfolio will fluctuate as the value of each Portfolio's assets
changes in response to changing market rates of interest, principal
prepayments and other factors.
INVESTMENT ADVISER Pages 30 and 31
Goldman, Sachs & Co., one of the largest international investment banking
and brokerage firms in the United States, serves as the Fund's investment
adviser and also provides certain administrative services. Goldman, Sachs &
Co. provides its advisory services through Goldman Sachs Asset Management
("GSAM"), a separate operating division.
ADMINISTRATOR Pages 31 and 32
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), a
Delaware limited partnership in which 38 major credit unions are limited
partners, acts as the administrator of the Fund. In this capacity, CUFSLP
periodically reviews the performance of the investment adviser, the transfer
agent, the distributors and the custodian of the Fund and provides other
administrative services to the Fund.
DISTRIBUTORS Page 32
Callahan Financial Services, Inc. ("CFS"), the general partner of CUFSLP,
and Goldman, Sachs & Co. serve as co-distributors of units in each of the
Fund's Portfolios.
RISK FACTORS
Investments made by the Money Market Portfolio, the Government Securities
Portfolio and the Mortgage Securities Portfolio entail certain risks. These
include the possible failure of an obligor or
3
<PAGE>
counter-party (parties to whom a Portfolio has credit or performance exposure)
to meet its commitments, adverse interest rate changes, adverse economic, real
estate or unemployment trends, possible failure in the processing of
transactions, risks associated with investments in foreign branches of U.S.
banks, and the effects of prepayments on mortgage-related or other debt
instruments. Mortgage-related securities, in particular, typically have
frequent interest and principal payments, and are subject to principal
prepayments. As a result, mortgage-related securities may be less effective
than other types of debt securities as a means of "locking in" interest rates.
Moreover, the rate of principal prepayments will frequently accelerate during
periods of declining interest rates. As a result, when a Portfolio reinvests
amounts representing scheduled and unscheduled payments of principal, it may
receive a lower rate of interest.
Each Portfolio's investments are interest rate sensitive. The Portfolios'
performance will, therefore, depend in large part upon the ability of the
investment adviser to respond to fluctuations in market interest rates and to
utilize appropriate strategies to maximize returns, while attempting to
minimize the associated risks to investment capital. Operating results will
also depend upon the availability of opportunities for the investment of the
Portfolio's assets, including purchases and sales of suitable securities. The
market value of securities held by the Portfolios, including mortgage-related
securities, will generally decline during periods of increasing interest
rates, and increase during periods of declining interest rates (although many
mortgage-related securities will have less potential for capital appreciation
during periods of declining rates than other debt securities).
In the case of the Mortgage Securities Portfolio, privately-issued mortgage-
related securities typically are not guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises, but such securities
generally are structured with one or more types of credit enhancement such as
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. In addition,
concentration in pools of mortgage-related securities sponsored by the same
sponsor or serviced by the same servicer may involve certain risks. Servicers
of mortgage-related pools collect payments on the underlying mortgage assets
for pass-through to the pool on a periodic basis. Upon insolvency of the
servicer, the pool may be at risk with respect to collections received by the
servicer but not yet delivered to the pool.
Some mortgage-related securities acquired by the Portfolios will be issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises; however, under certain interest rate and prepayment
scenarios a Portfolio may nevertheless fail to recoup fully its investment in
certain of these securities. In the case of the Government Securities
Portfolio and the Mortgage Securities Portfolio, Goldman, Sachs & Co., in
accordance with guidelines and standards adopted by the Board of Trustees, may
determine that certain interest-only and principal-only fixed mortgage-backed
securities issued by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises may not be readily marketable. If so, these securities
will be considered illiquid for purposes of each Portfolio's limitation on
investments in illiquid securities. The yields on a class of stripped
mortgage-backed securities that receives all or most of the interest (i.e.,
IO's) are generally higher than the prevailing market yields on other
mortgage-related securities because they are extremely sensitive to the rate
of principal payments, including prepayments. Prepayments can result in a
Portfolio's failure to recoup its initial investment even though the stripped
mortgage-backed securities are issued or guaranteed by the U.S. Government.
Each Portfolio may engage in various
4
<PAGE>
investment practices that involve special risks, such as repurchase agreements
and (with respect to the Government Securities Portfolio and the Mortgage
Securities Portfolio) securities lending and mortgage dollar rolls. As
indicated, one or more of the Fund's Portfolio's may, to the extent consistent
with the Rules and Regulations of the National Credit Union Administration,
invest in stripped mortgage-backed securities, zero coupon bonds,
collateralized mortgage obligations and other multi-class mortgage-related
securities which present certain risks. See "Description of Investments" and
"Other Investment Practices, Policies and Restrictions" for further
information.
The involvement of Goldman, Sachs & Co., and its affiliates, partners and
officers, in the investment activities and business operations of the Fund may
present certain potential conflicts-of-interest, as described under
"Management--Investment Adviser and Transfer Agent."
FEES AND EXPENSES
The following table illustrates all expenses and fees that unitholders of
the Fund incur.
UNITHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases...................................... None
Sales Load Imposed on Reinvested Dividends........................... None
Redemption Fees...................................................... None
Exchange Fees........................................................ None
</TABLE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets after fee waivers and expense
limitations)
<TABLE>
<CAPTION>
GOVERNMENT MORTGAGE
MONEY MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ----------
<S> <C> <C> <C>
Investment Advisory Fee (after fee waiv-
ers)...................................... .11% .20% .20%
Administration Fee (after fee waivers)..... .05 .10 .05
Other Expenses (after expense limitations). .04 .04 .05
--- --- ---
Total Portfolio Operating Expenses (af-
ter fee waivers and expense limita-
tions)................................ .20% .34% .30%
=== === ===
</TABLE>
The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Fund will bear directly or
indirectly. The information is based on estimated expenses that the Portfolios
expect to incur during the current fiscal year. During the last fiscal year,
the Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio incurred the following expenses (expressed as a
percentage of average net assets after fee waivers and expense limitations):
investment advisory fees of .11%, .20% and .18%; administration fees of .05%,
.10% and .05%; and other expenses of .03%, .05% and .05%, for total operating
expenses of .19%, .35% and .28%, respectively. Had there been no fee waivers
and expense limitations, the fees and expenses for the Money Market Portfolio
and Mortgage Securities Portfolio for the last fiscal year would have been
(expressed as a percentage of average net assets): investment advisory fees of
.18% and .20%; administration fees of .10% and .05%; and other expenses of
.03% and .05%, for total operating expenses of .31% and .30%, respectively.
Management fees for the Money Market Portfolio currently consist of an
investment advisory fee to Goldman, Sachs & Co. payable monthly at annual
rates equal to .20% of the first $300 million and
5
<PAGE>
.15% over $300 million of the average daily net assets of such Portfolio and
an administration fee to CUFSLP payable monthly at an annual rate equal to
.10% of the average daily net assets of such Portfolio. Goldman, Sachs & Co.
has voluntarily agreed to limit its advisory fee to .12% of the first $250
million, .10% of the next $250 million, .09% of the next $250 million and .08%
over $750 million of the average daily net assets of such Portfolio and CUFSLP
has voluntarily agreed to limit its administration fee to .05% of the first
$500 million, .04% of the next $250 million and .03% over $750 million of the
average daily net assets of such Portfolio. Goldman, Sachs & Co. and CUFSLP
have no current intention to, but may in the future discontinue or modify any
of such limitations at their discretion. In addition, CUFSLP will limit all
expenses (excluding interest, taxes, brokerage and extraordinary expenses) of
the Money Market Portfolio to the extent the total annualized operating
expenses exceed 0.20% of its average daily net assets. For the year ended
August 31, 1996, no expenses were required to be reimbursed by CUFSLP under
this voluntary agreement.
Management fees for the Government Securities Portfolio consist of an
investment advisory fee to Goldman, Sachs & Co. and an administration fee to
CUFSLP payable monthly at annual rates equal to .20% and .10%, respectively,
of the average daily net assets of such Portfolio. The Government Securities
Portfolio bears the fees of Goldman, Sachs & Co. and CUFSLP referred to above
as well as other expenses incurred in its operations. CUFSLP and Goldman,
Sachs & Co. have each voluntarily agreed to limit the other ordinary operating
expenses (excluding advisory fees, administration fees, interest, taxes,
brokerage and extraordinary expenses) of the Government Securities Portfolio
such that CUFSLP will reimburse expenses that exceed .05% up to .10% of the
Portfolio's average net assets, and Goldman, Sachs & Co. will reimburse
expenses that exceed .10% up to .15% of the Portfolio's average net assets.
For the year ended August 31, 1996, $176 was reimbursed by CUFSLP under this
voluntary agreement.
Management fees for the Mortgage Securities Portfolio consist of an
investment advisory fee to Goldman, Sachs & Co. and an administration fee to
CUFSLP payable monthly at annual rates equal to .20% and .05%, respectively,
of the average daily net assets of the Portfolio. The Mortgage Securities
Portfolio bears the fees of Goldman, Sachs & Co. and CUFSLP referred to above
as well as other expenses incurred in its operations. For the period August 1,
1995 through January 31, 1996, Goldman, Sachs & Co. voluntarily agreed to
limit its advisory fee to .15% of the Portfolio's average daily net assets.
For the year ended August 31, 1996, Goldman, Sachs & Co. waived advisory fees
amounting to $59,027.
The following example illustrates the expenses that an investor would pay on
a $1,000 investment over various time periods based on the information
presented above and assuming (a) a 5% annual rate of return and (b) redemption
at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio.................... $2 $ 6 $11 $26
Government Securities Portfolio........... $3 $11 $19 $43
Mortgage Securities Portfolio............. $3 $10 $17 $38
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than those
shown in the Table.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information with respect to a unit of the Money Market
Portfolio, Government Securities Portfolio and the Mortgage Securities
Portfolio outstanding during the periods indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report,
incorporated by reference into the Additional Statement, from the Fund's
annual report to unitholders for the fiscal year ended August 31, 1996 (the
"Annual Report"), and should be read in conjunction with the financial
statements and related notes appearing in the Annual Report. This Annual
Report also contains other performance information and is available upon
request and without charge by writing to either of the addresses on the inside
cover of this Prospectus.
TRUST FOR CREDIT UNIONS
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS UNITHOLDERS
------------------------- ---------------------------------
RATIO OF
NET NET RATIO OF NET
ASSET NET IN EXCESS FROM NET ASSET NET INVESTMENT
VALUE AT NET REALIZED FROM NET OF NET REALIZED VALUE EXPENSES INCOME TO
BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT GAIN ON AT END OF TOTAL TO AVERAGE AVERAGE
OF PERIOD INCOME INVESTMENTS(A) INCOME INCOME INVESTMENTS PERIOD RETURN(B) NET ASSETS NET ASSETS
--------- ---------- -------------- ---------- ---------- ----------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... $1.00 $0.0539 $ -- $(0.0539) $ -- $ -- $1.00 5.51% 0.19% 5.37%
8/31/95......... 1.00 0.0555 -- (0.0553) -- -- 1.00 5.56 0.20 5.55
8/31/94......... 1.00 0.0329 0.0002 (0.0342) (0.0001) (0.0002) 1.00 3.50 0.25 3.29
8/31/93......... 1.00 0.0305 0.0004 (0.0305) -- (0.0005) 1.00 3.14 0.25 3.05
8/31/92......... 1.00 0.0416 0.0008 (0.0416) -- (0.0007) 1.00 4.39 0.25 4.16
8/31/91......... 1.00 0.0641 -- (0.0641) -- -- 1.00 6.93 0.25 6.41
8/31/90......... 1.00 0.0824 -- (0.0824) -- -- 1.00 8.58 0.25 8.24
8/31/89......... 1.00 0.0899 -- (0.0899) -- -- 1.00 9.28 0.25 8.99
5/17/88(c) to
8/31/88......... 1.00 0.0214 -- (0.0214) -- -- 1.00 7.40(d) 0.25(d) 7.27(d)
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
RATIO OF
NET NET
ASSETS RATIO OF INVESTMENT
AT END OF EXPENSES TO INCOME
PERIOD AVERAGE NET TO AVERAGE
(000'S) ASSETS NET ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
Year ended:
8/31/96......... $426,710 0.31% 5.25%
8/31/95......... 382,096 0.33 5.42
8/31/94......... 216,989 0.34 3.20
8/31/93......... 616,229 0.33 2.97
8/31/92......... 864,924 0.29 4.12
8/31/91......... 654,977 0.25 6.41
8/31/90......... 258,304 0.25 8.24
8/31/89......... 167,331 0.25 8.99
5/17/88(c) to
8/31/88......... 106,739 0.25(d) 7.27(d)
</TABLE>
- ----
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Commencement of operations.
(d) Annualized.
7
<PAGE>
TRUST FOR CREDIT UNIONS
GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT DISTRIBUTIONS TO
OPERATIONS UNITHOLDERS
----------------- ------------------
RATIO OF
NET NET
REALIZED INVEST-
NET AND IN NET MENT
ASSET UNREAL- FROM EXCESS ASSET RATIO OF INCOME NET
VALUE AT NET IZED GAIN NET OF NET VALUE NET TO ASSETS
BEGIN- INVEST- (LOSS) ON INVEST- INVEST- AT EXPENSES AVERAGE PORTFOLIO AT END OF
NING OF MENT INVEST- MENT MENT END OF TOTAL TO AVERAGE NET TURN-OVER PERIOD
PERIOD INCOME MENTS(A) INCOME INCOME PERIOD RETURN(B) NET ASSETS ASSETS RATE(C) (000'S)
-------- ------- --------- -------- -------- ------ --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... $ 9.76 $0.6024 $(0.0055) $(0.5969) $ -- $ 9.76 6.26% 0.35% 6.16% 149.66% $ 535,702
8/31/95......... 9.78 0.5515 (0.0011) (0.5582) (0.0122) 9.76 5.82 0.34 5.65 70.58 529,659
8/31/94......... 9.97 0.4286 (0.1974) (0.4212) -- 9.78 2.33 0.35 4.25 42.27 594,331
8/31/93......... 10.03 0.4641 (0.0599) (0.4630) (0.0012) 9.97 4.06 0.34 4.58 67.38 1,122,484
8/31/92......... 10.00 0.5588 0.0311 (0.5594) -- 10.03 6.68 0.36 5.91 195.53 1,153,410
7/10/91(d) to
8/31/91......... 10.00 0.0873 (0.0016) (0.0857) -- 10.00 7.02(e) 0.48(e) 7.16(e) 3.56 94,139
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES TO INCOME
AVERAGE NET TO AVERAGE
ASSETS NET ASSETS
----------- ----------
<S> <C> <C>
Year ended:
8/31/96......... 0.35% 6.16%
8/31/95......... 0.34 5.65
8/31/94......... 0.37 4.23
8/31/93......... 0.47 4.45
8/31/92......... 0.59 5.68
7/10/91(d) to
8/31/91......... 0.73(e) 6.91(e)
</TABLE>
- ----
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
8
<PAGE>
TRUST FOR CREDIT UNIONS
MORTGAGE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT
OPERATIONS DISTRIBUTIONS TO UNITHOLDERS
----------------- -------------------------------------
RATIO OF
NET NET
REALIZED IN EXCESS INVEST-
NET AND IN OF NET NET MENT
ASSET UNREAL- FROM EXCESS REAL- ASSET RATIO OF INCOME PORT-
VALUE AT NET IZED GAIN NET OF NET IZED VALUE NET TO FOLIO
BEGIN- INVEST- (LOSS) ON INVEST- INVEST- GAIN ON FROM AT EXPENSES AVERAGE TURN-
NING OF MENT INVEST- MENT MENT INVEST- PAID-IN END OF TOTAL TO AVERAGE NET OVER
PERIOD INCOME MENTS(A) INCOME INCOME MENTS CAPITAL PERIOD RETURN(B) NET ASSETS ASSETS RATE(C)
-------- ------- --------- -------- ------- --------- ------- ------ --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... $ 9.74 $0.6604 $(0.1195) $(0.6309) $ -- $ -- $ -- $9.65 5.67% 0.28% 6.64% 163.42%
8/31/95......... 9.62 0.6075 0.1539 (0.6075) (0.0175) -- (0.0164) 9.74 8.20 0.26 6.36 130.98
8/31/94......... 10.13 0.5533 (0.4530) (0.5719) (0.0340) (0.0044) -- 9.62 1.00 0.28 5.66 188.58
10/9/92(d)
to 8/31/93...... 10.00 0.4895 0.1144 (0.4702) -- -- -- 10.13 6.27 0.33(e) 5.64(e) 146.24
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
NET RATIO OF
ASSETS NET
AT END RATIO OF INVESTMENT
OF EXPENSES TO INCOME
PERIOD AVERAGE NET TO AVERAGE
(000'S) ASSETS NET ASSETS
-------- ----------- ----------
<S> <C> <C> <C>
Year ended:
8/31/96......... $332,546 0.30% 6.62%
8/31/95......... 264,409 0.32 6.30
8/31/94......... 283,886 0.29 5.65
10/9/92(d)
to 8/31/93...... 213,510 0.38(e) 5.59(e)
</TABLE>
- ----
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
9
<PAGE>
INVESTMENT OBJECTIVES AND PORTFOLIOS
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") organized on September 24, 1987 as a
Massachusetts business trust. The Fund seeks to achieve a high level of income
to the extent consistent with the investment objectives of its investment
portfolios. The Fund presently maintains five investment portfolios--the Money
Market Portfolio, the Government Securities Portfolio, the Mortgage Securities
Portfolio, the Target Maturity Portfolio (Feb 97) and the Target Maturity
Portfolio (May 97). This Prospectus relates to the offering of units of the
Fund's Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio (individually, a "Portfolio" and collectively, the
"Portfolios").
The Fund is offered solely to state and federally chartered credit unions.
Units of each of the Fund's Portfolios are designed to qualify as eligible
investments for federally chartered credit unions pursuant to Sections 107(7),
107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National
Credit Union Administration ("NCUA") Rules and Regulations and NCUA Letter
Number 155. The Fund intends to review changes in the applicable laws, rules
and regulations governing eligible investments for federally chartered credit
unions, and to take such action as may be necessary so that the investments of
the Fund qualify as eligible investments under the Federal Credit Union Act
and the regulations thereunder.
Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act set
forth those securities, deposits and other obligations in which federally
chartered credit unions may invest. Included are mortgage-related securities,
securities issued or fully guaranteed as to principal and interest by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises, accounts
in specified federally insured financial institutions and other specified
investments.
The Fund's investments consist exclusively of assets intended to qualify as
eligible investments if owned directly by a federally chartered credit union.
Units of the Fund, however, may or may not qualify as eligible investments for
particular state chartered credit unions. The Fund encourages each state
chartered credit union to consult qualified legal counsel concerning whether
the Fund's units are permissible investments under the laws applicable to it.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing in high quality money market instruments authorized under the
Federal Credit Union Act.
The Money Market Portfolio invests exclusively in:
--securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--U.S. dollar denominated obligations issued or guaranteed by U.S. banks
with total assets exceeding $1 billion (including obligations issued
by foreign branches of such banks) but only to the extent permitted
under the Federal Credit Union Act and the rules and regulations
promulgated thereunder;
--repurchase agreements pertaining thereto; and
--federal funds.
10
<PAGE>
The Money Market Portfolio is managed so that the average maturity of all
instruments in the Portfolio (on a dollar-weighted basis) will not exceed
ninety days. In no event will the Money Market Portfolio purchase any
securities which are deemed to mature more than thirteen months from the date
of purchase.
Pursuant to an SEC order, the Money Market Portfolio, may enter into
principal transactions in certain taxable money market instruments, including
repurchase agreements, with Goldman, Sachs & Co. or its affiliate, Goldman
Sachs Money Market, L.P.
Investments by the Money Market Portfolio must present minimal credit risk
and be rated within the highest rating category for short-term debt
obligations by at least two nationally recognized statistical rating
organizations ("NRSROs") assigning a rating to the security or issuer, or if
only one NRSRO has assigned a rating, by that NRSRO. Purchases of securities
which are unrated or rated by only one NRSRO must be approved or ratified by
the Trustees. The Money Market Portfolio may only purchase "First Tier
Securities" as defined herein. First Tier Securities are securities which are
rated (or that have been issued by an issuer that is rated with respect to a
class of short-term debt obligations, or any security within that class,
comparable in priority and quality with such securities) in the highest short-
term rating category by at least two NRSROs, or if only one NRSRO has assigned
a rating, by that NRSRO. Securities which are unrated may be purchased only if
they are deemed to be of comparable quality to First Tier rated securities.
NRSROs include Standard & Poor's Ratings Group, Moody's Investors Service,
Inc., Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA Limited and
its affiliate IBCA Inc. and Thomson BankWatch, Inc. For a description of each
NRSRO's rating categories, see the Additional Statement.
GOVERNMENT SECURITIES PORTFOLIO
The Government Securities Portfolio seeks to achieve a high level of current
income, consistent with low volatility of principal, by investing in
obligations authorized under the Federal Credit Union Act.
The Government Securities Portfolio invests exclusively in:
--securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--repurchase agreements pertaining thereto; and
--short-term obligations that are permitted investments for the Money
Market Portfolio.
Under normal market and interest rate conditions, at least 65% of the total
assets of the Government Securities Portfolio will consist of adjustable rate
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises. The Government
Securities Portfolio intends to maintain a maximum duration equal to that of a
two-year U.S. Treasury security and a target duration to be no shorter than
that of a 6-month U.S. Treasury security and no longer than that of a 1-year
U.S. Treasury security (computed using the method described herein). Duration
measures the price sensitivity of the Portfolio including expected cash flows
and mortgage prepayments under a wide range of interest rate scenarios.
11
<PAGE>
MORTGAGE SECURITIES PORTFOLIO
The Mortgage Securities Portfolio seeks to achieve a high level of current
income, consistent with relatively low volatility of principal, by investing
in obligations authorized under the Federal Credit Union Act.
The Mortgage Securities Portfolio invests exclusively in:
--privately-issued mortgage-related securities, rated at the time of
purchase, in one of the two highest rating categories by an NRSRO and in
mortgage-related securities issued or guaranteed by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises;
--other securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--repurchase agreements pertaining thereto; and
--short-term obligations that are permitted investments for the Money
Market Portfolio.
Under normal circumstances, the Mortgage Securities Portfolio will invest
primarily in mortgage-related securities. The Portfolio's maximum duration
will not exceed that of a 3-year U.S. Treasury security and its target
duration will be equal to that of a 2-year U.S. Treasury security.
----------------
The investment objective of each Portfolio (which is set forth in the first
sentence under each Portfolio) may not be changed without the approval of the
holders of a majority of the outstanding units of that Portfolio, as described
under "Additional Information." There can be no assurance that the objective
of each Portfolio will be realized. In seeking its objective, a Portfolio may
not always purchase securities offering the highest yield.
DESCRIPTION OF INVESTMENTS
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are securities that directly or indirectly
represent participations in, or are collateralized by and payable from
payments on, mortgage loans secured by real property. These securities include
both adjustable rate and fixed rate mortgage pass-through securities,
collateralized mortgage obligations and other multiclass mortgage-related
securities as well as other securities that are collateralized by or represent
direct or indirect interests in mortgage-related securities or mortgage loans.
The issuers of certain mortgage-related securities may elect to have the pool
of mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"),
which is subject to special federal income tax rules. A description of the
types of mortgage-related securities in which the Government Securities
Portfolio and the Mortgage Securities Portfolio may invest is provided below.
The descriptions are general and summary in nature, and do not detail every
possible variation of the types of mortgage-related securities that are
permissible for the Portfolios.
12
<PAGE>
1. INVESTMENT CHARACTERISTICS OF MORTGAGE-RELATED SECURITIES
In general, changes in both prepayment rates on mortgage-related securities
and interest rates and the volume of transactions in units of the Government
Securities Portfolio and the Mortgage Securities Portfolio will affect each
Portfolio's return. A predominant factor affecting the prepayment rate on a
pool of mortgage loans is the difference between the interest rates on
outstanding mortgage loans and prevailing mortgage loan interest rates (giving
consideration to the cost of any refinancing). In general, if mortgage loan
interest rates fall sufficiently below the interest rates on fixed rate
mortgage loans underlying mortgage-related securities, the rate of prepayment
would be expected to increase. Prepayments of adjustable rate mortgage loans
may also increase in a declining interest rate environment as borrowers seek
to "lock-in" low rates. Conversely, if mortgage loan interest rates rise above
the interest rates on outstanding mortgage loans, the rate of prepayment may
be expected to decrease. Due to these factors, mortgage-related securities may
be less effective than U.S. Treasury securities of similar maturity at
maintaining yields during periods of declining interest rates, since the
mortgage payments will normally be reinvested in instruments with lower yields
reflecting prevailing market conditions.
Because the Portfolios' investments are interest rate sensitive, each
Portfolio's performance will depend in large part upon the ability of the
Portfolio to anticipate and respond to fluctuations in market interest rates
and to utilize appropriate strategies to maximize returns to the Portfolio,
while attempting to minimize the associated risks to its investment capital.
Prepayments may have a disproportionate effect on certain mortgage-related
securities such as stripped mortgage-backed and certain other multiple class
pass-through securities, which are discussed below.
Generally, to the extent mortgage-related securities are purchased at a
premium, a faster than anticipated rate of unscheduled principal prepayments
will result in a lower than anticipated yield. On the other hand, if the
securities are purchased at a discount, a faster than anticipated rate of
unscheduled prepayment of principal will result in a higher than anticipated
yield.
2. PRIVATE MORTGAGE PASS-THROUGH SECURITIES
The Mortgage Securities Portfolio may invest in privately-issued mortgage
pass-through securities ("Mortgage Pass-Throughs") which represent interests
in pools of mortgage loans that are issued by trusts formed by originators of
and institutional investors in mortgage loans (or represent interests in
custodial arrangements administered by such institutions). These originators
and institutions include commercial banks, savings and loans associations,
credit unions, savings banks, mortgage bankers, insurance companies,
investment banks or special purpose subsidiaries of the foregoing. For federal
income tax purposes, such trusts are generally treated as grantor trusts or
REMICs and, in either case, are generally not subject to any significant
amount of federal income tax at the entity level.
The mortgage pools underlying Mortgage Pass-Throughs consist of private
mortgage loans evidenced by promissory notes secured by first mortgages or
first deeds of trust or other similar security instruments creating a first
lien on residential, residential multi-family and mixed residential/commercial
properties. Mortgage Pass-Throughs (whether fixed or adjustable rate) provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amounts paid
to any guarantor, administrator and/or servicer of the underlying
13
<PAGE>
mortgage loans. A trust fund with respect to which a REMIC election has been
made may include regular interests in other REMICs which in turn will
ultimately evidence interests in mortgage loans.
Mortgage Pass-Throughs generally offer a higher yield than Government
Mortgage-Related Securities (as defined below) because of the absence of any
direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal on mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loan, pool and hazard insurance, subordination and letters of credit. The
insurance and guarantees are issued by government entities, private insurers,
banks and mortgage poolers. Mortgage-related securities without insurance or
guarantees may be purchased by the Mortgage Securities Portfolio if they have
the required rating from an NRSRO. Although the market for such securities is
becoming increasingly liquid, some mortgage-related securities issued by
private organizations may not be readily marketable. Types of credit support
are discussed further in the Additional Statement.
3. GOVERNMENT MORTGAGE-RELATED SECURITIES
The Fund's Portfolios may invest in mortgage-related securities issued or
guaranteed by the U.S. Government and its agencies, instrumentalities or
sponsored enterprises ("Government Mortgage-Related Securities"). These
securities include Government National Mortgage Association ("GNMA") mortgage-
backed certificates ("GNMA Certificates"), which are mortgage-backed
securities of the modified pass-through type where both interest and principal
payments (including prepayments) are passed through monthly to the holder of
the certificate whether or not they are paid by the underlying mortgagor. The
National Housing Act provides that the full faith and credit of the United
States is pledged to the timely payment of principal and interest by GNMA of
amounts due on these GNMA Certificates. Each GNMA Certificate evidences an
interest in a specific pool of mortgage loans (frequently one-to-four family
residential loans) insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans Administration.
Government Mortgage-Related Securities also include securities issued by the
Federal National Mortgage Association ("FNMA") and by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA, a federally chartered and stockholder-
owned corporation, issues pass-through securities which are guaranteed as to
timely payment of principal and interest by FNMA. FHLMC, also a federally
chartered corporation, issues pass-through securities which are guaranteed as
to timely payment of interest and ultimate collection of principal by FHLMC.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States.
The Government Securities Portfolio and Mortgage Securities Portfolio may
purchase "stripped" securities issued or guaranteed by U.S. Government
agencies or instrumentalities that evidence ownership in the future interest
payments or the future principal payments on Government Mortgage-Related
Securities. Stripped mortgage-backed securities ("SMBS") are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of Government Mortgage-Related
Securities. A common type of SMBS will have one class receiving all of the
interest, while the other class will receive all of the principal. However, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience different
than anticipated prepayments of principal, a Portfolio may fail to recoup
fully its initial investment in these
14
<PAGE>
securities. Although the market for such securities is increasingly liquid,
Goldman, Sachs & Co., in accordance with guidelines and standards adopted by
the Board of Trustees, may determine that certain interest-only and principal-
only fixed mortgage-backed securities issued by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises are not readily
marketable. If so, these securities will be considered illiquid for purposes
of the Fund's limitation on investments in illiquid securities. The yields on
a class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other Government Mortgaged-Related Securities
because they are extremely sensitive to the rate of principal payments,
including prepayments. Prepayments can result in a Portfolio's failure to
recoup its initial investment even though the SMBS are issued or guaranteed by
the U.S. Government. Consistent with the Rules and Regulations of the National
Credit Union Administration, the Government Securities Portfolio and the
Mortgage Securities Portfolio will purchase SMBS solely to reduce the interest
rate risk of their holdings (although this policy will not reduce the risk of
loss on the SMBS themselves that are held by the Portfolios) and will not
purchase SMBS issued by private issuers.
4. MULTICLASS MORTGAGE SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
Mortgage-related securities acquired by the Portfolios may include
collateralized mortgage obligations and other multiclass mortgage-related
securities (collectively, "CMOs") issued by FNMA, FHLMC or other U.S.
Government agencies, instrumentalities or sponsored enterprises, as well as by
private issuers in the case of the Mortgage Securities Portfolio. CMOs provide
an investor with a specified interest in the cash flow of a pool of underlying
mortgages or other mortgage-related securities. Issuers of CMOs frequently
elect to be taxed as REMICs. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final scheduled distribution
date. The relative payment rights of the various CMO classes may be structured
in many ways. In many cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. Sometimes, however, CMO
classes are "parallel pay," i.e. payments of principal are made to two or more
classes concurrently. In accordance with the Rules and Regulations of the
National Credit Union Administration, unless the purchase is made solely to
reduce interest rate risk or the instrument is a floating or adjustable rate
CMO class described below, the Fund will not invest in any CMO class that
meets any of the following three tests using prevailing market-interest rates
and prepayment speeds: (1) the CMO class has an expected average life greater
than 10 years; (2) the average life of the CMO class extends by more than 4
years assuming an immediate and sustained parallel shift in the yield curve of
300 basis points, or shortens by more than 6 years assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points; or (3)
the estimated change in the price of the CMO class is more than 17% due to an
immediate and sustained parallel shift in the yield curve of plus or minus 300
basis points. For these purposes, "average life" means the weighted average
time to principal repayment, with the amount of the principal paydowns (both
scheduled and unscheduled) as the weights. The expected average life and
average life sensitivity tests described above do not apply to a floating or
adjustable rate CMO class, irrespective of whether it has been purchased to
reduce interest rate risk, if (a) the interest rate is reset at least
annually, (b) the interest rate is below the contractual cap of the CMO class
at the time of purchase or a subsequent testing date, (c) the index upon which
the interest rate is based is a widely-used market interest rate index such as
the London Interbank Offered Rate (LIBOR) and (d) the interest rate of the
instrument varies directly (not inversely) with the index upon which it is
based and
15
<PAGE>
is not reset as a multiple of the change in the index. If an instrument is a
floating or adjustable rate CMO class which passes the requirements described
in (a) through (d) above, the Portfolio will nevertheless not invest in any
such floating or adjustable rate CMO class that using prevailing market-
interest rates and prepayment speeds meets the price sensitivity test listed
above, unless the security is purchased to reduce interest rate risk. CMOs may
exhibit more or less price volatility and interest rate risk than other types
of mortgage-related obligations. Although the market for CMOs is generally
liquid, Goldman Sachs & Co. may determine that certain CMOs are not readily
marketable. If so, these CMOs will be considered illiquid for purposes of the
Fund's limitations on investments in illiquid securities. CMOs are discussed
further in the Additional Statement under "Adjustable and Fixed Rate Mortgage
Loans and Mortgage-Related Securities."
OTHER GOVERNMENT SECURITIES
Each Portfolio may acquire other securities issued or guaranteed as to
principal and interest by the U.S. Government or by its agencies,
instrumentalities or sponsored enterprises ("Government Securities"). These
securities, in general, include a variety of U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as GNMA participation certificates), (b) the limited
authority of the issuer to borrow from the U.S. Treasury (such as securities
of the Student Loan Marketing Association), (c) the authority of the U.S.
Government to purchase certain obligations of the issuer (such as securities
of the FNMA), or (d) only the credit of the issuer. No assurance can be given
that the U.S. Government will provide financial support to U.S. Government,
its agencies, instrumentalities or sponsored enterprises as described in
clauses (b) or (c) in the future, other than as set forth above, since it is
not obligated to do so by law.
Government Securities are deemed to include (to the extent consistent with
the Investment Company Act of 1940) securities for which the payment of
principal and interest is backed by an irrevocable letter of credit issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises.
Government Securities are also deemed to include (to the extent consistent
with the Investment Company Act of 1940) participations in loans made to
foreign governments or their agencies that are guaranteed as to principal and
interest by the U.S. Government or its agencies, instrumentalities or
sponsored enterprises. The secondary market for certain of these
participations is extremely limited. In the absence of a substantial secondary
market, such participations will therefore be regarded as illiquid.
Each Portfolio may invest in separately traded principal and interest
components of securities, including mortgage-related securities, issued or
guaranteed by the United States Government, its agencies, instrumentalities or
sponsored enterprises. In the case of securities issued or guaranteed by the
United States Government, the principal and interest components of selected
securities are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS"). Under the STRIPS
program, the principal and interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
Each Portfolio may invest in zero coupon bonds, which are debt obligations
issued or purchased at a significant discount from face value provided that
such bonds do not have maturity dates of more
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than 10 years from settlement. Each Portfolio will only purchase zero coupon
bonds which are Government Securities. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds do
not require the periodic payment of interest. Such investments benefit the
issuer by mitigating its need for cash to meet debt service, but some also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which provide for regular payments of
interest. Each Portfolio will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations.
GOVERNMENT RELATED OBLIGATIONS
Although they are not considered obligations of the U.S. Government for
certain securities law purposes, and therefore do not qualify as U.S.
Government Securities, each Portfolio may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises.
REPURCHASE AGREEMENTS
When a Portfolio purchases securities, it may enter into a repurchase
agreement with the seller wherein the seller agrees, at the time of sale, to
repurchase the securities at a mutually agreed upon time and price. A
Portfolio may enter into repurchase agreements with broker-dealers and with
banks. Although the securities subject to the repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be
more than one year after the Portfolio's acquisition of the securities and
normally would be within a shorter period of time. The Portfolios generally
intend to enter into repurchase agreements which terminate within seven days
notice by a Portfolio. Except as provided under "Other Portfolio Management
Policies," if a Portfolio were to enter into repurchase agreements which
provide for a notice period greater than seven days, the Portfolio would do so
only if such investment, together with other illiquid securities, did not
exceed 15% (10% in the case of the Money Market Portfolio) of the Portfolio's
net assets. The resale price will be in excess of the purchase price,
reflecting an agreed-upon market rate effective for the period of time the
Portfolio's money will be invested in the securities, and will not be related
to the coupon rate of the purchased securities. During the term of the
repurchase agreement, Goldman, Sachs & Co. will require the seller to maintain
the value of the securities subject to the agreement in an amount that exceeds
the repurchase price. In the event the seller of the repurchase agreement
enters a bankruptcy or other insolvency proceeding, or in the event of the
failure of the seller to repurchase the underlying securities as agreed upon,
the Portfolio could, however, experience losses that include (a) possible
decline in the value of the underlying securities during the period while the
Portfolio seeks to enforce its rights thereto and possible delay in
enforcement of those rights, (b) possible loss of all or a part of the income
or proceeds of the repurchase, (c) additional expenses to the Portfolio for
enforcing those rights and (d) possible delay in the disposition of the
underlying securities pending court action or possible loss of rights in such
securities. The percentage of each Portfolio's assets invested in repurchase
agreements may vary from time to time depending upon Goldman, Sachs & Co.'s
evaluation of market trends and other conditions. The Fund will enter into
repurchase transactions only with parties that meet
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creditworthiness standards approved by the Fund's Trustees. Goldman, Sachs &
Co. monitors the creditworthiness of such parties under the Trustees' general
supervision. In addition, the Fund, together with other registered investment
companies having advisory agreements with the Investment Adviser, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
SHORT-TERM OBLIGATIONS
1. BANK OBLIGATIONS
The Portfolios may invest in United States dollar-denominated obligations
issued or guaranteed by United States banks with total assets exceeding $1
billion (including obligations issued by foreign branches of such banks) but
only to the extent permitted under the Federal Credit Union Act and the rules
and regulations promulgated thereunder. Such obligations will be rated in the
highest rating category by an NRSRO or, if unrated, determined to be of
comparable quality by Goldman, Sachs & Co. and may include certificates of
deposit, bankers' acceptances, bank notes, deposit notes, and other
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations
or by government regulation.
Obligations of foreign branches of United States banks include fixed time
deposits. Fixed time deposits are payable at a stated maturity date and bear a
fixed rate of interest. Generally, fixed time deposits are not payable until
maturity, but may permit early withdrawal subject to penalties which vary
depending upon market conditions and the remaining maturity of the
obligations. Fixed time deposits do not have a market, and those fixed time
deposits with maturities over seven days will be regarded as illiquid.
However, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party.
Bank notes and bankers acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured
obligations of the bank. Bank notes are classified as "other borrowings" on a
bank's balance sheet, while deposit notes and certificates of deposit are
classified as deposits. Bank notes are not insured by the Federal Deposit
Insurance Corporation or any other insurer. Deposit notes are insured by the
Federal Deposit Insurance Corporation only to the extent of $100,000 per
depositer per bank.
Banks are subject to extensive but different governmental regulations which
may limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operations of this industry.
Obligations of foreign branches of United States banks involve investment
risks in addition to those of domestic obligations of domestic issuers,
including the possibility that liquidity could be impaired because of future
political and economic developments, that the obligations may be less
marketable than comparable domestic obligations of domestic issuers, that a
foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations, that deposits may be seized or nationalized, that
foreign governmental restrictions such as exchange controls may be adopted
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<PAGE>
which might adversely affect the payment of principal and interest on those
obligations, or that there may be difficulties in obtaining or enforcing a
judgment against a foreign branch.
2. FEDERAL FUNDS
The Portfolios may make unsecured loans of federal funds to United States
banks with total assets exceeding $1 billion (including obligations issued by
foreign branches of such banks) to the extent permitted by the Federal Credit
Union Act and the rules and regulations promulgated thereunder, provided that
(i) the accounts of such banks are insured by the Federal Deposit Insurance
Corporation, (ii) the interest received therefrom is at the market rate for
federal funds transactions, and (iii) the transaction has a maturity of one or
more business days or the Fund is able to require repayment at any time.
Except as provided under "Other Portfolio Management Policies," the Fund
considers federal funds investments maturing in more than seven days to be
illiquid, and therefore will limit such transactions along with all other
illiquid investments to 15% (10% in the case of the Money Market Portfolio) of
the value of a Portfolio's net assets.
Federal funds are funds held by a regional Federal Reserve Bank for the
account of a bank that is a member of such Federal Reserve Bank (a "Fed Member
Bank"). A loan of federal funds is an unsecured loan at a negotiated interest
rate for a negotiated time period, generally overnight, of federal funds by
one Fed Member Bank to another. Since, pursuant to an exemption, the borrowing
Fed Member Bank is not required to maintain reserves on the borrowed federal
funds, the interest rate it pays on such loans is generally higher than the
rate it pays on other deposits of comparable size and maturity that are
subject to reserve requirements. In addition, a "depository institution" or
other exempt institution such as the Fund may under Regulation D of the Board
of Governors of the Federal Reserve System in effect make loans of federal
funds by instructing a correspondent or other willing Fed Member Bank at which
it maintains an account to loan federal funds on its behalf. Loans of federal
funds are not insured by the Federal Deposit Insurance Corporation.
In the event the borrower of federal funds enters a bankruptcy or other
insolvency proceeding, the Fund could experience delays and incur expense in
recovering cash. Further, the possibility exists that in such an instance, the
borrowing institution may not be able to repay the loaned funds. Loans of
federal funds rank junior to domestic deposit liabilities of the bank and pari
passu with other senior, unsecured obligations of the bank. With regard to the
solvency of the borrowing institution, the Fund will limit federal funds
lending to those member banks of the Federal Reserve System whose
creditworthiness has been reviewed and found by Goldman, Sachs & Co. to be
comparable in quality to securities rated high quality by an NRSRO.
Creditworthiness is of particular importance given the unsecured nature of
federal funds borrowings.
3. OTHER INVESTMENT COMPANIES
As a means of maintaining short-term liquidity, the Mortgage Securities
Portfolio reserves the right to invest up to 10% of its total assets,
calculated at the time of purchase, in the securities of other investment
companies. The Portfolio may not invest more the 5% of its total assets in the
securities of any one investment company or acquire more than 3% of the voting
securities of any other investment company. The Portfolio and ultimately its
unitholders will indirectly bear a proportionate share of the expenses paid by
investment companies in which it invests in addition to the Portfolio's own
expenses. Pursuant to an exemptive order obtained from the SEC, other
investment companies in which the Portfolio may invest include money market
funds which GSAM, Goldman, Sachs & Co. or any of their affiliates serves as
investment adviser, administrator or distributor.
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<PAGE>
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Portfolio may purchase or sell portfolio securities in when-issued or
delayed delivery transactions. In such transactions, instruments are bought or
sold with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous yield or price to a Portfolio at the
time of entering into the transactions. However, the yield on a comparable
security available when delivery takes place may vary from the yield on the
security at the time that the when-issued or delayed delivery transaction was
entered into. When the Fund engages in when-issued and delayed delivery
transactions, the Fund relies on the seller or buyer, as the case may be, to
consummate the transaction. Failure to consummate the transaction may result
in the Fund missing the opportunity of obtaining a price or yield considered
to be advantageous. In such transactions the payment obligation and the
interest rate are fixed on the trade date, although no interest accrues to the
purchaser prior to the settlement date. The settlement date for such
transactions will take place no more than 120 days after the trade date.
Consistent with the requirements of the Investment Company Act of 1940,
securities purchased on a when-issued or delayed delivery basis are recorded
as an asset (with the purchase price being recorded as a liability) and are
subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. To the extent that a Portfolio remains
substantially fully invested at the same time that it has entered into such
transactions, which it would normally expect to do, there will be greater
fluctuations in the market value of its net assets than if such Portfolio set
aside cash to satisfy its purchase commitment. However, the Portfolio will
maintain designated liquid assets at least equal in value to commitments for
when-issued or delayed delivery securities, and such assets will be segregated
in an account earmarked specifically for the settlement of such commitments. A
Portfolio will only make commitments to purchase portfolio securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities and not for the purpose of investment leverage.
LENDING OF PORTFOLIO SECURITIES
The Government Securities Portfolio and the Mortgage Securities Portfolio
may seek to increase their income by lending portfolio securities to
institutions, such as banks and broker-dealers. These loans will be
continuously collateralized by cash, cash equivalents or Government Securities
in an amount at least equal to the market value of the securities loaned. Each
Portfolio will have the right to call a loan and obtain the securities loaned
at any time on five days notice. For the duration of a loan, each Portfolio
will continue to receive the equivalent of the interest paid by the issuer on
the securities loaned and will also receive compensation from investment of
the collateral. Each Portfolio will not have the right to vote any securities
having voting rights during the existence of the loan, but each Portfolio will
call the loan in anticipation of an important vote to be taken among holders
of the securities or the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit, there are
risks of delay in recovering, or even loss of rights in, the collateral should
the borrower of the securities fail financially. However, the loans will be
made only to firms deemed by Goldman, Sachs & Co. to be of good standing, and
when, in its judgment, the consideration which can be earned currently from
securities loans of this type justifies the attendant risk. If Goldman, Sachs
& Co. determines to make securities loans, it is intended that the value of
the securities loaned will not exceed one-third of the value of the total
assets of a Portfolio.
20
<PAGE>
MORTGAGE DOLLAR ROLLS
The Government Securities Portfolio and the Mortgage Securities Portfolio
may enter into mortgage "dollar rolls" in which each Portfolio sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity)
but not identical securities on a specified future date not exceeding 120
days. During the roll period, a Portfolio loses the right to receive principal
and interest paid on the securities sold. However, the Portfolio would benefit
to the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase (often referred to as
the "drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of a Portfolio compared with what such performance
would have been without the use of mortgage dollar rolls. All cash proceeds
will be invested in instruments that are permissible investments for each
Portfolio. Such Portfolio will hold and maintain in a segregated account until
the settlement date cash, U.S. Government Securities or other liquid, high
grade debt securities in an amount equal to the forward purchase price. All
mortgage dollar rolls will be settled in accordance with the National Credit
Union Administration Rules and Regulations.
For financial reporting and tax purposes, each Portfolio proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. Neither Portfolio
currently intends to enter into mortgage dollar rolls that are accounted for
as a financing.
Mortgage dollar rolls involve the following risks: if the broker-dealer to
whom a Portfolio sells the security becomes insolvent, the Portfolio's right
to purchase or repurchase the mortgage-related securities may be restricted
and the instrument which the Portfolio is required to repurchase may be worth
less than an instrument which the Portfolio originally held. Successful use of
mortgage dollar rolls may depend upon the investment adviser's ability to
predict correctly interest rates and mortgage prepayments. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed.
OPTION ADJUSTED DURATION
Although they have no restrictions as to the minimum or maximum maturity of
any particular security held by them, the Government Securities Portfolio
intends to maintain a maximum duration approximately equal to that of a 2-year
U.S. Treasury security, and the Mortgage Securities Portfolio intends to
maintain a maximum duration approximately equal to that of a 3-year U.S.
Treasury security. Under normal interest rate conditions, the Government
Securities Portfolio's target duration is expected to be no shorter than that
of a 6-month U.S. Treasury security and no longer than that of a 1-year U.S.
Treasury security, and the Mortgage Securities Portfolio's target duration is
expected to be approximately equal to that of a 2-year U.S. Treasury security.
The Portfolios' duration is a measure of the price sensitivity of the
Portfolios, including expected cash flow and mortgage prepayments under a wide
range of interest rate scenarios. Maturity measures only the time until final
payment is due on a bond or other debt security; it does not take into account
the pattern of a security's cash flows over time, including how cash flow is
affected by prepayments and by changes in interest rates. In
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<PAGE>
determining the duration of the Portfolios, Goldman, Sachs & Co. will estimate
the duration of obligations that are subject to interest rate changes and
prepayment or redemption by the issuer, taking into account the influence of
interest rates. This method of determining duration is known as option-
adjusted duration. The Portfolios may use various techniques to shorten or
lengthen their option adjusted durations, including the acquisition of debt
obligations at a premium or discount.
OTHER PORTFOLIO MANAGEMENT POLICIES
In addition, neither the Government Securities Portfolio nor the Mortgage
Securities Portfolio will invest more than 15%, and the Money Market Portfolio
will not invest more than 10%, of the value of its net assets in securities
which are illiquid, including restricted securities, federal funds loans and
fixed time deposits maturing in more than seven days, repurchase agreements
providing for settlement in more than seven days after notice, loan
participations by foreign governments where a substantial secondary market is
absent and, to the extent consistent with a Fund's investment objective,
interest-rate only and principal-only fixed rate mortgage backed securities
issued by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises which may not be readily marketable. A repurchase agreement or a
federal funds loan which by its terms can be liquidated before its nominal
fixed term on seven days' or less notice is regarded as a liquid instrument.
Mortgage-related securities issued in a private placement are subject to the
foregoing limitations, unless the Trustees determine, based upon a review of
the trading markets for the specific securities, that such securities are
liquid because they can be offered and sold to "qualified institutional
buyers" under Rule 144A of the 1933 Act and meet certain liquidity guidelines
which the Trustees have adopted. The Trustees have delegated to Goldman, Sachs
& Co. the function of determining and monitoring the liquidity of such
securities, focusing on such important factors, among others, as valuation,
liquidity and availability of information. However, each Portfolio will not
invest more than 10% of its total assets in securities that are subject to
restrictions on resale ("restricted securities") under the Securities Act of
1933, as amended ("1933 Act"), including securities eligible for resale in
reliance on Rule 144A under the 1933 Act. These investment practices could
have the effect of increasing the level of illiquidity in the Portfolios to
the extent that qualified institutional buyers become for a time uninterested
in purchasing these restricted securities.
Goldman, Sachs & Co. seeks to enhance the yield of the Fund's Portfolios by
taking advantage of yield disparities or other factors that occur in the
government securities, mortgage-related securities and money markets. The Fund
may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of the proceeds are expected to enhance yield
consistent with Goldman, Sachs & Co.'s judgment as to a desirable portfolio
maturity structure or if such disposition is believed to be advisable due to
other circumstances or considerations.
Goldman, Sachs & Co. expects that the net asset value of the Government
Securities Portfolio and the Mortgage Securities Portfolio will be relatively
stable during normal market conditions. However, the Portfolios' net asset
values will vary to some extent, and a sudden and sharp increase in prevailing
interest rates could cause a substantial decline in the Portfolios' net asset
values, while a sudden and sharp decline in interest rates could result in a
substantial increase in the Portfolios' net asset values.
The Government Securities Portfolio and the Mortgage Securities Portfolio
may sell an instrument soon after its acquisition if Goldman, Sachs & Co.
believes that such disposition is consistent with
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<PAGE>
attaining the investment objectives of each Portfolio. Instruments of the
Portfolios may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such instruments. A high rate of portfolio turnover
involves correspondingly greater transaction costs, which must be borne
directly by each Portfolio and ultimately by their unitholders.
Portfolio turnover rate is computed by dividing the lesser of the amount of
securities purchased or securities sold (excluding all securities whose
maturities at acquisition are one year or less) by the average monthly value
of such securities owned during the year, and includes purchase and sale
transactions entered into in connection with mortgage dollar rolls. A 100%
turnover rate would occur, for example, if all of the securities held in such
Portfolio were sold and replaced within one year. The rate at which Portfolio
transactions occur will depend upon Goldman, Sachs & Co.'s perception of how
market conditions will affect such Portfolio. Goldman, Sachs & Co. will not
consider portfolio turnover a limiting factor in making investment decisions
for a Portfolio consistent with such Portfolio's investment objective and such
Portfolio's investment management policies. A higher degree of portfolio
turnover results in increased transaction costs to such Portfolio in the form
of dealer spreads. Because of the exclusion of short-term securities from the
calculation of portfolio turnover rates, the portfolio turnover rate for the
Money Market Portfolio is expected to be zero for regulatory reporting
purposes.
CERTAIN INVESTMENT RESTRICTIONS
Pursuant to SEC Rule 2a-7 under the Investment Company Act, the Money Market
Portfolio may not invest more than 5% of its assets taken at amortized cost in
the securities of any one issuer (except U.S. Government Securities and
repurchase agreements collateralized by such securities). The Portfolio may,
however, invest up to 25% of its assets in the First Tier Securities of a
single issuer for a period of up to three business days after the purchase
thereof, although the Portfolio may not make more than one such investment at
any time. The Money Market Portfolio may not invest in securities which are
Second Tier Securities at the time of purchase. The foregoing non-fundamental
operating policies are more restrictive than the fundamental policy set forth
in paragraph 1 below. The Money Market Portfolio will operate in accordance
with these operating policies which comply with SEC Rule 2a-7.
The Portfolios are subject to certain fundamental investment restrictions
which, as described in more detail in the Additional Statement, may generally
be changed with respect to a Portfolio only with the approval of the holders
of a majority of the outstanding units of the Portfolio. For a more complete
description of the investment restrictions summarized below and the other
fundamental investment restrictions to which the Portfolios are subject, see
the Additional Statement.
1. The Portfolios may not invest in the instruments of any one issuer, other
than Government Securities (as defined in the Investment Company Act of 1940),
if immediately after such investment more than 5% of the value of such
Portfolio's total assets would be invested in the instruments of such issuer,
except that (a) with certain limitations stated in the Additional Statement,
up to 25% of the value of its total assets may be invested without regard to
such 5% limitation and (b) such 5% limitation shall not apply to repurchase
agreements collateralized by government securities.
2. The Portfolios may not borrow money, except as a temporary measure, and
then only in amounts not exceeding one-third of the value of a Portfolio's net
assets.
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REPORTS TO UNITHOLDERS
Each unitholder of the Government Securities Portfolio and the Mortgage
Securities Portfolio is provided with a printed confirmation for each
transaction. It is not anticipated that a printed confirmation for each
transaction will be provided to unitholders of the Money Market Portfolio.
However, all unitholders will be provided an individual monthly statement for
each Portfolio showing each transaction for the reported month. A year-to-date
statement for any account will be provided upon request made to Goldman, Sachs
& Co. Each unitholder will also receive annual and semiannual financial
statements. Unitholder inquiries should be addressed to Goldman, Sachs & Co.
at the address set forth on the cover page of this Prospectus.
PURCHASE OF UNITS
Purchases of units of the Portfolios may be made only by Federal Reserve
wire. Payment by other means, including check or draft or transfer of funds
which are not federal funds, will not be accepted. There is no minimum for
initial or subsequent investments nor are minimum balances required.
MONEY MARKET PORTFOLIO
Units of the Money Market Portfolio are offered on a continuous basis at
their net asset value next determined after receipt of a purchase order in the
manner set forth below, and provided that The Northern Trust Company
("Northern"), Chicago, Illinois, the subcustodian for State Street Bank and
Trust Company ("State Street") receives the purchase price in federal funds on
the same Business Day (as such term is defined under "Additional
Information"). See "Net Asset Value." Purchase orders may be placed and will
become effective only on Business Days. Purchase orders may be made by
telephoning Goldman, Sachs & Co. at 800-342-5828 or by a written request
addressed to Goldman, Sachs & Co. Attention: Shareholder Services, Trust for
Credit Unions--Money Market Portfolio, 4900 Sears Tower, Chicago, Illinois
60606.
Federal Reserve wires for the purchase of Money Market Portfolio units
should be directed to Northern, as sub-custodian for State Street, rather than
to State Street itself. Units of the Money Market Portfolio are deemed to have
been purchased when an order becomes effective and are entitled to dividends
on Units purchased as follows:
<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY
GOLDMAN, SACHS & CO. DIVIDENDS BEGIN
----------------------- ---------------
<S> <C>
By: 2:30 p.m.--N.Y. time Same Business Day
-------------------------------------------------------------------------
After: 2:30 p.m.--N.Y. time Next Business Day
-------------------------------------------------------------------------
</TABLE>
Federal Reserve wires should be sent as early as possible, but no later than
3:30 p.m., New York time, to facilitate crediting to the unitholder's account.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
Units of each Portfolio are offered on a continuous basis at their net asset
value next determined after the order therefor has been received. See "Net
Asset Value."
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<PAGE>
Purchase orders may be placed only on Business Days. If the order is
received by Goldman, Sachs & Co. by 4:00 p.m., New York time, settlement of
the transaction will occur on the next Business Day and the units to which the
order relates will be issued and will commence earning income on such next
Business Day provided that federal funds in respect of such order have been
received by Northern by such next Business Day. If the order is received by
Goldman, Sachs & Co. after 4:00 p.m., New York time, settlement of the
transaction will occur on the second Business Day and the units to which the
order relates will be issued and will commence earning income on the second
Business Day provided the federal funds in respect of such order are received
by Northern by such second Business Day. If payment in federal funds is not
received within the period stated above, an investor's purchase order will be
cancelled, and the investor will be responsible for any loss resulting to the
Fund.
OTHER INFORMATION
In the interest of economy, certificates representing Fund units are not
issued. The Fund and its co-distributors reserve the right to reject any
purchase order.
After the initial purchase of units, an Account Information Form must be
completed promptly and mailed to Goldman, Sachs & Co. at the address set forth
on the cover page of this Prospectus. Redemptions may not be effected prior to
receipt of such Account Information Form.
Goldman, Sachs & Co. and/or CFS may from time to time, at their own expense,
provide compensation to certain dealers whose customers purchase significant
amounts of units of the Fund. The amount of such compensation may be made on a
one-time and/or periodic basis and, in the case of Goldman, Sachs & Co., may
be up to 20% of the annual fees that are earned by Goldman, Sachs & Co. as
investment adviser to the Fund (after adjustments) and are attributable to
units held by such customers. Such compensation does not represent an
additional expense to the Fund or its unitholders, since it will be paid from
the assets of Goldman, Sachs & Co., its affiliates or CFS.
REDEMPTION OF UNITS
The Fund redeems its units without charge upon request of a unitholder at
the net asset value next determined after the receipt of such request in
proper form. See "Net Asset Value." Although redemption requests may be placed
on any day on which the Fund's net asset value per unit is determined,
proceeds will be remitted only on Business Days (as such term is defined under
"Additional Information"). Redemption requests may be made by calling Goldman,
Sachs & Co. at 800-342-5828 or by a written request addressed to Goldman,
Sachs & Co., Attention: Shareholder Services, Trust for Credit Unions, 4900
Sears Tower, Chicago, Illinois 60606. The letter of instruction must specify
the number of Units to be redeemed, the Portfolio from which Units are being
redeemed, the account number, payment instructions and the exact registration
on the account. A unitholder may request redemptions by telephone if the
optional telephone redemption privilege is elected on the Account Information
Form. It may be difficult to implement redemptions by telephone in times of
drastic economic or market changes. In an effort to prevent unauthorized or
fraudulent redemption and exchange requests by telephone, Goldman, Sachs & Co.
and State Street each employ reasonable procedures specified by the Fund to
confirm that such instructions are genuine. Consequently, proceeds of
telephone redemptions will be wired directly to the credit union, central
credit union, or other depository account designated in the unitholder's
Account Information Form, unless the
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<PAGE>
unitholder provides written instructions indicating another credit union,
central credit union, or other depository account. Telephone redemption
requests will also be recorded. The Fund may implement other procedures from
time to time. If reasonable procedures are not implemented, the Fund may be
liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither the Fund, the Portfolios nor Goldman, Sachs & Co. will be
responsible for the authenticity of redemption instructions received by
telephone. Thus, except as stated, the total risk of loss for unauthorized
transactions is on the investor.
MONEY MARKET PORTFOLIO
If a redemption request with respect to Money Market Portfolio units is
received by Goldman, Sachs & Co. by 2:30 p.m., New York time, the units to be
redeemed do not earn income on the day the request is received, but proceeds
are ordinarily wired on the same day. If such request is received by Goldman,
Sachs & Co. after such time and prior to 4:00 p.m., New York time, the units
to be redeemed earn income on the day the request is received, and proceeds
are ordinarily wired on the morning of the following Business Day. On any
Business Day when the Public Securities Association (PSA) recommends that the
securities market closes early, the Money Market Portfolio reserves the right
to cease accepting purchase and redemption orders for the same Business Day
credit at the time the PSA recommends that the securities market closes. On
days the Money Market Portfolio closes early, purchase and redemption orders
received after the PSA recommended closing time will be credited to the next
Business Day. In addition, the Money Market Portfolio reserves the right to
advance the time by which purchase and redemption orders must be received for
the same Business Day credit as otherwise permitted by the SEC.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
If a redemption request with respect to units of either Portfolio is
received by Goldman, Sachs & Co. by 4:00 p.m., New York time, the proceeds are
ordinarily wired on the next Business Day. Units to be redeemed earn income
with respect to the day the request is received; however, units redeemed on a
day immediately preceding a weekend or holiday continue to earn income until
the next Business Day.
OTHER INFORMATION
Once wire instructions have been given to Northern, neither the Fund nor
Goldman, Sachs & Co. assumes responsibility for the performance of Northern or
of any intermediaries in the transfer process. If a problem with such
performance arises, the investor should deal directly with Northern or such
intermediaries.
If its authorized signature is guaranteed by a credit union, commercial
bank, trust company, member firm of a national securities exchange or other
eligible guarantor institution, a unitholder may change the designated credit
union, central credit union or other depository account at any time upon
written notice to Goldman, Sachs & Co. Additional documentation, regarding any
such change or regarding a redemption by any means, may be required when
deemed appropriate by Goldman, Sachs & Co. and the request for such redemption
will not be considered to have been received in proper form until such
additional documentation has been received.
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<PAGE>
Under the Investment Company Act of 1940, the Fund is required to settle
redemption requests within seven days of receipt of such request. The right of
a unitholder to redeem units and the date of payment by the Fund may be
suspended for more than seven days for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or
trading on such Exchange is restricted as determined by the SEC; or during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of the Fund's net assets; or for such other period as the SEC
may by order permit for the protection of unitholders of the Fund.
Portfolio units are not redeemable at the option of the Fund unless the
Trustees determine in their sole discretion that failure to so redeem may have
materially adverse consequences to the unitholders of the Portfolio.
EXCHANGE PRIVILEGE
Units of each Portfolio may be exchanged for units of any other Portfolio at
the net asset value next determined either by writing to Goldman, Sachs & Co.,
Attention: Trust for Credit Unions, Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Account Information
Form, by telephone at 800-342-5828 (9:00 a.m. to 4:00 p.m. New York time). All
telephone exchanges must be registered in the same name(s) and with the same
address as registered in the Portfolio from which the exchange is being made.
A unitholder should consider the investment objective, policies and applicable
fees of each Portfolio before making an exchange.
Certain procedures are employed to prevent unauthorized or fraudulent
exchange requests as set forth under "Redemption of Units." In times of
drastic economic or market changes the telephone exchange privilege may be
difficult to implement.
Exchanges are only available in states where exchanges may legally be made.
The Fund reserves the right to reject any exchange request, and the exchange
privilege may be modified or withdrawn at any time. At least sixty (60) days'
notice will be given to unitholders of any material modification or
withdrawal, except when notice is not required by the SEC.
INCOME
Substantially all of the net investment income of the Money Market Portfolio
will be declared as a dividend on each day. Net short-term capital gains, if
any, will be paid in accordance with the requirements of the Internal Revenue
Code of 1986 and may be reflected in daily dividend declarations. The Money
Market Portfolio does not expect to realize long-term capital gains.
The Government Securities Portfolio and the Mortgage Securities Portfolio
each intend to declare a daily dividend (payable monthly) determined with the
objective of distributing the majority of its net investment income while
enhancing the stability of principal. Over the course of the fiscal year,
dividends accrued and paid will constitute substantially all of the
Portfolios' net investment income. The amount of the dividend will reflect
changes in interest rates (i.e., as interest rates increase, dividends will
increase and as interest rates decline, dividends will be reduced). Because
the Government
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<PAGE>
Securities Portfolio and the Mortgage Securities Portfolio invest in mortgage-
related securities that are subject to prepayments, the Trust cannot precisely
predict the amount of principal and interest that a Portfolio will receive.
Therefore, at times, a Portfolio may distribute amounts above current income
levels, which will constitute a return of capital. The Portfolios also intend
that all net realized long-term and short-term capital gains will be declared
and paid as a dividend at least annually. In determining amounts of capital
gains, any capital loss carryovers from prior years will be offset against
capital gains.
Net investment income of the Money Market Portfolio (from the time of the
immediately preceding determination thereof) consists of (i) interest accrued
or discount accreted (including both original issue and market discount) on
the assets of such Portfolio and any general income of the Fund allocated to
such Portfolio less (ii) the amortization of market premium and the estimated
expenses of such Portfolio.
Net investment income of the Government Securities Portfolio and the
Mortgage Securities Portfolio consists of (i) interest accrued, discount
accreted on certain Portfolio securities and any general income of the Fund
allocated to such Portfolio less (ii) the sum of (a) premiums amortized on
certain Portfolio securities and (b) the estimated expenses of such Portfolio.
The net investment income of the Portfolios is determined by State Street on
a daily basis. On days on which net asset value is calculated, this
determination is made immediately prior to the calculation of the Portfolio's
net asset value as of 4:00 p.m., New York time.
Payment of dividends with respect to net investment income will be paid on
the last calendar day of each month in additional units of the applicable
Portfolio at the net asset value on such day, unless cash distributions are
elected, in which case payment will be made by Federal Reserve wire on the
first Business Day of the succeeding month. Dividends with respect to capital
gains, if any, when declared will be paid in additional units of the
applicable Portfolio at the net asset value on the declared payment date,
unless cash distributions are elected. A unitholder's election to receive
dividends in cash is initially made on its Account Information Form and may be
changed at any time upon written notice to Goldman, Sachs & Co. The election
with respect to the short-term component, if any, of a Portfolio's capital
gains dividend must be the same as the election with respect to such
Portfolio's monthly net investment income dividends (i.e., both must be
received either in units or in cash). The election with respect to the long-
term component, if any, of a Portfolio's annual capital gains dividend may
differ from such election with respect to such Portfolio's monthly net
investment income dividends.
At the time of an investor's purchase of units of either the Government
Securities Portfolio or the Mortgage Securities Portfolio a portion of the per
unit net asset value may be represented by undistributed income of such
Portfolio or unrealized appreciation of the securities held by such Portfolio.
NET ASSET VALUE
The net asset value per unit of each Portfolio is calculated by adding the
value of all securities and other assets of such Portfolio, subtracting the
liabilities of such Portfolio, dividing the remainder by the number of units
of such Portfolio outstanding and rounding the result to the nearest one cent.
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<PAGE>
MONEY MARKET PORTFOLIO
The net asset value per unit of the Money Market Portfolio for purposes of
both purchase and redemption of units of such Portfolio is calculated by State
Street immediately after the determination of net investment income earned by
unitholders of record, as of 4:00 p.m., New York time on each Business Day (as
such term is defined under "Additional Information").
The Fund seeks to maintain a net asset value for the Money Market Portfolio
of $1.00 per unit. In this connection, the Money Market Portfolio values its
portfolio securities on the basis of amortized cost. The amortized cost method
values a security at its cost on the date of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the
instrument. For a more complete description of the amortized cost valuation
method and its effect on existing and prospective unitholders, see the
Additional Statement. There can be no assurance that the Money Market
Portfolio will be able at all times to maintain a net asset value per unit of
$1.00.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
The net asset value per unit of each Portfolio for purposes of both purchase
and redemption of units is calculated by State Street as of 4:00 p.m., New
York time, immediately after the determination of income to be declared as a
dividend, on each Business Day (as such term is defined under "Additional
Information"). Portfolio securities for which accurate market quotations are
readily available will be valued on the basis of quotations provided by
dealers in such securities or furnished by a pricing service. Portfolio
securities for which accurate market quotations are not readily available and
other assets will be valued at fair value using methods determined in good
faith by Goldman, Sachs & Co. under the supervision of the Trustees and may
include yield equivalents or a pricing matrix. Short-term securities with
maturities of 60 days or less are valued at amortized cost which the Trustees
have determined to equal fair value. In the case of the Government Securities
Portfolio and the Mortgage Securities Portfolio, the net asset value per unit
will fluctuate as the values of portfolio securities change in response to
changing market rates of interest, principal prepayments and other factors.
TAXES
TAXATION OF UNITHOLDERS
If state and federally chartered credit unions meet all requirements of
Section 501(c)(14)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") and all rules and regulations thereunder, they will be exempt from
federal income taxation on any income, dividends or capital gains realized as
the result of purchasing, holding, exchanging or redeeming units of the Fund.
Unitholders should consult their own tax advisers concerning applicable
state tax laws.
FEDERAL TAXATION OF THE FUND
The Fund intends that each of its Portfolios will qualify for the special
tax treatment afforded regulated investment companies under Subchapter M of
the Code. Each Portfolio of the Fund is treated as a separate corporation for
federal tax purposes and generally must comply with the
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<PAGE>
qualification and other requirements applicable to regulated investment
companies, without regard to the Fund's other Portfolios. If a Portfolio
otherwise complies with such provisions, then in any taxable year for which it
distributes at least 90% of its taxable income determined for federal income
tax purposes, the Portfolio will be relieved of federal income tax on the
amounts distributed. The Fund intends to distribute to its unitholders
substantially all of each Portfolio's net investment income. See "Income." Net
investment income may be different from taxable income determined for federal
income tax purposes. However, such difference is not expected to adversely
affect any Portfolio's compliance with the provisions of the Code applicable
to regulated investment companies.
Generally, on the sale or exchange of obligations held for more than one
year, net gain realized by a Portfolio which is not attributable to original
issue discount or certain market discount will be long-term capital gain. Such
capital gain, if any, will be distributed as capital gain dividends.
The Code will impose a 4% excise tax if a Portfolio fails to meet certain
requirements with respect to distributions of net ordinary income and capital
gain net income. It is not anticipated that this provision will have any
material impact on the Portfolios or their unitholders.
If for any taxable year a Portfolio does not qualify as a regulated
investment company, all of its taxable income will be taxed to such Portfolio
at the appropriate corporate rate without any reduction for distributions made
to unitholders.
The foregoing discussion of tax consequences is based on federal tax laws
and regulations in effect on the date of this Prospectus, which are subject to
change by legislative or administrative action.
MANAGEMENT
TRUSTEES
The trust agreement pursuant to which the Fund is organized (the "Trust
Agreement") provides that, subject to its provisions, the business of the Fund
shall be managed by the Trustees. The Trust Agreement provides that (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to the Trustees' general supervision, advisory and administration services and
duties and also including distribution, custodian, transfer and dividend
disbursing agency, unitholder servicing and accounting services and duties,
(b) a Trustee shall be liable for his own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law, and (c) subject to the preceding clause,
the Trustees are not responsible or liable for any neglect or wrongdoing of
any officer or any person referred to in clause (a).
The Additional Statement contains information as to the identity of and
other information about the Trustees and officers of the Fund.
INVESTMENT ADVISER AND TRANSFER AGENT
Goldman, Sachs & Co., through GSAM, One New York Plaza, New York, New York
10004, a separate operating division, acts as investment adviser to the Fund.
In addition, Goldman, Sachs &
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<PAGE>
Co. acts as transfer agent. Goldman, Sachs & Co. became registered as an
investment adviser in 1981. As of September 30, 1996, Goldman, Sachs & Co.
served as an investment adviser, administrator or distributor for
approximately $86.2 billion in assets.
Under its advisory agreement with the Fund, Goldman, Sachs & Co., subject to
the general supervision of the Fund's Trustees, manages the Fund's Portfolios
and provides certain administrative services for the Fund. As manager of the
Fund's Portfolios, it is the responsibility of Goldman, Sachs & Co. to make
investment decisions for the Fund and to place the purchase and sale orders
for the portfolio transactions of the Fund. Unitholder inquiries should be
directed to Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
The portfolio managers for the Government Securities Portfolio and the
Mortgage Securities Portfolio are Jonathan A. Beinner, Peter D. Dion, James B.
Clark and James P. McCarthy. Their responsibilities include investing in the
particular types of securities the Portfolios may hold. Mr. Beinner is a Vice
President of Goldman, Sachs & Co. Mr. Beinner joined GSAM in 1990 after
working in the trading and arbitrage group of Franklin Savings Association.
Mr. Dion joined GSAM in 1992 after working as a portfolio administrator at
Chase Manhattan Bank, N.A. Mr. Clark is a Vice President of Goldman, Sachs &
Co. Mr. Clark joined GSAM in 1994 after working as a senior trader at Federal
Home Loan Mortgage Corporation. Prior to that he was an investment manager at
Travelers Insurance Company. Mr. McCarthy is a Vice President of Goldman,
Sachs & Co. Mr. McCarthy joined GSAM in 1995 after working as a Bond Trader at
Nomura Securities.
As compensation for the services rendered to the Fund by Goldman, Sachs &
Co. pursuant to its advisory agreement Goldman, Sachs & Co. is entitled to
receive fees, computed daily and payable monthly, from the Money Market
Portfolio at annual rates equal to .20%, up to $300 million and .15% over $300
million and from the Government Securities Portfolio and Mortgage Securities
Portfolio, respectively, at annual rates equal to .20% and .20% of the average
daily net assets of the particular Portfolio. Goldman, Sachs & Co. has
voluntarily agreed to limit its advisory fee with respect to the Money Market
Portfolio to .12% of the first $250 million, .10% of the next $250 million,
.09% of the next $250 million and .08% over $750 million of the Portfolio's
average daily net assets. This voluntary limitation may be terminated by
Goldman, Sachs & Co. at any time. For the period August 1, 1995 through
January 31, 1996, Goldman, Sachs & Co. voluntarily agreed to limit its
advisory fee for the Mortgage Securities Portfolio to .15% of the Portfolio's
average daily net assets. For the fiscal year ended August 31, 1996, the Money
Market Portfolio, Government Securities Portfolio and Mortgage Securities
Portfolio paid, after waivers, advisory fees to Goldman, Sachs & Co. at the
annual rate of .11%, .20% and .18%, respectively, of their average daily net
assets.
ACTIVITIES OF GOLDMAN, SACHS & CO. AND ITS AFFILIATES AND OTHER ACCOUNTS
MANAGED BY GOLDMAN, SACHS & CO. The involvement of Goldman, Sachs & Co. and
its affiliates in the management of, or its interest in, other accounts and
other activities of Goldman, Sachs & Co. may present conflicts of interest
with respect to the Portfolios or limit its investment activities. Goldman,
Sachs & Co. and its affiliates engage in proprietary trading and advise
accounts and funds which have investment objectives similar to those of the
Portfolios and/or which engage in and compete for transactions in the same
types of securities and instruments as the Portfolios. Goldman, Sachs & Co.
and its affiliates will not have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Portfolios and it is not anticipated that
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<PAGE>
Goldman, Sachs & Co. will have access to proprietary information for the
purpose of managing the Portfolios. The results of the Portfolios' investment
activities, therefore, may differ from those of Goldman, Sachs & Co. and its
affiliates and it is possible that the Portfolios could sustain losses during
periods in which Goldman, Sachs & Co. and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other
accounts. From time to time, the Portfolios' activities may be limited because
of regulatory restrictions applicable to Goldman, Sachs & Co. and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Activities of Goldman, Sachs & Co. and its Affiliates and
Other Accounts Managed by Goldman, Sachs & Co." in the Additional Statement
for further information.
ADMINISTRATOR
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), c/o
Callahan Financial Services, Inc., P.O. Box 11, Manchester, MD 21102, a
Delaware limited partnership for which Callahan Financial Services, Inc.
serves as general partner and in which 38 major credit unions are limited
partners, acts as the administrator of the Fund. Under its administration
agreement with the Fund, CUFSLP, subject to the general supervision of the
Fund's Trustees, periodically reviews the performance of the investment
adviser, the transfer agent, the distributors and the custodian of the Fund;
provides facilities, equipment and personnel to serve the needs of investors;
develops and monitors investor programs for credit unions; provides assistance
in connection with the processing of unit purchase and redemption orders as
reasonably requested by the transfer agent or the Fund; handles unitholder
problems and calls relating to administrative matters; provides advice and
assistance concerning the regulatory requirements applicable to credit unions
that invest in the Fund; and provides other administrative services to the
Fund.
For such services, and the assumption by CUFSLP of the expenses related
thereto, pursuant to its administration agreement CUFSLP is entitled to
receive fees, computed daily and payable monthly, from the Money Market
Portfolio, Government Securities Portfolio and Mortgage Securities Portfolio,
respectively, at annual rates equal to .10% .10% and .05% of the average daily
net assets of the respective Portfolio. CUFSLP has voluntarily agreed to limit
its administration fee charged to the Money Market Portfolio to .05% of the
first $500 million, .04% of the next $250 million and .03% over $750 million
of the Portfolio's average daily net assets. This voluntary limitation may be
terminated by CUFSLP at any time. For the fiscal year ended August 31, 1996,
the Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio paid, after waivers, administration fees to CUFSLP at the
annual rates of .05%, .10% and .05%, respectively, of their average daily net
assets.
DISTRIBUTORS
Callahan Financial Services, Inc. ("CFS"), 1001 Connecticut Ave., N.W.,
Suite 1022, Washington, D.C. 20036-5504, a Delaware corporation, and Goldman,
Sachs & Co., 85 Broad Street, New York, New York, 10004, serve as co-
distributors of units of the Fund. CFS, a registered broker-dealer under the
Securities Exchange Act of 1934, is an affiliate of Callahan & Associates,
Inc., a corporation organized under the laws of the District of Columbia,
founded in 1985.
CFS and Goldman, Sachs & Co. have entered into distribution agreements with
the Fund to sell units of the Portfolios upon the terms and at the current
offering price described in this Prospectus.
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<PAGE>
CFS and Goldman, Sachs & Co. are not obligated to sell any certain number of
units of the Portfolios. From time to time the distributors may purchase or
sell units for their own account.
FUND EXPENSES
Common expenses of the Fund are allocated pro rata to the respective
Portfolios based upon their respective net asset values.
CUFSLP has agreed that to the extent the total annualized operating expenses
(excluding interest, taxes, brokerage and extraordinary expenses) (the
"Operating Expenses") of the Money Market Portfolio exceed 0.20% of its
average daily net assets, CUFSLP will either reduce the administration fees
payable or pay the Operating Expenses of the Money Market Portfolio.
Additionally, CUFSLP and Goldman, Sachs & Co., have each voluntarily agreed to
limit all other expenses of the Government Securities Portfolio such that
CUFSLP will reimburse other expenses that exceed .05% up to .10% of the
Portfolio's average net assets, and Goldman, Sachs & Co. will reimburse other
expenses that exceed .10% up to .15% of the Portfolio's average net assets.
There are no sales loads, commissions or other fees imposed on investors at
the time of purchase of units and no redemption fees or other charges imposed
at the time of redemption of units.
PERFORMANCE AND YIELD INFORMATION
From time to time quotations of the Money Market Portfolio's yield and
effective yield may be included in advertisements and communications to
unitholders. Both yield figures are based on historical earnings and are not
intended to indicate future performance. The yield of the Portfolio refers to
the net investment income generated by an investment in the Portfolio over a
specified seven-day period. This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The effective yield is expressed similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment. Yield and effective
yield for the Portfolio will vary based on changes in market conditions, the
level of interest rates and the level of the Portfolio's expenses.
Similarly, from time to time total return and yield data for the Government
Securities Portfolio and the Mortgage Securities Portfolio may be quoted in
advertisements or in unitholder communications. The total return of the
Government Securities Portfolio and the Mortgage Securities Portfolio will be
calculated on an average annual total return basis, and may also be calculated
on an aggregate total return basis, for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in a Portfolio over the measuring period. Aggregate total return reflects the
total percentage change in value over the measuring period. Both methods of
calculating total return assume that dividends and capital gain distributions
made by a Portfolio during the period are reinvested in Portfolio units. The
Fund may also advertise from time to time the total return of the Government
Securities Portfolio and the Mortgage Securities Portfolio on a year-by-year
or other basis for various specified periods by means of quotations, charts,
graphs or schedules.
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<PAGE>
The yields of the Government Securities Portfolio and the Mortgage
Securities Portfolio are computed based on the net income of the Portfolios
during a 30-day period, which period will be identified in connection with the
particular yield quotation. More specifically, a Portfolio's yield is computed
by dividing the Portfolio's net income per unit during a 30-day period by the
maximum offering price per unit on the last day of the period and annualizing
the result on a semi-annual basis. The net investment income used for purposes
of determining yield may differ from net income used for accounting purposes.
The Fund may advertise the performance of its Portfolios relative to certain
performance rankings, indices and other investments described more fully in
the Additional Statement.
Investors should note that the investment results of each Portfolio will
fluctuate over time, and any presentation of a Portfolio's yield or total
return for any prior period should not be considered as a representation of
what an investment may earn or what an investor's yield or return may be in
any future period.
ADDITIONAL INFORMATION
The Trust Agreement provides that each unitholder, by virtue of becoming
such, will be held to have expressly assented and agreed to the terms of the
Trust Agreement and to have become a party thereto. The Trust Agreement
permits the Trustees to issue an unlimited number of full and fractional units
of beneficial interest of one or more separate series ("Portfolios")
representing interests in separate investment portfolios. The Trustees have
the right to establish investment portfolios in addition to those heretofore
established.
Each unit of a Portfolio is entitled to one vote on all matters voted upon
by the unitholders of such Portfolio, with fractional units being entitled to
proportionate fractional votes. Units do not have cumulative voting rights. As
a general matter, the Fund does not hold annual or other meetings of
unitholders. This is because the Trust Agreement provides for unitholder
voting only for the election or removal of one or more Trustees, if a meeting
is called for that purpose, and for certain other designated matters. Each
Trustee serves until the next meeting of unitholders, if any, called for the
purpose of considering the election or reelection of such Trustee or a
successor to such Trustee, and until the election and qualification of his
successor, if any, elected at such meeting, or until such Trustee sooner dies,
resigns, retires or is removed by the unitholders or two-thirds of the
Trustees. The Fund will facilitate unitholder communication with other
unitholders as provided under Section 16(c) of the Investment Company Act of
1940. For a further description of unitholder rights with respect to the
removal of Trustees and of other designated matters voted on by unitholders,
see "Description of Units" in the Additional Statement.
As used in this Prospectus, the term "Business Day" refers to those days on
which Goldman, Sachs & Co., The Northern Trust Company, State Street Bank and
Trust Company and the Federal Reserve Bank of New York are all open for
business, which are Monday through Friday except for holidays. For 1997, such
holidays are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas Day. On those days
when one of such organizations closes early, the right is reserved by Goldman,
Sachs & Co. to advance the time on that day by which purchase and redemption
requests must be received to become effective; provided that the current net
asset value of each unit shall be computed at least once on such days.
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[LOGO OF TRUST FOR CREDIT UNIONS]
Investment Adviser
Goldman, Sachs & Co.
New York, New York
Transfer Agent Custodian Distributors
Goldman, Sachs & Co. State Street Bank and Trust Callahan Financial
Chicago, Illinois Company Services, Inc.
Boston, Massachusetts Washington, DC
(800) 237-5678
Administrator Auditors Goldman, Sachs & Co.
Callahan Credit Union Arthur Andersen LLP New York, New York
Financial Boston, Massachusetts (800) 342-5828
Services Limited Partnership (800-DIAL-TCU)
Washington, DC
<PAGE>
[LOGO OF TRUST FOR CREDIT UNION APPEARS HERE]
Prospectus
December 30, 1996
TARGET MATURITY PORTFOLIO (Feb 1997)
TARGET MATURITY PORTFOLIO (May 1997)
<PAGE>
TRUST FOR CREDIT UNIONS
TARGET MATURITY PORTFOLIO (FEB 97)
TARGET MATURITY PORTFOLIO (MAY 97)
---------------
Trust for Credit Unions (the "Fund") is an open-end diversified, management
investment company (commonly known as a "mutual fund") offered only to state
and federally chartered credit unions. This Prospectus relates solely to the
offering of units of the Target Maturity Portfolio (Feb 97) and Target
Maturity Portfolio (May 97) (individually, a "Portfolio" and together, the
"Portfolios").
The objective of each Portfolio is to achieve a high level of current income
and to return $10 per unit (the initial public offering price) to investors on
or about the third anniversary of its commencement date for the Target
Maturity Portfolio (Feb 97) and Target Maturity Portfolio (May 97) (February
18, 1997 and May 15, 1997, respectively). There can be no assurance that a
Portfolio will attain its investment objective. The Portfolios invest
primarily in mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises and in
privately-issued mortgage-related securities rated, at the time of purchase,
in one of the two highest rating categories by a nationally recognized
statistical rating organization ("NRSRO"). Units of each Portfolio are
designed to qualify as eligible investments for federally chartered credit
unions, but may or may not qualify as eligible investments for particular
state chartered credit unions.
Goldman, Sachs & Co., through Goldman Sachs Asset Management, a separate
operating division, serves as the Fund's investment adviser. Goldman, Sachs &
Co. also serves as the Fund's transfer agent. Callahan Credit Union Financial
Services Limited Partnership serves as the Fund's administrator. Callahan
Financial Services, Inc., the general partner of Callahan Credit Union
Financial Services Limited Partnership, and Goldman, Sachs & Co. serve as the
Fund's co-distributors.
The Fund's initial public offering for the Target Maturity Portfolio (Feb
97) and Target Maturity Portfolio (May 97) closed on February 15, 1994 and May
20, 1994, respectively. The Fund's co-distributors may solicit orders for
units of each of the Portfolios during a subsequent subscription period at
some future date, but presently do not expect to do so.
This Prospectus dated December 30, 1996, which sets forth concisely the
information about the Portfolios that a prospective investor ought to know
before investing, should be retained for future reference. A Statement of
Additional Information (the "Additional Statement") dated the same date,
containing further information about each Portfolio which may be of interest
to investors, has been filed with the Securities and
(Continued on following page)
UNITS OF THE PORTFOLIOS ARE NOT ENDORSED BY, INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, ANY CREDIT UNION
OR BY THE NATIONAL CREDIT UNION SHARE INSURANCE FUND, THE NATIONAL CREDIT
UNION ADMINISTRATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
PORTFOLIOS INVOLVES RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(Continued from previous page)
Exchange Commission (the "SEC"), is incorporated herein by reference in its
entirety, and may be obtained without charge from Goldman, Sachs & Co. or
Callahan Credit Union Financial Services Limited Partnership by calling the
applicable telephone number listed below.
GOLDMAN, SACHS & CO. Toll Free.......................800-342-5828
Advisor and Co-Distributor (800-DIAL-TCU)
One New York Plaza
New York, New York 10005
CALLAHAN CREDIT UNION FINANCIAL Toll Free.......................800-237-5678
SERVICES LIMITED PARTNERSHIP
Administrator
c/o Callahan Financial Services, Inc.
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
CALLAHAN FINANCIAL SERVICES, INC. Toll Free.......................800-237-5678
Co-Distributor
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................. 1
FEES AND EXPENSES.......................................................... 6
FINANCIAL HIGHLIGHTS....................................................... 7
INVESTMENT OBJECTIVE....................................................... 8
DESCRIPTION OF INVESTMENTS................................................. 9
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS...................... 16
REPORTS TO UNITHOLDERS..................................................... 20
PURCHASE OF UNITS.......................................................... 20
REDEMPTION OF UNITS........................................................ 21
INCOME..................................................................... 22
NET ASSET VALUE............................................................ 23
TAXES...................................................................... 23
MANAGEMENT................................................................. 24
PERFORMANCE AND YIELD INFORMATION.......................................... 26
ADDITIONAL INFORMATION..................................................... 27
</TABLE>
i
<PAGE>
HIGHLIGHTS
INTRODUCTION
Each of the Portfolios is an open-end, diversified, management investment
company (commonly known as a "mutual fund") offered solely to state and
federally chartered credit unions. Units of each Portfolio are designed to
qualify as eligible investments for federally chartered credit unions pursuant
to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part
703 of the National Credit Union Administration Rules ("NCUA") and Regulations
and NCUA Letter Number 155. The Fund intends to review changes in the
applicable laws, rules and regulations governing eligible investments for
federally chartered credit unions, and to take such action as may be necessary
so that the investments of each Portfolio qualify as eligible investments
under the Federal Credit Union Act and the regulations thereunder. Units of
each Portfolio, however, may or may not qualify as eligible investments for
particular state chartered credit unions. The Fund encourages each state
chartered credit union to consult qualified legal counsel concerning whether a
Portfolio is a permissible investment under the laws applicable to it.
INVESTMENT OBJECTIVE Pages 8 and 9
The Portfolios seek to achieve a high level of current income by investing
in obligations authorized under the Federal Credit Union Act and to return $10
per unit (the initial public offering price) to investors on or about the
following dates: Target Maturity Portfolio (Feb 97)-February 18, 1997 and
Target Maturity Portfolio (May 97)-May 15, 1997, respectively. Under normal
circumstances, each Portfolio will invest primarily (i.e., at least 65% of its
assets) in mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises and in
privately-issued mortgage-related securities rated, at the time of purchase,
in one of the two highest rating categories by an NRSRO. These securities will
include both adjustable rate and fixed rate mortgage pass-through securities,
collateralized mortgage obligations and other multi-class mortgage-related
securities, as well as other securities that are collateralized by or
represent direct or indirect interests in mortgage-related securities or
mortgage loans. Each Portfolio may also invest in (a) other securities issued
or guaranteed as to principal and interest by the U.S. Government or by its
agencies, instrumentalities or sponsored enterprises, (b) repurchase
agreements pertaining thereto and (c) certain short-term obligations (as
specified in "Description of Investments--Short-Term Obligations").
Although the Portfolios may purchase securities of any maturity, each
Portfolio will seek to attain its objective to return $10 per unit by (1)
preserving capital through active portfolio management, including the purchase
and sale of securities to change each Portfolio's option-adjusted duration
(see "Description of Investments--Other Portfolio Management Policies") and
(2) reducing, over time, the price sensitivity of each Portfolio to changes in
interest rates in light of expected cash flows and mortgage prepayments under
different interest rate scenarios. Each Portfolio will seek to achieve a high
level of income through the active management of its assets in relation to
market conditions, interest rate changes and the remaining term of each
Portfolio. No assurance can be given that each Portfolio will achieve its
investment objective.
PURCHASE OF UNITS Page 20
Purchase of units of each Portfolio may be made only by Federal Reserve
wire. The minimum investment by an investor is $1,000,000. If, however, an
investor is a unitholder in the Fund's other
1
<PAGE>
investment portfolios at the time of purchase, the amount of minimum
investment will be reduced by the value of the investor's holdings in the
other portfolios up to a maximum reduction of $500,000.
Orders for Portfolio units received before 4:00 p.m., New York time, on a
Business Day earn income commencing the next Business Day provided that
federal funds have been received by such next Business Day.
REDEMPTION OF UNITS Pages 21 and 22
All units of a Portfolio that are outstanding on the Termination Date (as
defined below) will be redeemed by the Fund without a redemption fee at their
net asset value (which is targeted to be approximately $10) as of the close of
business on the Termination Date of a Portfolio, and each Portfolio will be
liquidated without further unitholder action. The Termination Dates of the
respective Portfolios will occur on or about February 18, 1997 for Target
Maturity Portfolio (Feb 97) and May 15, 1997 for Target Maturity Portfolio
(May 97). Investors may also redeem units at any time before the Portfolio's
Termination Date at their net asset value next determined after a request has
been received by the Fund, less a redemption fee for early withdrawal equal to
.50% of the net asset value of the redeemed units at the time of redemption.
The redemption fee is not a sales charge, but is kept by a Portfolio for the
benefit of its unitholders. The purpose of the fee is to offset costs a
Portfolio may incur (for example in connection with the liquidation of
portfolio securities) in order to make payment in cash to a redeeming
unitholder. Redemption requests received before 4:00 p.m., New York time,
normally provide federal funds on the next Business Day (as defined under
"Additional Information") to the unitholder's designated account.
INCOME AND CAPITAL GAINS DISTRIBUTION POLICY Pages 22 and 23
Dividends from net investment income will be declared daily and paid monthly
by each Portfolio in cash by Federal Reserve wire unless an election is made
to invest dividends in units of the Fund's Money Market Portfolio on the last
calendar day of each month. Over the course of the fiscal year, dividends
accrued and paid will constitute all or substantially all of each Portfolio's
net investment income. From time to time, in order to stabilize the monthly
rate of distribution to unitholders and to enhance stability of principal, a
portion of such dividends may constitute a return of capital. Each Portfolio
intends that net realized capital gains, if any, after offset by any available
capital loss carryforwards from prior fiscal years, will be declared as a
dividend at least annually. Dividends payable to unitholders with respect to
net investment income and capital gains, if any, will be paid in cash unless
an election is made to invest dividends in units of the Fund's Money Market
Portfolio at net asset value on the payment date.
NET ASSET VALUE Page 23
The net asset value per unit of each Portfolio is determined by dividing the
excess of the market value of all securities and other assets over liabilities
by the number of units outstanding. Each Portfolio's net asset value per unit
will fluctuate as the value of such Portfolio's assets changes in response to
changing market rates of interest, principal prepayments and other factors.
All units of a Portfolio that are outstanding on its Termination Date will be
redeemed at net asset value as of the close of business on such Termination
Date, which is targeted to be approximately $10.
2
<PAGE>
INVESTMENT ADVISER Pages 24 and 25
Goldman, Sachs & Co., one of the largest international investment banking
and brokerage firms in the United States, serves as the Fund's investment
adviser and also provides certain administrative services. Goldman, Sachs &
Co. provides its advisory services through Goldman Sachs Asset Management
("GSAM"), a separate operating division.
ADMINISTRATOR Pages 25 and 26
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), a
Delaware limited partnership in which 38 major credit unions are limited
partners, acts as the administrator of the Fund. In this capacity, CUFSLP
periodically reviews the performance of the investment adviser, the transfer
agent, the co-distributors and the custodian of the Fund and provides other
administrative services to the Fund.
DISTRIBUTORS Page 26
Callahan Financial Services, Inc. ("CFS"), the general partner of CUFSLP,
and Goldman, Sachs & Co. serve as co-distributors of units in the Portfolios.
RISK FACTORS
Although each Portfolio's objective is to return $10 per unit (the initial
public offering price) to investors on its Termination Date, there is no
assurance that this objective will be achieved. In particular, while each
Portfolio will seek to reduce, over time, its price sensitivity to interest
rates, each Portfolio will purchase securities with maturities that fall after
the Termination Date, and it is possible that a Portfolio will realize capital
losses that are not offset by capital gains on the dispositions of securities
held by it. If a Portfolio realizes any capital losses on dispositions of
securities that are not offset by capital gains on dispositions of other
securities, a Portfolio may be unable to distribute to its unitholders on the
Termination Date an amount equal to approximately $10 per unit then
outstanding. In addition, the timing of the realization of any such capital
gains or capital losses, and the possibility that a Portfolio may be required
to distribute all or a portion of any such capital gains prior to the
Termination Date, may adversely affect the ability of a Portfolio to
distribute an amount equal to approximately $10 per unit on the Termination
Date, as well as the level of income earned by a Portfolio during its term.
Each Portfolio's ability to attain its investment objective will depend, in
part, on the success of the investment adviser's investment and hedging
strategies, on future interest rate trends, and on developments in the market
for mortgage-related securities. For example, a decline in market rates of
interest, or an increase in prepayments on mortgage-related securities held by
a Portfolio, may have an adverse effect on the income earned and dividends
paid by that Portfolio. In addition, operating results will depend upon the
availability of opportunities for the investment of each Portfolio's assets.
In this regard, the universe of suitable investments for each Portfolio will
be more limited than that for many other investment companies because of each
Portfolio's policy to limit its price sensitivity to interest rates and to
terminate on the Termination Date, and each Portfolio's income and dividends
may decline in the last year of its term for these reasons. As a result of
each Portfolio's active management techniques, the Portfolios expect to
experience a high portfolio turnover rate. A high rate
3
<PAGE>
of portfolio turnover involves correspondingly greater transaction costs,
which must be borne directly by each Portfolio and ultimately by its
unitholders. For a further discussion of the implications of a high portfolio
turnover rate, see "Other Portfolio Management Policies."
Furthermore, because the co-distributors do not expect to offer additional
Portfolio units and because units may be redeemed by investors at any time
during the term of each Portfolio, it is expected that the number of
outstanding Portfolio units could decrease before its Termination Date. The
redemption of units could increase the per unit expenses of the remaining
investors and adversely affect both a Portfolio's performance and the
investments of the remaining unitholders. Unitholder redemptions may also
require the investment adviser to sell portfolio securities that it would
otherwise keep in a Portfolio and to realign the remaining securities in the
Portfolio in light of the Portfolio's objective resulting in increased
expenses and lower performance. It is possible that the costs incurred by a
Portfolio in liquidating portfolio securities to meet redemption requests will
exceed the Portfolio's redemption fee for early withdrawal and that remaining
unitholders will, in this respect, also be adversely affected.
Each Portfolio's investments are interest rate sensitive, and their yields
will depend on a variety of factors including general market conditions for
the investments, the financial condition of the issuers involved, the size of
the particular offerings and the maturity, credit quality and rating of the
particular securities. Generally, the longer the maturity of a security, the
higher its yield and the greater its volatility. The market value of
securities held by a Portfolio (and consequently, a Portfolio's net asset
value) will generally decline during periods of increasing interest rates, and
increase during periods of declining interest rates (although many mortgage-
related securities will generally have less potential for capital appreciation
during periods of declining rates than other debt securities). Mortgage-
related securities, in particular, typically have frequent interest and
principal payments, and are subject to principal prepayments. As a result,
mortgage-related securities may be less effective than other types of debt
securities as a means of "locking in" interest rates. Moreover, the rate of
principal prepayments will frequently accelerate during periods of declining
interest rates. As a result, when a Portfolio reinvests amounts representing
scheduled and unscheduled payments of principal, it may receive a lower rate
of interest.
In addition, there can be no assurance that the date of subsequent sales (if
any) of a Portfolio's units, will occur at a time when market and interest-
rate conditions are favorable with respect to the types of mortgage-related
securities in which each Portfolio will invest. Investments by the Portfolios
during unfavorable conditions will adversely affect the Portfolio's investment
performance.
Each Portfolio's policy of investing primarily in mortgage-related
securities will have the effect of increasing the Portfolio's exposure to the
risks associated with such securities and may cause the net asset value of the
Portfolio to fluctuate more than if the Portfolio invested in other types of
securities. Privately-issued mortgage-related securities typically are not
guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises but such securities are generally structured with one or
more types of credit enhancement such as guarantees, subordination, insurance
policies or letters of credit obtained by the issuer or sponsor from third
parties, through various means of structuring the transaction or through a
combination of such approaches. In addition, although the Portfolios treat
each mortgage-related portfolio as a separate issuer, concentration in issues
of mortgage-related securities within the same master trust, sponsored by the
same sponsor or serviced
4
<PAGE>
by the same servicer may involve certain risks. Servicers of mortgage-related
pools collect payments on the underlying mortgage assets for pass-through to
the securityholders on a periodic basis. Upon insolvency of the servicer, the
securityholders may be at risk with respect to collections received by the
servicer but not yet delivered to the securityholders. In addition, a
sponsor's transfer of assets to a trust or other pooling vehicle may not
represent a true sale and, upon insolvency of the sponsor, the securityholders
of the trust or other pool may be at risk with respect to the assets
transferred to the trust or pool by the sponsor.
Some mortgage-related securities acquired by each Portfolio will be issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises; however, under certain interest rate and prepayment
scenarios each Portfolio may nevertheless fail to recoup fully its investment
in certain of these securities. In accordance with guidelines and standards
adopted by the Board of Trustees, Goldman, Sachs & Co. may determine that
certain interest-only and principal-only fixed rate mortgage-backed securities
issued by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises may not be readily marketable. If so, these securities will be
considered illiquid for purposes of each Portfolio's limitation on investments
in illiquid securities. The yields on a class of stripped mortgage-backed
securities that receives all or most of the interest (i.e. IO's) are generally
higher than the prevailing market yields on other mortgage-related securities
because they are extremely sensitive to the rate of principal payments,
including prepayments. Prepayments can result in a Portfolio's failure to
recoup its initial investment even though the stripped mortgage backed
securities are issued or guaranteed by the U.S. Government. Investors should
be aware that investments made by each Portfolio also entail other risks.
These include the possible failure of an obligor or counter-party (parties to
whom a Portfolio has credit or performance exposure) to meet its commitments,
adverse economic, real estate or unemployment trends, possible failure in the
processing of transactions and risks associated with investments in foreign
branches of U.S. banks. Each Portfolio may engage in various investment
practices that involve special risks, such as repurchase agreements,
securities lending and mortgage dollar rolls. As indicated, one or more of the
Fund's Portfolios may, to the extent consistent with the Rules and Regulations
of the National Credit Union Administration, invest in stripped mortgage-
backed securities, zero coupon bonds, collateralized mortgage obligations and
other multi-class mortgage-related securities which present certain risks. See
"Description of Investments" and "Other Investment Practices, Policies and
Restrictions" for further information.
The involvement of Goldman, Sachs & Co., and its affiliates, partners and
officers, in the investment activities and business operations of the Fund may
present certain potential conflicts-of-interest, as described under
"Management--Investment Adviser and Transfer Agent."
5
<PAGE>
FEES AND EXPENSES
The following table illustrates all expenses and fees that a unitholder of a
Portfolio will incur.
UNITHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases..................................... None
Sales Load Imposed on Reinvested Dividends. ........................ None
Maximum Redemption Fee.............................................. 0.50%
Maximum Exchange Fees............................................... None
</TABLE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
TMP TMP
FEB MAY
97 97
--- ---
<S> <C> <C>
Investment Advisory Fee......................................... .24% .25%
Administration Fee.............................................. .05% .05%
Other Expenses.................................................. .10% .15%
--- ---
Total Portfolio Operating Expenses.............................. .39% .45%
=== ===
</TABLE>
The purpose of this table is to assist investors in understanding the
various expenses that an investor in a Portfolio will bear directly or
indirectly. The information is based on estimated expenses that the Portfolios
expect to incur during the current fiscal period through their respective
termination date.
Management fees for each Portfolio consist of an investment advisory fee to
Goldman, Sachs & Co. payable monthly at an annual rate equal to .25% of
average daily net assets up to $75 million and .20% of average daily net
assets over $75 million of the Portfolio, and an administration fee to CUFSLP
payable monthly at an annual rate equal to .05% of the average daily net
assets of the Portfolio. Units that are redeemed by investors before the
Termination Date will be subject to a redemption fee for early withdrawal
equal to .50% of the net asset value of the redeemed units. Units that are
redeemed on the Termination Date are not subject to a redemption fee.
The following example illustrates the expenses that an investor would pay on
a $1,000 investment in a Portfolio over various time periods based on the
information presented above assuming a 5% annual rate of return and an
investment of all dividends and distributions. The first line assumes
redemption at the end of each time period. The second line assumes no
redemption.
<TABLE>
<CAPTION>
TMP TMP
FEB 97 MAY 97
-------------- --------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Redemption Assumed.......................... $ 9 $13 $10 $14
No Redemption Assumed....................... $ 4 $13 $ 5 $14
--- --- --- ---
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than those
shown in the Table.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information with respect to a unit of the Target Maturity
Portfolio (Feb 97) and the Target Maturity Portfolio (May 97) outstanding
during the periods indicated has been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report, incorporated by
reference into the Additional Statement, from the Fund's annual report to
unitholders for the fiscal year ended August 31, 1996 (the "Annual Report"),
and should be read in conjunction with the financial statements and related
notes appearing in the Annual Report. This Annual Report also contains other
performance information and is available upon request and without charge by
writing to either of the addresses on the inside cover of this Prospectus.
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS UNITHOLDERS
---------------------- -----------------
RATIO OF
NET NET
REALIZED INVEST-
NET AND IN NET MENT NET
ASSET UNREAL- FROM EXCESS ASSET RATIO OF INCOME PORT- ASSETS
VALUE AT NET IZED GAIN NET OF NET VALUE AT NET TO FOLIO AT END
BEGIN- INVEST- (LOSS) ON INVEST- INVEST- END EXPENSES AVERAGE TURN OF
NING OF MENT INVEST- MENT MENT OF TOTAL TO AVERAGE NET OVER PERIOD
PERIOD INCOME MENTS(A) INCOME INCOME PERIOD RETURN(B) NET ASSETS ASSETS RATE(C) (000'S)
-------- ---------- ----------- -------- ------- -------- --------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TARGET MATURITY PORTFOLIO (FEB 97)
- ------------------------------------------------------------------------------------------------------------------------------
Year ended:
8/31/96......... $9.71 $ 0.6436 $ (0.0106) $(0.6830) $ -- $9.66 6.70% 0.39% 6.64% 211.33% $94,727
8/31/95......... 9.63 0.6674 0.0261 (0.6135) -- 9.71 7.48 0.41 6.94 171.98 95,221
2/15/94(d) to
8/31/94......... 10.00 0.3313 (0.4189) (0.2824) -- 9.63 (0.83) 0.42(e) 6.30(e) 156.03 97,380
<CAPTION>
TARGET MATURITY PORTFOLIO (MAY 97)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... 9.99 0.7028 (0.0446) (0.6982) -- 9.95 6.77 0.43 7.03 190.34 63,169
8/31/95......... 9.91 0.6674 0.0673 (0.6547) -- 9.99 7.70 0.45 6.77 147.76 63,459
5/23/94(d) to
8/31/94......... 10.00 0.1594 (0.0674) (0.1594) (0.0226) 9.91 0.92 0.48(e) 5.80(e) 74.68 68,867
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period and no
redemption fee. For Target Maturity Portfolio (Feb 97) and Target Maturity
Portfolio (May 97), total return would be reduced if a redemption fee were
taken into account.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
7
<PAGE>
INVESTMENT OBJECTIVE
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") organized on September 24, 1987 as a
Massachusetts business trust. The Fund seeks to achieve a high level of income
to the extent consistent with the investment objectives of its investment
portfolios. The Fund presently maintains five investment portfolios--the Money
Market Portfolio, Government Securities Portfolio, Mortgage Securities
Portfolio, Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97). This Prospectus relates solely to the offering of units of two
Portfolios--Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97) (individually, a "Portfolio" and together, the "Portfolios").
The Fund is offered solely to state and federally chartered credit unions.
Units of each of the Fund's investment portfolios are designed to qualify as
eligible investments for federally chartered credit unions pursuant to
Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703
of the National Credit Union Administration Rules ("NCUA") and Regulations and
NCUA Letter Number 155. The Fund intends to review changes in the applicable
laws, rules and regulations governing eligible investments for federally
chartered credit unions, and to take such action as may be necessary so that
the investments of the Fund qualify as eligible investments under the Federal
Credit Union Act and the regulations thereunder.
Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act set
forth those securities, deposits and other obligations in which federally
chartered credit unions may invest. Included are mortgage-related securities,
securities issued or fully guaranteed as to principal and interest by the
United States Government or its agencies, instrumentalities or sponsored
enterprises, accounts in specified federally insured financial institutions
and other specified investments.
The investments of the Portfolios consist exclusively of assets intended to
qualify as eligible investments if owned directly by a federally chartered
credit union. Units of the Portfolios, however, may or may not qualify as
eligible investments for particular state chartered credit unions. The Fund
encourages each state chartered credit union to consult qualified legal
counsel concerning whether the units of the Portfolios are permissible
investments under the laws applicable to it.
TARGET MATURITY PORTFOLIOS
Each Portfolio seeks to achieve a high level of current income by investing
in obligations authorized under the Federal Credit Union Act and to return $10
per unit (the initial public offering price) to investors on or about the
following Termination Dates: Target Maturity Portfolio (Feb 97)-February 18,
1997 and Target Maturity Portfolio (May 97)-May 15, 1997.
Each Portfolio invests exclusively in:
--mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises
and privately-issued mortgage-related securities, rated at the time of
purchase, in one of the two highest rating categories by an NRSRO;
--other securities issued or guaranteed as to principal and interest by
the U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--repurchase agreements pertaining thereto; and
--short-term obligations (as specified in "Description of Investments--
Short-Term Obligations").
8
<PAGE>
The investment objective of each Portfolio (which is set forth in the first
sentence of this section) may not be changed without the approval of the
holders of a majority of the outstanding units of a Portfolio, as described
under "Additional Information." Although each Portfolio is permitted to
purchase securities of any maturity, each Portfolio will seek to attain its
objective to return $10 per unit by (1) preserving capital through active
portfolio management, including the purchase and sale of securities to change
the Portfolio's option-adjusted duration (see "Description of Investments--
Other Portfolio Management Policies") and (2) reducing, over time, its price
sensitivity to changes in interest rates in light of expected cash flows and
mortgage prepayments under different interest rate scenarios. Each Portfolio
will seek to achieve a high level of income through the active management of
its assets in relation to market conditions, interest rate changes and the
remaining term of the Portfolio. There can be no assurance that the objective
of any Portfolio will be realized. In seeking its objective, a Portfolio may
not always purchase securities offering the highest yield.
DESCRIPTION OF INVESTMENTS
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are securities that directly or indirectly
represent participations in, or are collateralized by and payable from
payments on, mortgage loans secured by real property. These securities include
both adjustable rate and fixed rate mortgage pass-through securities and
collateralized mortgage obligations and other multi-class mortgage-related
securities as well as other securities that are collateralized by or represent
direct or indirect interests in mortgage-related securities or mortgage loans.
The issuers of certain mortgage-related securities may elect to have the pool
of mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"),
which is subject to special federal income tax rules. A description of the
types of mortgage-related securities in which the Portfolios will invest is
provided below. The descriptions are general and summary in nature, and do not
detail every possible variation of the types of mortgage-related securities
that are permissible for each Portfolio.
1. INVESTMENT CHARACTERISTICS OF MORTGAGE-RELATED SECURITIES
In general, changes in both prepayment rates on mortgage-related securities
and interest rates and the volume of transactions in Portfolio units will
affect a Portfolio's return. A predominant factor affecting the prepayment
rate on a pool of mortgage loans is the difference between the interest rates
on outstanding mortgage loans and prevailing mortgage loan interest rates
(giving consideration to the cost of any refinancing). In general, if mortgage
loan interest rates fall sufficiently below the interest rates on fixed rate
mortgage loans underlying mortgage-related securities, the rate of prepayment
would be expected to increase. Prepayments of adjustable rate mortgage loans
may also increase in a declining interest rate environment as borrowers seek
to "lock-in" low rates. Conversely, if mortgage loan interest rates rise above
the interest rates on outstanding mortgage loans, the rate of prepayment may
be expected to decrease. Due to these factors, mortgage-related securities may
be less effective than U.S. Treasury securities of similar maturity at
maintaining yields during periods of declining interest rates, since the
mortgage payments will normally be reinvested in instruments with lower yields
reflecting prevailing market conditions.
Because each Portfolio's investments are interest rate sensitive, the
Portfolio's performance will depend in large part upon the ability of the
Portfolio to anticipate and respond to fluctuations in market interest rates
and to utilize appropriate strategies to maximize returns to the Portfolio,
while attempting
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to minimize the associated risks to its investment capital. Prepayments may
have a disproportionate effect on certain mortgage-related securities such as
stripped mortgage-backed and certain other multiple class pass-through
securities, which are discussed below.
Generally, to the extent mortgage-related securities are purchased at a
premium, a faster than anticipated rate of unscheduled principal prepayments
will result in a lower than anticipated yield. On the other hand, if the
securities are purchased at a discount, a faster than anticipated rate of
unscheduled prepayment of principal will result in a higher than anticipated
yield.
2. PRIVATE MORTGAGE PASS-THROUGH SECURITIES
Privately-issued mortgage pass-through securities ("Private Mortgage Pass-
Throughs") represent interests in pools of mortgage loans that are issued by
trusts formed by originators of and institutional investors in mortgage loans
(or represent interests in custodial arrangements administered by such
institutions). These originators and institutions include commercial banks,
mortgage bankers, savings and loan associations, credit unions, savings banks,
insurance companies, investment banks or special purpose subsidiaries of the
foregoing. For federal income tax purposes, such trusts are generally treated
as grantor trusts or REMICs and, in either case, are generally not subject to
any significant amount of federal income tax at the entity level.
The mortgage pools underlying Private Mortgage Pass-Throughs consist of
private mortgage loans evidenced by promissory notes secured by first
mortgages or first deeds of trust or other similar security instruments
creating a first lien on residential, residential multi-family and commercial
properties. Private Mortgage Pass-Throughs (whether fixed or adjustable rate)
provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amounts paid
to any guarantor, administrator and/or servicer of the underlying mortgage
loans. A trust fund with respect to which a REMIC election has been made may
include regular interests in other REMICs which in turn will ultimately
evidence interests in mortgage loans.
Private Mortgage Pass-Throughs generally offer a higher yield than
Government Mortgage-Related Securities (as defined below) because of the
absence of any direct or indirect government or agency payment guarantees.
However, timely payment of interest and principal on mortgage loans in these
pools may be supported by various forms of insurance or guarantees, including
individual loan, pool and hazard insurance, subordination and letters of
credit. The insurance and guarantees are issued by government entities,
private insurers, banks and mortgage poolers. Mortgage-related securities
without insurance or guarantees may be purchased by a Portfolio if they have
the required rating from an NRSRO. Although the market for such securities is
becoming increasingly liquid, some mortgage-related securities issued by
private organizations may not be readily marketable. Types of credit support
are discussed further in the Additional Statement.
3. GOVERNMENT MORTGAGE-RELATED SECURITIES
Each Portfolio may also invest in mortgage-related securities issued or
guaranteed by the U.S. Government and its agencies, instrumentalities or
sponsored enterprises ("Government Mortgage-Related Securities"). These
securities include the Government National Mortgage Association ("GNMA")
mortgage-backed certificates ("GNMA Certificates"), which are mortgage-backed
securities of the modified pass-through type where both scheduled interest and
principal payments (including prepayments) are paid monthly to the holder of
the certificate whether or not they are paid by the
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underlying mortgagor. The National Housing Act provides that the full faith
and credit of the United States is pledged to the timely payment of principal
and interest by GNMA of amounts due on these GNMA Certificates. Each GNMA
Certificate evidences an interest in a specific pool of mortgage loans
(frequently one-to-four family residential loans) insured by the Federal
Housing Administration or the Farmers Home Administration or guaranteed by the
Veterans Administration.
Government Mortgage-Related Securities also include securities issued by the
Federal National Mortgage Association ("FNMA") and by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA, a federally chartered and stockholder-
owned corporation, issues pass-through securities which are guaranteed as to
timely payment of principal and interest by FNMA. FHLMC, also a federally
chartered corporation, issues pass-through securities which are guaranteed as
to timely payment of interest and ultimate collection of principal by FHLMC.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States.
To the extent consistent with its investment objective, each Portfolio may
purchase "stripped" securities issued or guaranteed by U.S. Government
agencies or instrumentalities that evidence ownership in the future interest
payments or future principal payments on Government Mortgage-Related
Securities. Stripped mortgage-backed securities ("SMBS") are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of Government Mortgage-Related
Securities. A common type of SMBS will have one class receiving all of the
interest, while the other class will receive all of the principal. However, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience different
than anticipated prepayments of principal, a Portfolio may fail to recoup
fully its initial investment in these securities. Although the market for such
securities is increasingly liquid, Goldman, Sachs & Co., in accordance with
guidelines and standards adopted by the Board of Trustees, may determine that
certain SMBS are not readily marketable. If so, these securities will be
considered illiquid for purposes of each Portfolio's limitation on investments
in illiquid securities. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on
other Government Mortgage-Related Securities because they are extremely
sensitive to the rate of principal payments, including prepayments.
Prepayments can result in a Portfolio's failure to recoup its initial
investment even though the SMBS are issued or guaranteed by the U.S.
Government. Consistent with the Rules and Regulations of the National Credit
Union Administration, the Portfolios will purchase SMBS solely to reduce the
interest rate risk of the holdings (although this policy will not reduce the
risk of loss on the SMBS themselves that are held by the Portfolios), and will
not purchase SMBS issued by private issuers.
4. MULTI-CLASS MORTGAGE-RELATED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS
Mortgage-related securities acquired by each Portfolio will include
collateralized mortgage obligations and other multi-class mortgage-related
securities (collectively, "CMOs") issued by FNMA, FHLMC or other mortgage-
related U.S. Government agencies, instrumentalities or sponsored enterprises,
as well as by private issuers. CMOs provide an investor with a specified
interest in the cash flow of a pool of underlying mortgages or other mortgage-
related securities. Issuers of CMOs frequently elect to be taxed as REMICs.
CMOs are issued in multiple classes, each with a specified fixed or floating
interest rate and a final scheduled distribution date. The relative payment
rights of the
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various CMO classes may be structured in many ways. In many cases, payments of
principal are applied to the CMO classes in the order of their respective
stated maturities, so that no principal payments will be made on a CMO class
until all other classes having an earlier stated maturity date are paid in
full. Sometimes, however, CMO classes are "parallel pay," i.e., payments of
principal are made to two or more classes concurrently. In accordance with the
Rules and Regulations of the National Credit Union Administration, unless the
purchase is made solely to reduce interest rate risk or unless the instrument
is a floating or adjustable rate CMO class, the Portfolios will not invest in
any CMO class that meets any of the following three tests using prevailing
market-interest rates and prepayment speeds: (1) the CMO class has an expected
average life greater than 10 years; (2) the average life of the CMO class
extends by more than 4 years assuming an immediate and sustained parallel
shift in the yield curve of plus 300 basis points, or shortens by more than 6
years assuming an immediate and sustained parallel shift in the yield curve of
minus 300 basis points; or (3) the estimated change in the price of the CMO
class is more than 17% due to an immediate and sustained parallel shift in the
yield curve of plus or minus 300 basis points. For these purposes, "average
life" means the weighted average time to principal repayment, with the amount
of the principal paydowns (both scheduled and unscheduled) as the weights. The
expected average life and average life sensitivity test described above do not
apply to a floating or adjustable rate CMO class, irrespective of whether it
has been purchased to reduce interest rate risk, if (a) the interest rate is
reset at least annually, (b) the interest rate is below the contractual cap of
the CMO class at the time of purchase or a subsequent testing date, (c) the
index upon which the interest rate is based is a widely-used market interest
rate index such as the London Interbank Offered Rate (LIBOR) and (d) the
interest rate of the instrument varies directly (not inversely) with the index
upon which it is based and is not reset as a multiple of the change in the
index. If an instrument is a floating or adjustable rate CMO class which
passes the requirements described in (a) through (d) above, the Portfolios
will not invest in any such floating or adjustable rate CMO class that using
prevailing market-interest rates and pre-payment speeds meets the price
sensitivity test listed above. CMOs may exhibit more or less price volatility
and interest rate risk than other types of mortgage-related obligations.
Although the market for CMOs is generally liquid, Goldman, Sachs & Co. may
determine that certain CMOs are not readily marketable. If so, these CMOs will
be considered illiquid for purposes of the Fund's limitations on investments
in illiquid securities. CMOs are discussed further in the Additional Statement
under "Adjustable and Fixed Rate Mortgage Loans and Mortgage-Related
Securities."
OTHER GOVERNMENT SECURITIES
Each Portfolio may acquire other securities issued or guaranteed as to
principal and interest by the U.S. Government or by its agencies,
instrumentalities or sponsored enterprises ("Government Securities"). These
securities in general include a variety of U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as GNMA participation certificates), (b) the limited
authority of the issuer to borrow from the U.S. Treasury (such as securities
of the Student Loan Marketing Association), (c) the authority of the U.S.
Government to purchase certain obligations of the issuer (such as securities
of FNMA), or (d) only the credit of the issuer. No assurance can be given that
the U.S. Government will provide financial support to U.S. Government
agencies, instrumentalities or sponsored enterprises as described in clauses
(b) or (c) in the future, other than as set forth above, since it is not
obligated to do so by law.
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Government Securities are deemed to include (to the extent that it is
consistent with the Investment Company Act of 1940) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises. Government Securities are also deemed to include (to the extent
consistent with the Investment Company Act of 1940) participations in loans
made to foreign governments or their agencies that are guaranteed as to
principal and interest by the U.S. Government or its agencies,
instrumentalities or sponsored enterprises. The secondary market for certain
of these participations is extremely limited. In the absence of a substantial
secondary market, such participations will therefore be regarded as illiquid.
Each Portfolio may invest in separately traded principal and interest
components of securities, including mortgage-related securities, issued or
guaranteed by the United States Government, its agencies, instrumentalities or
sponsored enterprises. In the case of securities issued or guaranteed by the
United States Government, the principal and interest components of selected
securities are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS"). Under the STRIPS
program, the principal and interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
Each Portfolio may invest in zero coupon bonds, which are debt obligations
issued or purchased at a significant discount from face value, provided that
such bonds do not have maturity dates of more than 10 years from settlement.
Each Portfolio will only purchase zero coupon bonds which are Government
Securities. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity or the first interest
payment date at a rate of interest reflecting the market rate of the security
at the time of issuance. Zero coupon bonds do not require the periodic payment
of interest. Such investments benefit the issuer by mitigating its need for
cash to meet debt service, but some also require a higher rate of return to
attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value than debt
obligations which provide for regular payments of interest. Each Portfolio
will accrue income on such investments for tax and accounting purposes, as
required, which is distributable to shareholders and which, because no cash is
received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Portfolio's distribution obligations.
GOVERNMENT RELATED OBLIGATIONS
Although they are not considered obligations of the U.S. Government for
certain securities law purposes, and therefore do not qualify as U.S.
Government Securities, each Portfolio may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises.
REPURCHASE AGREEMENTS
When a Portfolio purchases securities, it may enter into a repurchase
agreement with the seller wherein the seller agrees, at the time of sale, to
repurchase the securities at a mutually agreed upon time and price. A
Portfolio may enter into repurchase agreements with broker-dealers and with
banks. Although the securities subject to the repurchase agreement may bear
maturities exceeding one year, settlement for the repurchase would never be
more than one year after a Portfolio's acquisition of the
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securities and normally would be within a shorter period of time. The
Portfolios generally intend to enter into repurchase agreements which
terminate within seven days after notice by a Portfolio. If a Portfolio were
to enter into repurchase agreements which provide for a notice period greater
than seven days, a Portfolio would do so only if such investment, together
with other illiquid securities, did not exceed 15% of the Portfolio's net
assets. The resale price will be in excess of the purchase price, reflecting
an agreed-upon market rate effective for the period of time a Portfolio's
money will be invested in the securities, and will not be related to the
coupon rate of the purchased securities. During the term of the repurchase
agreement, Goldman, Sachs & Co. will require the seller to maintain the value
of the securities subject to the agreement in an amount that exceeds the
repurchase price. In the event the seller of the repurchase agreement enters a
bankruptcy or other insolvency proceeding, or in the event of the failure of
the seller to repurchase the underlying securities as agreed upon, a Portfolio
could, however, experience losses that include (a) possible decline in the
value of the underlying securities during the period while a Portfolio seeks
to enforce its rights thereto and possible delay in enforcement of those
rights, (b) possible loss of all or a part of the income or proceeds of the
repurchase, (c) additional expenses to a Portfolio for enforcing those rights
and (d) possible delay in the disposition of the underlying securities pending
court action or possible loss of rights in such securities. The percentage of
each Portfolio's assets invested in repurchase agreements may vary from time
to time depending upon Goldman, Sachs & Co.'s evaluation of market trends and
other conditions. The Portfolios will enter into repurchase transactions only
with parties that meet creditworthiness standards approved by the Fund's
Trustees. Goldman, Sachs & Co. monitors the creditworthiness of such parties
under the Trustees' general supervision. In addition, the Portfolios, together
with other registered investment companies having advisory agreements with the
Adviser, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more
repurchase agreements.
SHORT-TERM OBLIGATIONS
1. BANK OBLIGATIONS
A Portfolio may invest in United States dollar-denominated obligations
issued or guaranteed by United States banks with total assets exceeding $1
billion (including obligations issued by foreign branches of such banks) but
only to the extent permitted under the Federal Credit Union Act and the rules
and regulations promulgated thereunder. Such obligations will be rated in one
of the two highest rating categories by an NRSRO or, if unrated, determined to
be of comparable quality by Goldman, Sachs & Co. and may include certificates
of deposit, bankers' acceptances, bank notes, deposit notes and other
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations
or by government regulation.
Obligations of foreign branches of United States banks include fixed time
deposits. Fixed time deposits are payable at a stated maturity date and bear a
fixed rate of interest. Generally, fixed time deposits are not payable until
maturity, but may permit early withdrawal subject to penalties which vary
depending upon market conditions and the remaining maturity of the
obligations. Fixed time deposits do not have a market, and those fixed time
deposits with maturities over seven days will be regarded as illiquid.
However, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party.
Bank notes and bankers acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured
obligations of the bank. Bank notes are classified as "other
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borrowings" on a bank's balance sheet, while deposit notes and certificates of
deposit are classified as deposits. Bank notes are not insured by the Federal
Deposit Insurance Corporation or any other insurer. Deposit notes are insured
by the Federal Deposit Insurance Corporation only to the extent of $100,000
per depositor per bank.
Banks are subject to extensive but different governmental regulations which
may limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operations of this industry.
Obligations of foreign branches of United States banks involve investment
risks in addition to those of domestic obligations of domestic issuers,
including the possibility that liquidity could be impaired because of future
political and economic developments, that the obligations may be less
marketable than comparable domestic obligations of domestic issuers, that a
foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations, that deposits may be seized or nationalized, that
foreign governmental restrictions such as exchange controls may be adopted
which might adversely affect the payment of principal and interest on those
obligations, or that there may be difficulties in obtaining or enforcing a
judgment against a foreign branch.
2. FEDERAL FUNDS
The Portfolios may make unsecured loans of federal funds to United States
banks with total assets exceeding $1 billion (including obligations issued by
foreign branches of such banks) to the extent permitted by the Federal Credit
Union Act and the rules and regulations promulgated thereunder, provided that
(i) the accounts of such banks are insured by the Federal Deposit Insurance
Corporation, (ii) the interest received therefrom is at the market rate for
federal funds transactions and (iii) the transaction has a maturity of one or
more business days or the Fund is able to require repayment at any time. The
Portfolios consider federal funds investments maturing in more than seven days
to be illiquid, and therefore will limit such transactions along with all
other illiquid investments to 15% of the value of a Portfolio's net assets.
Federal funds are funds held by a regional Federal Reserve Bank for the
account of a bank that is a member of such Federal Reserve Bank (a "Fed Member
Bank"). A loan of federal funds is an unsecured loan at a negotiated interest
rate for a negotiated time period, generally overnight, of federal funds by
one Fed Member Bank to another. Since, pursuant to an exemption, the borrowing
Fed Member Bank is not required to maintain reserves on the borrowed federal
funds, the interest rate it pays on such loans is generally higher than the
rate it pays on other deposits of comparable size and maturity that are
subject to reserve requirements. In addition, a "depository institution" or
other exempt institution such as the Fund may under Regulation D of the Board
of Governors of the Federal Reserve System in effect make loans of federal
funds by instructing a correspondent or other willing Fed Member Bank at which
it maintains an account to loan federal funds on its behalf. Loans of federal
funds are not insured by the Federal Deposit Insurance Corporation.
In the event the borrower of federal funds enters a bankruptcy or other
insolvency proceeding, a Portfolio could experience delays and incur expense
in recovering cash. Further, the possibility exists that in such an instance,
the borrowing institution may not be able to repay the loaned funds. Loans of
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federal funds rank junior to domestic deposit liabilities of the bank and pari
passu with other senior, unsecured obligations of the bank. With regard to the
solvency of the borrowing institution, the Portfolios will limit federal funds
lending to those member banks of the Federal Reserve System whose
creditworthiness has been reviewed and found by Goldman, Sachs & Co. to be
comparable in quality to securities rated high quality by an NRSRO.
Creditworthiness is of particular importance given the unsecured nature of
federal funds borrowings.
3. OTHER INVESTMENT COMPANIES
As a means of maintaining short-term liquidity, each Portfolio reserves the
right to invest up to 10% of its total assets, calculated at the time of
purchase, in the securities of other investment companies. A Portfolio may not
invest more than 5% of its total assets in the securities of any one
investment company or acquire more than 3% of the voting securities of any
other investment company. Pursuant to an exemptive order obtained from the
SEC, other investment companies and its unitholders in which the Portfolios
may invest include money market funds for which GSAM, Goldman, Sachs & Co. or
any of their affiliates serves as investment adviser, administrator or
distributor. Each Portfolio and ultimately its unitholders will indirectly
bear its proportionate share of any management fees paid by investment
companies in which it invests in addition to the advisory fee paid by the
Portfolio, except that to the extent that any Portfolio invests in a money
market fund for which GSAM, Goldman, Sachs & Co. or any of their affiliates
acts as adviser (such as the Fund's Money Market Portfolio), the fee payable
by that Portfolio to GSAM will be reduced by an amount equal to the
Portfolio's proportionate share of the advisory and administrative fees paid
by such money market fund to GSAM, Goldman, Sachs & Co. or any of their
affiliates.
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Portfolio may purchase or sell portfolio securities in when-issued or
delayed delivery transactions. In such transactions, instruments are bought or
sold with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous yield or price to a Portfolio at the
time of entering into the transactions. However, the yield on a comparable
security available when delivery takes place may vary from the yield on the
security at the time that the when-issued or delayed delivery transaction was
entered into. When a Portfolio engages in when-issued and delayed delivery
transactions, the Portfolio relies on the seller or buyer, as the case may be,
to consummate the transaction. Failure to consummate the transaction may
result in a Portfolio's missing the opportunity of obtaining a price or yield
considered to be advantageous. In such transactions the payment obligation and
the interest rate are fixed on the trade date, although no interest accrues to
the purchaser prior to the settlement date. The settlement date for such
transactions will take place no more than 120 days after the trade date.
Consistent with the requirements of the Investment Company Act of 1940,
securities purchased on a when-issued or delayed delivery basis are recorded
as an asset (with the purchase price being recorded as a liability) and are
subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. To the extent that a Portfolio remains
substantially fully invested at the same time that it has entered into such
transactions, which it would normally expect to do, there will be greater
fluctuations in the market value of its net assets than if such Portfolio set
aside cash to satisfy its purchase commitment. However, a Portfolio will
maintain designated liquid assets at least equal in value to commitments for
when-issued or delayed delivery securities, and such assets will be segregated
in an account earmarked specifically for the settlement of such commitments. A
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Portfolio will only make commitments to purchase portfolio securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities and not for the purpose of investment leverage.
LENDING OF PORTFOLIO SECURITIES
The Portfolios may seek to increase its income by lending portfolio
securities to institutions, such as banks and broker-dealers. These loans will
be continuously collateralized by cash, cash equivalents or Government
Securities in an amount at least equal to the market value of the securities
loaned. Each Portfolio will have the right to call a loan and obtain the
securities loaned at any time on five days notice. For the duration of a loan,
each Portfolio will continue to receive the equivalent of the interest paid by
the issuer on the securities loaned and will also receive compensation from
investment of the collateral. Each Portfolio will not have the right to vote
any securities having voting rights during the existence of the loan, but each
Portfolio will call the loan in anticipation of an important vote to be taken
among holders of the securities or the giving or withholding of its consent on
a material matter affecting the investment. As with other extensions of
credit, there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However,
the loans will be made only to firms deemed by Goldman, Sachs & Co. to be of
good standing, and when, in its judgment, the consideration which can be
earned currently from securities loans of this type justifies the attendant
risk. If Goldman, Sachs & Co. determines to make securities loans, it is
intended that the value of the securities loaned will not exceed one-third of
the value of the total assets of the relevant Portfolio.
MORTGAGE DOLLAR ROLLS
The Portfolios may enter into mortgage "dollar rolls" in which a Portfolio
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, a Portfolio loses the right to
receive principal and interest paid on the securities sold. However, the
Portfolio would benefit to the extent of any difference between the price
received for the securities sold and the lower forward price for the future
purchase (often referred to as the "drop") or fee income plus the interest
earned on the cash proceeds of the securities sold until the settlement date
of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use
of this technique will diminish the investment performance of a Portfolio
compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for the Portfolios. The Portfolios will hold and
maintain in a segregated account until the settlement date cash, U.S.
Government Securities or other liquid, high grade debt securities in an amount
equal to the forward purchase price. All mortgage dollar rolls will be settled
in accordance with National Credit Union Administration Rules and Regulations.
For financial reporting and tax purposes, each Portfolio proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Portfolios do
not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.
Mortgage dollar rolls involve the following risks: if the broker-dealer to
whom a Portfolio sells the security becomes insolvent, the Portfolio's right
to purchase or repurchase the mortgage-related securities may be restricted
and the instrument which the Portfolio is required to repurchase may be
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worth less than an instrument which the Portfolio originally held. Successful
use of mortgage dollar rolls may depend upon the investment adviser's ability
to predict correctly interest rates and mortgage prepayments. For these
reasons there is no assurance that mortgage dollar rolls can be successfully
employed.
OTHER PORTFOLIO MANAGEMENT POLICIES
In addition, a Portfolio will not invest more than 15% of the value of its
net assets in securities which are illiquid, including restricted securities,
federal funds loans maturing in more than seven days and fixed time deposits
maturing in more than seven days, repurchase agreements providing for
settlement in more than seven days after notice, loan participations by
foreign governments where a substantial secondary market is absent and, to the
extent consistent with a Portfolio's investment objective interest-only and
principal-only fixed rate mortgage backed securities issued by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises which may
not be readily marketable. A repurchase agreement or a federal funds loan
which by its terms can be liquidated before its nominal fixed term on seven
days' or less notice is regarded as a liquid instrument. Mortgage-related
securities issued in a private placement are subject to this 15% limitation,
unless the Trustees determine, based upon a review of the trading markets for
the specific securities, that such securities are liquid because they can be
offered and sold to "qualified institutional buyers" under Rule 144A of the
Securities Act of 1933 and meet certain liquidity guidelines which the
Trustees have adopted. The Trustees have delegated to Goldman, Sachs & Co. the
function of determining and monitoring liquidity of such securities, focusing
on such important factors, among others, as valuation, liquidity and
availability of information. However, each Portfolio will not invest more than
10% of its total assets in securities that are subject to restrictions on
resale ("restricted securities") under the Securities Act of 1933, as amended
("1933 Act"), including securities eligible for resale in reliance on Rule
144A under the 1933 Act. These investment practices could have the effect of
increasing the level of illiquidity in the Portfolios to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
Goldman, Sachs & Co. seeks to enhance the yield of the Portfolios by taking
advantage of yield disparities or other factors that occur in the mortgage-
related securities markets. The Portfolios may dispose of any portfolio
security prior to its maturity if such disposition and reinvestment of the
proceeds are expected to enhance yield consistent with Goldman, Sachs & Co.'s
judgment as to a desirable portfolio maturity structure or if such disposition
is believed to be advisable due to other circumstances or considerations.
Goldman, Sachs & Co. expects that the net asset value of the Portfolios will
be relatively stable during normal market conditions. However, each
Portfolio's net asset value will vary to some extent, and a sudden and sharp
increase in prevailing interest rates could cause a substantial decline in
each Portfolio's net asset value, while a sudden and sharp decline in interest
rates could result in a substantial increase in each Portfolio's net asset
value.
In addition, as stated above each Portfolio intends to reduce, over time,
its "duration" in an effort to return $10 per unit upon the termination of a
Portfolio. Each Portfolio's duration is a measure of the price sensitivity of
a Portfolio, including expected cash flows and mortgage prepayments under a
wide range of interest rate scenarios. Maturity measures only the time until
final payment is due on a bond or other debt security; it does not take into
account the pattern of a security's cash flows over time, including how cash
flow is affected by prepayments and by changes in interest rates. In
determining
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the duration of the Portfolios, Goldman, Sachs & Co. will estimate the
duration of obligations that are subject to interest rate changes and
prepayment or redemption by the issuer, taking into account the influence of
interest rates. This method of determining duration is known as option-
adjusted duration. The Portfolios will actively buy and sell securities in
order to adjust its option-adjusted duration. There is no assurance that
Goldman, Sachs & Co.'s estimates of duration will, in fact, be accurate.
Each Portfolio may sell an instrument soon after its acquisition if Goldman,
Sachs & Co. believes that such disposition is consistent with attaining the
investment objective of each Portfolio. Portfolio instruments may be sold for
a variety of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
instruments. A high rate of portfolio turnover involves correspondingly
greater transaction costs, which must be borne directly by each Portfolio and
ultimately by its unitholders.
Portfolio turnover rate is computed by dividing the lesser of the amount of
securities purchased or securities sold (excluding all securities whose
maturities at acquisition are one year or less) by the average monthly value
of such securities owned during the year, and includes purchase and sale
transactions entered into in connection with mortgage dollar rolls. A 100%
turnover rate would occur, for example, if all of the securities held by a
Portfolio were sold and replaced within one year. The rate at which
transactions occur will depend upon Goldman, Sachs & Co.'s perception of how
market conditions will affect a Portfolio. Goldman, Sachs & Co. will not
consider portfolio turnover a limiting factor in making investment decisions
for a Portfolio consistent with its investment objective and portfolio
management policies. A higher degree of portfolio turnover results in
increased transaction costs in the form of dealer spreads.
Each Portfolio's expected high turnover rate could cause a Portfolio to
realize gains in excess of restrictions imposed by the Internal Revenue Code
of 1986 which require that less than 30% of the Portfolio's gross income in
each taxable year be derived from sales or other dispositions of securities
held for less than three months. If this requirement is not satisfied, a
Portfolio would not qualify for the special Federal tax treatment allowed to a
regulated investment company. The Portfolios intend to monitor their
compliance with this requirement.
CERTAIN INVESTMENT RESTRICTIONS
The Portfolios are subject to certain fundamental investment restrictions
which, as described in more detail in the Additional Statement, may be changed
with respect to a Portfolio only with the approval of the holders of a
majority of the outstanding units of that Portfolio. For a more complete
description of the investment restrictions summarized below and the other
fundamental investment restrictions to which the Portfolios are subject, see
the Additional Statement.
1. A Portfolio may not invest in the instruments of any one issuer, other
than Government Securities (as defined in the Investment Company Act of 1940),
if immediately after such investment, more than 5% of the value of a
Portfolio's total assets would be invested in the instruments of such issuer,
except that (a) up to 25% of the value of its total assets may be invested
without regard to such 5% limitation and (b) such 5% limitation shall not
apply to repurchase agreements collateralized by Government Securities.
2. A Portfolio may not borrow money, except for temporary or short-term
purposes, provided that the Portfolio maintains asset coverage of 300% for all
such borrowing. (As a matter of non-fundamental policy, a Portfolio may not
purchase securities while borrowings exceed 5% of the value of the Portfolio's
assets.)
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REPORTS TO UNITHOLDERS
Each unitholder of a Portfolio is provided with a printed confirmation for
each transaction and an individual monthly statement for the Portfolio. A
year-to-date statement for any account will be provided upon request made to
Goldman, Sachs & Co. Each unitholder will also receive annual and semi-annual
financial statements. Unitholder inquiries should be addressed to Goldman,
Sachs & Co. at the address set forth on the cover page of this Prospectus.
PURCHASE OF UNITS
Purchases of units of the Portfolios may be made only by Federal Reserve
wire. Payment by other means, including check or draft or transfer of funds
which are not federal funds, will not be accepted.
Units of the Portfolios may be offered on a continuous basis at their net
asset value next determined after the order therefor has been received. See
"Net Asset Value." However, the Portfolios currently do not expect to offer
additional Portfolio units for sale.
If authorized, purchase orders may be placed only on Business Days. If the
order is received by Goldman, Sachs & Co. by 4:00 p.m., New York time,
settlement of the transaction will occur on the next Business Day and the
units to which the order relates will be issued and will commence earning
income on such next Business Day provided that federal funds in respect of
such order have been received by The Northern Trust Company ("Northern") by
such next Business Day. If the order is received by Goldman, Sachs & Co. after
4:00 p.m., New York time, settlement of the transaction will occur on the
second Business Day and the units to which the order relates will be issued
and will commence earning income the second Business Day provided the federal
funds in respect of such order are received by Northern by such second
Business Day. If payment in federal funds is not received within the period
stated above, an investor's purchase order will be cancelled, and the investor
will be responsible for any loss resulting to the Fund.
OTHER INFORMATION
In the interest of economy, certificates representing Portfolio units will
not be issued. The Fund and its co-distributors reserve the right to reject
any purchase order.
After the initial purchase of units, an Account Information Form must be
completed promptly and mailed to Goldman, Sachs & Co. at the address set forth
on the cover page of this Prospectus. Redemptions may not be effected prior to
receipt of such Account Information Form.
Goldman, Sachs & Co. and/or CFS may from time to time, at their own expense,
provide compensation to certain dealers whose customers purchase significant
amounts of units of the Portfolios. The amount of such compensation may be
made on a one-time and/or periodic basis and, in the case of Goldman, Sachs &
Co., may be up to 20% of the annual fees that are earned by Goldman, Sachs &
Co. as investment adviser to the Portfolios (after adjustments) and are
attributable to units held by such customers. Such compensation will not
represent an additional expense to the Portfolios or their unitholders, since
it will be paid from assets of Goldman, Sachs & Co., its affiliates or CFS.
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REDEMPTION OF UNITS
All units of a Portfolio outstanding on their applicable Termination Date
will be redeemed by the Fund without a redemption charge at their net asset
value as of the close of business on the Termination Date. See "Net Asset
Value." The Termination Dates of the respective Portfolios will occur on or
about February 18, 1997 for Target Maturity Portfolio (Feb. 97) and May 15,
1997 for Target Maturity Portfolio (May 97). Investors may also redeem units
at any time before a Termination Date at their net asset value next determined
after a request has been received by the Fund, less a redemption fee for early
withdrawal equal to .50% of the net asset value of the redeemed units at the
time of redemption. The redemption fee is not a sales charge, but is kept by a
Portfolio for the benefit of continuing unitholders. The purpose of the
redemption fee is to offset costs a Portfolio may incur in order to make
payment in cash to a redeeming unitholder, such as costs incurred in
liquidating portfolio securities, transaction and brokerage costs, odd-lot
premiums, transfer taxes, administrative fees, custodian fees and registrar or
transfer agent fees.
Redemption requests are made by calling Goldman, Sachs & Co. at 800-342-5828
(800-DIAL-TCU) or by a written request addressed to Goldman, Sachs & Co.,
Attention: Shareholder Services, Trust for Credit Unions, 4900 Sears Tower,
Chicago, Illinois 60606. The letter of instruction must specify the Portfolio,
the number of units to be redeemed, the account number, payment instructions
and the exact registration on the account. A unitholder may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form accompanying this Prospectus. It may
be difficult to implement redemptions by telephone in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, Goldman, Sachs & Co. and State Street each
employ reasonable procedures specified by the Fund to confirm that such
instructions are genuine. Consequently, proceeds of telephone redemptions will
be wired directly to the credit union, central credit union or other
depository account designated in the unitholder's Account Information Form,
unless the unitholder provides written instructions indicating another credit
union, central credit union, or other depository account. Telephone redemption
requests will also be recorded. The Fund may implement other procedures from
time to time. If reasonable procedures are not implemented, the Fund may be
liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither a Portfolio, the Fund nor Goldman Sachs & Co. will be
responsible for the authenticity of redemption instructions received by
telephone. Thus, except as stated, the total risk of loss for unauthorized
transactions is on the investor.
Although redemption requests may be placed on any day on which a Portfolio's
net asset value per unit is determined, proceeds will be remitted only on
Business Days (as defined under "Additional Information"). If a redemption
request is received by Goldman, Sachs & Co. by 4:00 p.m., New York time, the
proceeds are ordinarily wired on the next Business Day. Units to be redeemed
earn income with respect to the day the request is received; however, units
redeemed on a day immediately preceding a weekend or a holiday continue to
earn income until the next Business Day.
OTHER INFORMATION
Once wire instructions have been given to Northern, neither the Fund nor
Goldman, Sachs & Co. assumes responsibility for the performance of Northern or
of any intermediaries in the transfer process. If a problem with such
performance arises, the investor should deal directly with Northern or such
intermediaries.
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If its authorized signature is guaranteed by a credit union, commercial
bank, trust company, member firm of a national securities exchange or other
eligible guarantor institution, a unitholder may change the designated credit
union, central credit union or other depository account at any time upon
written notice to Goldman, Sachs & Co. Additional documentation, regarding any
such change or regarding a redemption by any means, may be required when
deemed appropriate by Goldman, Sachs & Co., and the request for such
redemption will not be considered to have been received in proper form until
such additional documentation has been received.
Under the Investment Company Act of 1940, the Fund is required to settle
redemption requests within seven days of receipt of such request. The right of
a unitholder to redeem units and the date of payment by the Fund may be
suspended for more than seven days for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or
trading on such Exchange is restricted as determined by the SEC; or during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by a Portfolio or to
determine fairly the value of a Portfolio's net assets; or for such other
period as the SEC may by order permit for the protection of unitholders of a
Portfolio.
Prior to the applicable Termination Date, units of a Portfolio are not
redeemable at the option of the Fund unless the Trustees determine in their
sole discretion that failure to so redeem may have materially adverse
consequences to the unitholders of the relevant Portfolio.
INCOME
The Portfolios intend to declare a daily dividend (payable monthly)
determined with the objective of distributing the majority of its net
investment income while enhancing the stability of principal. Over the course
of a fiscal year, dividends accrued and paid will constitute substantially all
of the Portfolios' net investment income. From time to time, in order to
stabilize the monthly rate of distribution to unitholders and to enhance
stability of principal, a portion of such dividends may constitute a return of
capital. The Portfolios also intend that all net realized long-term and short-
term capital gains will be declared and paid as a dividend at least annually.
In determining amounts of capital gains, any capital loss carryovers from
prior years will be offset against capital gains.
Net investment income of each Portfolio consists of (i) interest accrued or
discount accreted on certain securities held by each Portfolio and any general
income of the Fund allocated to each Portfolio less (ii) the sum of (a)
premiums amortized on certain securities held by each Portfolio and (b) the
estimated expenses of each Portfolio.
The net investment income of the Portfolios is determined by State Street on
a daily basis. On days on which net asset value is calculated, this
determination is made immediately prior to the calculation of each Portfolio's
net asset value as of 4:00 p.m., New York time.
Dividends payable to unitholders with respect to net investment income and
capital gains, if any, will be paid in cash by Federal Reserve wire on the
first Business Day of the succeeding month, unless an election is made to
invest dividends in units of the Fund's Money Market Portfolio on the last
calendar day of each month at net asset value on such day. A unitholder must
elect to invest dividends in units of the Fund's Money Market Portfolio on the
Account Information Form and, unless the
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unitholder is a current investor in the Money Market Portfolio, must open an
account with the Fund for that Portfolio. A unitholder's dividend election may
be changed at any time upon written notice to Goldman, Sachs & Co. The
election with respect to each Portfolio's capital gains dividends must be the
same as the election with respect to each Portfolio's monthly net investment
income dividends (i.e., both must be either received in cash or invested in
Money Market Portfolio units).
NET ASSET VALUE
Net asset value per unit of each Portfolio is calculated by adding the value
of all securities and other assets of a Portfolio, subtracting the liabilities
of that Portfolio, and dividing the remainder by the number of units of the
Portfolio outstanding.
The net asset value per unit of each Portfolio for purposes of redemption of
units is calculated by State Street as of 4:00 p.m., New York time,
immediately after the determination of income declared as a dividend, on each
Business Day (as defined under "Additional Information"). Portfolio securities
for which accurate market quotations are readily available will be valued on
the basis of quotations provided by dealers in such securities or furnished by
a pricing service. Portfolio securities for which accurate market quotations
are not readily available and other assets will be valued at fair value using
methods determined in good faith by Goldman, Sachs & Co. under the supervision
of the Trustees and may include yield equivalents or a pricing matrix. Short-
term securities with maturities of 60 days or less are valued at amortized
cost which the Trustees have determined to equal fair value. Each Portfolio's
net asset value per unit will fluctuate as the value of its portfolio
securities changes in response to changing market rates of interest, principal
prepayments and other factors.
TAXES
TAXATION OF UNITHOLDERS
If state and federally chartered credit unions meet all requirements of
Section 501(c)(14)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") and all rules and regulations thereunder, they will be exempt from
federal income taxation on any income, dividends or capital gains realized as
the result of purchasing, holding, exchanging or redeeming units of a
Portfolio.
Unitholders should consult their own tax advisers concerning applicable
state tax laws.
FEDERAL TAXATION OF THE FUND
The Fund intends that each Portfolio will qualify for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Code. Each Portfolio is treated as a separate corporation for federal tax
purposes and generally must comply with the qualification and other
requirements applicable to regulated investment companies, without regard to
the Fund's other investment portfolios. If each Portfolio otherwise complies
with such provisions, then in any taxable year for which it distributes at
least 90% of its taxable income determined for federal income tax purposes,
each Portfolio will be relieved of federal income tax on the amounts
distributed. The Fund intends to distribute to unitholders substantially all
of each Portfolio's net investment income. See "Income." Net investment income
may be different from taxable income determined for federal income tax
purposes. However, such difference is not expected to affect adversely each
Portfolio's compliance with the provisions of the Code applicable to regulated
investment companies.
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Generally, on the sale or exchange of obligations held for more than one
year, net gain realized by each Portfolio which is not attributable to
original issue discount or certain market discount will be long-term capital
gain. Such capital gain, if any, will be distributed as capital gain
dividends.
The Code will impose a 4% excise tax if a Portfolio fails to meet certain
requirements with respect to distributions of net ordinary income and capital
gain net income. It is not anticipated that this provision will have any
material impact on the Portfolios or their unitholders.
If for any taxable year a Portfolio does not qualify as a regulated
investment company, all of its taxable income will be taxed to a Portfolio at
the appropriate corporate rate without any reduction for distributions made to
unitholders.
The foregoing discussion of tax consequences is based on federal tax laws
and regulations in effect on the date of this Prospectus, which are subject to
change by legislative or administrative action.
MANAGEMENT
TRUSTEES
The trust agreement pursuant to which the Fund is organized (the "Trust
Agreement") provides that, subject to its provisions, the business of the Fund
shall be managed by the Trustees. The Trust Agreement provides that (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to the Trustees' general supervision, advisory and administration services and
duties and also including distribution, custodian, transfer and dividend
disbursing agency, unitholder servicing and accounting services and duties,
(b) a Trustee shall be liable for his own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law, and (c) subject to the preceding clause,
the Trustees are not responsible or liable for any neglect or wrongdoing of
any officer or any person referred to in clause (a).
The Additional Statement contains information as to the identity of and
other information about the Trustees and officers of the Fund.
INVESTMENT ADVISER AND TRANSFER AGENT
Goldman, Sachs & Co., through GSAM, One New York Plaza, New York, New York
10004, a separate operating division, acts as investment adviser to the Fund.
In addition, Goldman, Sachs & Co. acts as transfer agent. Goldman, Sachs & Co.
became registered as an investment adviser in 1981. As of September 30, 1996,
Goldman, Sachs & Co. served as an investment adviser, administrator or
distributor for approximately $86.2 billion in assets.
Under its advisory agreement with the Fund, Goldman, Sachs & Co., subject to
the general supervision of the Fund's Trustees, manages the Portfolios and
provides certain administrative services for the Fund. As manager of the
Portfolios , it is the responsibility of Goldman, Sachs & Co. to make
investment decisions for the Portfolios and to place the purchase and sale
orders for the portfolio transactions of the Portfolios. Unitholder inquiries
should be directed to Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606.
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The Fund's portfolio managers are Jonathan A. Beinner, Peter D. Dion, James
B. Clark and James P. McCarthy. Their responsibilities include investing in
the particular types of securities the Portfolios may hold. Mr. Beinner is a
Vice President of Goldman, Sachs & Co. Mr. Beinner joined GSAM in 1990, after
working in the trading and arbitrage group of Franklin Savings Association.
Mr. Dion joined GSAM in 1992 after working as a portfolio administrator at
Chase Manhattan Bank, N.A. Mr. Clark is a Vice President of Goldman, Sachs &
Co. Mr. Clark joined GSAM in 1994 after working as a senior trader at Federal
Home Loan Mortgage Corporation. Prior to that he was an investment manager at
Travelers Insurance Company. Mr. McCarthy is a Vice President of Goldman,
Sachs & Co. Mr. McCarthy joined GSAM in 1995 after working as a Bond Trader at
Nomura Securities.
As compensation for the services rendered for the Portfolios pursuant to its
advisory agreement and the assumption by it of the expenses related thereto,
Goldman, Sachs & Co. is entitled to receive a fee, computed daily and payable
monthly, from a Portfolio at an annual rate equal to .25% up to $75 million
and .20% over $75 million of each of the Portfolio's average daily net assets
considered separately on a per Portfolio basis. For the fiscal year ended
August 31, 1996, the Target Maturity Portfolio (Feb 97) and Target Maturity
Portfolio (May 97) each paid an advisory fee to Goldman, Sachs & Co. at the
annual rate of .24% and .25%, respectively, of each Portfolio's average daily
net assets.
ACTIVITIES OF GOLDMAN, SACHS & CO. AND ITS AFFILIATES AND OTHER ACCOUNTS
MANAGED BY GOLDMAN, SACHS & CO. The involvement of Goldman, Sachs & Co. and
its affiliates in the management of, or its interest in, other accounts and
other activities of Goldman, Sachs & Co. may present conflicts of interest
with respect to the Portfolios or limit its investment activities. Goldman,
Sachs & Co. and its affiliates engage in proprietary trading and advise
accounts and funds which have investment objectives similar to those of the
Portfolios and/or which engage in and compete for transactions in the same
types of securities and instruments as the Portfolios. Goldman, Sachs & Co.
and its affiliates will not have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Portfolios and it is not anticipated that
Goldman, Sachs & Co. will have access to proprietary information for the
purpose of managing the Portfolios. The results of the Portfolios' investment
activities, therefore, may differ from those of Goldman, Sachs & Co. and its
affiliates and it is possible that the Portfolios could sustain losses during
periods in which Goldman, Sachs & Co. and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other
accounts. From time to time, the Portfolios' activities may be limited because
of regulatory restrictions applicable to Goldman, Sachs & Co. and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Activities of Goldman, Sachs & Co. and its Affiliates and
Other Accounts Managed by Goldman, Sachs & Co." in the Additional Statement
for further information.
ADMINISTRATOR
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), c/o
Callahan Financial Services, Inc., 1001 Connecticut Ave., N.W., Suite 1022,
Washington, D.C., 20036-5504, a Delaware limited partnership for which
Callahan Financial Services, Inc. serves as general partner and in which 38
major credit unions are limited partners, acts as the administrator of the
Portfolios. Under its administration agreement with the Fund, CUFSLP, subject
to the general supervision of the Fund's Trustees, periodically reviews the
performance of the investment adviser, the transfer agent, the distributors
and the custodian of the Portfolios; provides facilities, equipment and
personnel to serve
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the needs of investors; develops and monitors investor programs for credit
unions; provides assistance in connection with the processing of unit purchase
and redemption orders as reasonably requested by the transfer agent or the
Fund; handles unitholder problems and calls relating to administrative
matters; provides advice and assistance concerning the regulatory requirements
applicable to credit unions that invest in the Portfolios; and provides other
administrative services to the Fund.
For such services, CUFSLP is entitled to receive a fee, computed daily and
payable monthly, from each Portfolio at an annual rate equal to .05% of the
average daily net assets of each Portfolio. For the fiscal year ended August
31, 1996, the Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97) each paid an administration fee to CUFSLP at the annual rate of .05%,
respectively, of each Portfolio's average daily net assets.
DISTRIBUTORS
Callahan Financial Services, Inc. ("CFS"), 1001 Connecticut Ave., N.W.,
Suite 1022, Washington, D.C. 20036-5504, a Delaware corporation, and Goldman,
Sachs & Co., 85 Broad Street, New York, New York, 10004, serve as co-
distributors of units of the Portfolios. CFS, a registered broker-dealer under
the Securities Exchange Act of 1934, is an affiliate of Callahan & Associates
Inc., a corporation organized under the laws of the District of Columbia,
founded in 1985.
CFS and Goldman, Sachs & Co. have entered into distribution agreements with
the Fund to sell units of the Portfolios upon the terms and at the current
offering price described in this Prospectus. CFS and Goldman, Sachs & Co. are
not obligated to sell any certain number of units of the Portfolios.
FUND EXPENSES
Common expenses of the Fund are allocated pro rata to the Portfolios and the
Fund's other investment portfolios based upon their respective net asset
values.
There are no sales loads, commissions or other fees imposed on investors at
the time of purchase of units and no charges imposed at the time of redemption
of units other than the redemption fee described under "Redemption of Units."
PERFORMANCE AND YIELD INFORMATION
From time to time total return and yield data for the Portfolios may be
quoted in advertisements or in unitholder communications. The total return of
the Portfolios will be calculated on an average annual total return basis, and
may also be calculated on an aggregate total return basis, for various
periods. Average annual total return reflects the average annual percentage
change in value of an investment in a Portfolio over the measuring period.
Aggregate total return reflects the total percentage change in value over the
measuring period. The methods prescribed by the SEC for standardized total
return calculations provide that calculations of total return assume that
dividends and capital gain distributions made by the Portfolios during the
period are reinvested in Portfolio units and reflect any non-recurring charges
(such as the redemption fee for early withdrawal). The Fund may, however, also
advertise from time to time the total return of a Portfolio without these
fees, and may advertise total return on a year-by-year or other basis for
various specified periods by means of quotations, charts, graphs or schedules.
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The yield of a Portfolio is computed based on the net investment income of
the Portfolio during a 30-day period, which period will be identified in
connection with the particular yield quotation. More specifically, a
Portfolio's yield is computed by dividing the Portfolio's net investment
income per unit during a 30-day period by the maximum offering price per unit
on the last day of the period and annualizing the result on a semi-annual
basis. The net investment income used for purposes of determining yield may
differ from net investment income used for accounting purposes.
The Fund may advertise the performance of a Portfolio relative to certain
performance rankings, indices and other investments as described more fully in
the Additional Statement. Investors should note that the investment results of
the Portfolios will fluctuate over time, and any presentation of a Portfolio's
yield or total return for any prior period should not be considered as a
representation of what an investment may earn or what an investor's yield or
return may be in any future period.
ADDITIONAL INFORMATION
Under the Trust Agreement, all units of a Portfolio that are outstanding on
its Termination Date will be redeemed by the Fund at their net asset value,
and each Portfolio will be liquidated without further unitholder action. In
connection with these actions, the Board of Trustees may make appropriate
provision for any liabilities of a Portfolio. Prior to a Termination Date,
however, the Board of Trustees of the Trust may consider whether it is in the
best interests of the unitholders to liquidate a Portfolio on its Termination
Date notwithstanding the provisions of the Declaration of Trust. In
considering the matter, the Board of Trustees will take into account, among
other factors, the adverse effect which capital losses realized upon the
disposition of securities in connection with a liquidation (if any such losses
are anticipated) would have on a Portfolio and its unitholders. In the event
that the Board of Trustees determines that liquidation of a Portfolio on its
Termination Date would not be in the best interests of unitholders, the Board
of Trustees will call a special meeting of unitholders to consider an
appropriate amendment to the Declaration of Trust. The Declaration of Trust
requires the affirmative vote of the holders of a majority of outstanding
units of the particular Portfolio involved to approve such an amendment.
The Trust Agreement provides that each unitholder, by virtue of becoming
such, will be held to have expressly assented and agreed to the terms of the
Trust Agreement and to have become a party thereto. The Trust Agreement
permits the Trustees to issue an unlimited number of full and fractional units
of beneficial interest of one or more separate series representing interests
in separate investment portfolios. The Trustees have the right to establish
investment portfolios in addition to those heretofore established.
Each unit of a Portfolio is entitled to one vote on all matters voted upon
by the unitholders of such Portfolio, with fractional units being entitled to
proportionate fractional votes. Units do not have cumulative voting rights. As
a general matter, the Fund does not hold annual or other meetings of
unitholders. This is because the Trust Agreement provides for unitholder
voting only for the election or removal of one or more Trustees, if a meeting
is called for that purpose, and for certain other designated matters. Each
Trustee serves until the next meeting of unitholders, if any, called for the
purpose of considering the election or reelection of such Trustee or a
successor to such Trustee, and until the election and qualification of his
successor, if any, elected at such meeting, or until such Trustee sooner dies,
resigns, retires or is removed by the unitholders or two-thirds of the
Trustees. A
27
<PAGE>
Portfolio will facilitate unitholder communication with other unitholders as
provided under Section 16(c) of the Investment Company Act of 1940. For a
further description of unitholder rights with respect to the removal of
Trustees and of other designated matters voted on by unitholders, see
"Description of Units" in the Additional Statement.
As used in this Prospectus, the term "Business Day" refers to those days on
which Goldman, Sachs & Co., The Northern Trust Company, State Street Bank and
Trust Company and the Federal Reserve Bank of New York are all open for
business, which are Monday through Friday except for holidays. For 1997, such
holidays are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas Day. On those days
when one of these organizations closes early, the right is reserved by
Goldman, Sachs & Co. to advance the time on that day by which redemption
requests must be received to become effective; provided that the current net
asset value of each unit shall be computed at least once on such days.
28
<PAGE>
[LOGO OF TRUST FOR CREDIT UNIONS APPEARS HERE]
Investment Adviser
Goldman, Sachs & Co.
New York, New York
<TABLE>
<CAPTION>
Transfer Agent Custodian Distributors
<S> <C> <C>
Goldman, Sachs & Co. State Street Bank and Trust Callahan Financial Services, Inc.
Chicago, Illinois Company Washington, DC
Boston, Massachusetts (800) 237-5678
Administrator
Callahan Credit Union Financial Auditors Goldman, Sachs & Co.
Services Limited Partnership Arthur Andersen LLP New York, New York
Washington, DC Boston, Massachusetts (800) 342-5828
(800-DIAL-TCU)
</TABLE>
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
TRUST FOR CREDIT UNIONS
4900 Sears Tower
Chicago, Illinois 60606-6303
Money Market Portfolio
Government Securities Portfolio
Mortgage Securities Portfolio
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. This Additional Statement should be read in conjunction with the
Prospectus dated December 30, 1996, the ("Prospectus") relating to the offering
of units of the Money Market Portfolio, Government Securities Portfolio and
Mortgage Securities Portfolio of the Trust for Credit Unions. A copy of the
Prospectus may be obtained from Goldman, Sachs & Co. at (800) 342-5828 or
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP") (800)
237-5678.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction B-3
Management B-5
Advisory and Other Services B-8
Portfolio Transactions B-11
Amortized Cost Valuation B-21
Description of Units B-23
Adjustable and Fixed Rate Mortgage Loans and
Mortgage-Related Securities B-27
Investment Restrictions B-39
Calculation of Performance Quotations B-43
Other Information B-49
Financial Statements B-49
Description of Securities Ratings B-50
</TABLE>
The date of this Additional Statement is December 30, 1996.
<PAGE>
UNITS OF THE PORTFOLIOS ARE NOT ENDORSED BY, INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U. S. GOVERNMENT, ANY CREDIT UNION
OR BY THE NATIONAL CREDIT UNION SHARE INSURANCE FUND, THE NATIONAL CREDIT UNION
ADMINISTRATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE PORTFOLIOS
INVOLVES RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL.
B-2
<PAGE>
INTRODUCTION
Trust for Credit Unions (the "Fund") is an open-end diversified, management
investment company (commonly known as a "mutual fund") offered only to state and
federally chartered credit unions. The Fund seeks to achieve a high level of
income to the extent consistent with the investment objectives of its investment
portfolios: the Money Market Portfolio, the Government Securities Portfolio,
the Mortgage Securities Portfolio, the Target Maturity Portfolio (Feb 97) and
the Target Maturity Portfolio (May 97). This Additional Statement relates to
the offering of the units of the Money Market Portfolio, the Government
Securities Portfolio and the Mortgage Securities Portfolio (individually, a
"Portfolio" and collectively, the "Portfolios").
The Fund was established under Massachusetts law by an Agreement and Declaration
of Trust dated September 24, 1987. The Agreement and Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional units
of beneficial interest of one or more separate series ("Portfolios")
representing interests in separate investment portfolios. The Trustees have the
right to establish investment portfolios in addition to those heretofore
established. Pursuant thereto, the Trustees have created the Money Market
Portfolio, the Government Securities Portfolio, the Mortgage Securities
Portfolio, the Target Maturity Portfolio (Feb 97) and the Target Maturity
Portfolio (May 97). Additional portfolios may be added in the future from time
to time. See "Additional Information" in the Prospectus. Investment in the
Portfolios relieves investors from the administrative and accounting burdens
involved in direct investments, and also provides related benefits as described
below.
High Current Income. The Money Market Portfolio seeks to maximize current
- --------------------
income to the extent consistent with the preservation of capital and the
maintenance of liquidity by investing in high quality money market investments
authorized under the Federal Credit Union Act. The Government Securities and
Mortgage Securities Portfolios seek to achieve a higher current yield than a
money market fund, since they can invest in longer-term, higher yielding
securities, and may utilize certain investment techniques not available to a
money market fund. Similarly, the yields of the Government Securities and
Mortgage Securities Portfolios are expected to exceed that offered by bank
certificates of deposit and money market accounts. However, the Portfolios do
not maintain a constant net asset value per unit and are subject to greater
fluctuation in the value of their units than a money market fund. Unlike bank
certificates of deposit and money market accounts, investments in units of the
Portfolios are not insured or guaranteed by any government agency.
B-3
<PAGE>
Relative Stability of Principal. Unlike the Money Market Portfolio which seeks
- --------------------------------
to maintain its net asset value per unit at $1.00 (although there is no
assurance that the Portfolio will be able to do so on a continuous basis), the
Government Securities and Mortgage Securities Portfolios' net asset values per
unit fluctuate. The Government Securities Portfolio attempts to reduce net
asset value fluctuation by maintaining a maximum duration equal to that of a 2-
year U.S. Treasury security and a target duration no shorter than that of a 6-
month U.S. Treasury security and no longer than that of a one-year U.S. Treasury
security. Similarly, the Mortgage Securities Portfolio attempts to reduce net
asset value fluctuation by maintaining a maximum duration that will not exceed
that of 3-year U.S. Treasury security and a target duration equal to that of a
2-year U.S. Treasury security and utilizing certain active management techniques
to hedge interest rate risk. Duration, which is a measure of the price
sensitivity of the Portfolio, including expected cash flows and mortgage
prepayments under a wide range of interest rate scenarios, is reviewed and
recalculated daily. However, there is no assurance that these strategies will be
successful.
Liquidity. Because the Portfolios' units may be redeemed upon request of a
- ----------
unitholder on any Business Day at net asset value, the Portfolios offer greater
liquidity than many competing investments such as certificates of deposit and
direct investments in certain mortgage-related securities.
Experienced Professional Management. Successfully creating and managing a
- ------------------------------------
diversified portfolio of mortgage-related securities requires professionals with
extensive experience. Members of the Goldman, Sachs & Co.'s highly skilled
portfolio management team bring together many years of experience in the
analysis, valuation and trading of U.S. fixed income securities. At September
30, 1996, they were responsible for approximately $22.4 billion in fixed income
assets including approximately $7 billion in mortgage-related securities.
A Sophisticated Investment Process. The Portfolios' investment process starts
- -----------------------------------
with a review of trends for the overall economy as well as for different sectors
of the U.S. mortgage and other markets. Goldman, Sachs & Co.'s portfolio
managers then analyze yield spreads, implied volatility and the shape of the
yield curve.
In planning each Portfolio's strategy, the managers are able to draw upon the
economic and fixed income research resources of Goldman, Sachs & Co. They also
have access to the firm's proprietary models. Among the quantitative techniques
used in the Government Securities and Mortgage Securities Portfolios' investment
process are:
B-4
<PAGE>
. option-adjusted analytics to make initial strategic asset allocations
within the mortgage markets and to reevaluate investments as market
conditions change; and
. analytics to estimate mortgage prepayments and cash flows under different
interest rate scenarios and to maintain an optimal portfolio structure.
The Portfolio managers may use these and other trading and hedging techniques in
response to market and interest rate conditions. In particular, these and other
evaluative tools help the portfolio managers select securities with investment
characteristics they believe are desirable.
Convenience of a Fund Structure. The Government Securities and Mortgage
- --------------------------------
Securities Portfolios eliminate many of the complications that direct ownership
of mortgage securities entails. For example, most mortgage-related securities
generate monthly payments of both principal and interest, just as the underlying
mortgages do. To conserve their principal, investors must make a special effort
to segregate and reinvest the principal portion of each payment on their own.
The Portfolios relieve investors of this chore by automatically reinvesting all
principal payments within the Portfolio and distributing only current income
each month.
MANAGEMENT
Information pertaining to the Trustees and officers of the Fund is set forth
below. Trustees deemed to be "interested persons" of the Fund for purposes of
the Investment Company Act of 1940 (the "1940 Act") are indicated by an
asterisk.
Gene R. Artemenko, Age 68, Route 4, Box 1593, Reeds Spring, Missouri 65737.
Trustee. Retired. Formerly, President and Treasurer of the United Air Lines
Employees' Credit Union until June 1991.
James C. Barr, Age 61, 1600 North Oak Street, #420, Arlington, Virginia 22209.
Trustee. Chief Executive Officer of the National Milk Producers Federation,
March 1985 to Present.
Edgar F. Callahan, Age 68, 156 Second Street, San Francisco, California 94105-
3993. Trustee. President and Chief Operating Officer of PATELCO Credit Union,
October 1987 to Present.
Robert M. Coen, Age 57, 2003 Sheridan Road, Evanston, Illinois 60208. Vice
Chairman and Trustee. Professor of Economics, Northwestern University.
B-5
<PAGE>
John T. Collins, Age 50, 1330 Connecticut Ave. N.W., Washington, D.C. 20036.
Trustee. Partner in the law firm of Steptoe & Johnson since January 1985.
Prior to January 1985, General Counsel to the U.S. Senate Banking Committee.
Thomas S. Condit, Age 55, 306 No. Washington Street, Falls Church, VA 22046.
Trustee. Partner, New Media Publishing, Inc., January 1996 to Present. Chief
Executive Officer of Craver, Matthews, Smith & Co., Inc. ( a direct mail fund
raising company), June 1993 to January 1996. President and Chief Executive
Officer of National Cooperative Bank (a financial services company) June 1983 -
May 1993 and various positions with affiliated or subsidiary corporations from
June 1983 to January 1992.
Rudy J. Hanley, Age 53, 2115 N. Broadway, Santa Ana, California 92706.
Chairman and Trustee. Chief Executive Officer of Orange County Teachers Federal
Credit Union, September 1982 to Present. Director of Credit Union National
Association, November 1992 to September 1995.
Betty G. Hobbs, Age 58, 1400 8th Avenue so., Nashiville, Tennessee 37202.
Trustee. President and Chief Executive Officer of Tennessee Teachers Credit
Union for over 25 years.
John P. McNulty, Age 44, One New York Plaza, New York, NY 10004. Trustee. Co-
head, Goldman Sachs Asset Management, November 1995 to Present. General
Partner, Goldman, Sachs & Co., March 1980 -Present.
John L. Ostby, Age 77, HC-73,Box 840, Lake of the Woods, Locust Grove, Virginia
22508. Trustee. Attorney at Law of John Ostby, Esq. January 1991 to Present.
Formerly Senior Partner, Ostby and Nealon, July 1985 to December 1995.
Wendell A. Sebastian, Age 52, 1001 Connecticut Avenue, N.W., Ste 1022,
Washington, DC 20036. President and Trustee. President of Callahan Financial
Services, Inc., July 1996 to Present. President of GTE Federal Credit Union,
September 1991 to July 1996. Vice President of GTE Federal Credit Union, April
1989 to September 1991.
Robert Deutsch, Age 39, One New York Plaza, New York, NY 10004. Vice President.
Vice President of Goldman, Sachs & Co. 1989 to Present.
Charles W. Filson, Age 52, 1001 Connecticut Avenue, N.W., Suite 1022,
Washington, D.C. 20036-5504. Vice President. Director and Vice President of
Callahan Financial Services, Inc. since March 1989 and Treasurer thereof since
March 1987.
B-6
<PAGE>
Pauline Taylor, Age 50, 4900 Sears Tower, Chicago, IL 60606-6303. Vice
President. Vice President of Goldman, Sachs & Co., June 1992 to Present.
Independent Consultant from 1989-1992.
John W. Mosior, Age 58, 4900 Sears Tower, Chicago, Illinois 60606-6303. Vice
President. Vice President of Goldman, Sachs & Co. Manager, Shareholder
Servicing of Goldman Sachs Asset Management, November 1989 to Present.
Nancy L. Mucker, Age 47, 4900 Sears Tower, Chicago, Illinois 60606-6303. Vice
President, Vice President of Goldman, Sachs & Co., April 1985 to Present.
Manager, Shareholder Servicing of Goldman Sachs Asset Management, November 1989
to Present.
Scott M. Gilman, Age 37, One New York Plaza, New York, New York 10004.
Treasurer. Director, Mutual Fund Administration, Goldman Sachs Asset
Management, April 1994 to Present. Assistant Treasurer of Goldman Sachs Funds
Management, Inc., April 1993 to Present. Vice President of Goldman, Sachs &
Co., March 1990 to Present.
Michael J. Richman, Age 36, 85 Broad Street, New York, New York 10004.
Secretary. Associate General Counsel, Goldman Sachs Asset Management, February
1994 to Present. Vice President, Assistant General Counsel, Goldman, Sachs & Co.
and Counsel to the Funds Group, Goldman Sachs Asset Management, June 1992 to
Present. Formerly, Partner of Hale and Dorr from September 1991 to June 1992.
Formerly, Attorney-at-Law, Gaston & Snow from September 1985 to September
1991.
John Perlowski, Age 32, One New York Plaza, New York, 10004. Assistant
Secretary. Vice President, Goldman, Sachs & Co., July 1995 to Present.
Director/Fund Accounting & Custody, Investors Bank & Trust Co., November 1993 to
July 1995. Formerly, Manager, Audit Division, ARthur Andersen, September 1986
to November 1993.
Howard B. Surloff, Age 31, 85 Broad Street, New York, New York 10004. Assistant
Secretary. Assistant General Counsel and Vice President, Goldman, Sachs & Co,
since November 1995 to present. Vice President, Goldman, Sachs & Co., May 1994
to present. Goldman, Sachs & Co. Counsel to the Funds Group, Goldman Sachs
Asset Management November 1993 to present. Formerly Associate of Shereff,
Friedman, Hoffman & Goodman, October 1990 to November 1993.
Kaysie Uniake, Age 35, One New York Plaza, New York, New York 10004. Assistant
Secretary. Vice President and Senior Portfolio Manager, Goldman Sachs Asset
Management 1988 to Present.
Elizabeth Alexander, Age 27, One New York Plaza, New York, New York 10004.
Assistant Secretary. Portfolio Manager, April 1996 to present. Junior Portfolio
Manager, 1995 to April 1996.
B-7
<PAGE>
Funds Trading Assistant, Goldman Sachs Asset Management 1993 to 1995. Formerly,
Compliance Analyst, Prudential Insurance, 1991 through 1993.
Steven Hartstein, Age 33, 85 Broad Street, New York, New York 10004. Assistant
Secretary. Legal Product Analyst, Goldman, Sachs & Co., June 1993 to present.
Funds Compliance Officer, Citibank Global Asset management, August 1991 to June
1993. Legal Assistant, Brown & Wood prior thereto.
Deborah Robinson, Age 25, One New York Plaza, New York, New York 10004.
Assistant Treasurer. Administrative Assistant, Goldman, Sachs & Co., January
1996 to Present. Secretary, Goldman, Sachs & Co., January 1994 to January 1996.
Secretary, Cleary, Gottlieb, Steen & Hamilton, September 1990 to January
1994.
As of October 31, 1996, the Trustees and officers of the Fund, as a group, owned
in the aggregate less than 1% of the outstanding shares of the Fund. Each
officer holds comparable positions with certain other investment companies of
which Goldman, Sachs & Co., GSAM or an affiliate thereof is the investment
adviser and/or distributor.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended August
31, 1996:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued From Goldman
Aggregate as Part Sachs Mutual
Compensation of Trust's Funds (Includ-
Name of Trustee From the Trust Expense ing the Trust)
- --------------- -------------- ------- --------------
<S> <C> <C> <C>
Gene R. Artemenko $10,000 -0- $10,000
James C. Barr $10,000 -0- $10,000
Edgar F. Callahan $0 -0- -0-
Robert M. Coen $10,000 -0- $10,000
John T. Collins $10,000 -0- $10,000
Thomas S. Condit $10,000 -0- $10,000
Rudolph J. Hanley $10,000 -0- $10,000
John P. McNulty -0- -0- -0-
John L. Otsby $10,000 -0- $10,000
Wendell A. Sebastian $0 -0- -0-
</TABLE>
* The Goldman Sachs Mutual Funds consisted of 72 mutual funds, including the
five series of the Trust, on August 31, 1996.
B-8
<PAGE>
ADVISORY AND OTHER SERVICES
Investment Adviser
As stated in the Prospectus, Goldman, Sachs & Co., through Goldman Sachs Asset
Management ("GSAM"), One New York Plaza, 41st Floor, New York, New York 10004, a
separate operating division, acts as the Fund's investment adviser. See
"Management--Investment Adviser and Transfer Agent" in the Prospectus for a
description of the investment advisory duties of Goldman, Sachs & Co. Goldman,
Sachs & Co.'s administrative obligations include, subject to the general
supervision of the Trustees of the Fund, (a) providing supervision of all
aspects of the Fund's non-investment operations not performed by others pursuant
to the Fund's administration agreement or custodian agreement, (b) providing the
Fund, to the extent not provided pursuant to such agreements or the Fund's
transfer agency agreement, with personnel to perform such executive,
administrative and clerical services as are reasonably necessary to provide
effective administration of the Fund, (c) arranging, to the extent not provided
pursuant to such agreements, for the preparation, at the Fund's expense, of its
tax returns, reports to unitholders, periodic updating of the Prospectus and
reports filed with the Securities and Exchange Commission (the "SEC") and other
regulatory authorities, (d) providing the Fund, to the extent not provided
pursuant to such agreements, with adequate office space and necessary office
equipment and services, (e) maintaining all of the Fund's records other than
those maintained pursuant to such agreements, (f) to the extent requested by the
Trustees of the Fund, negotiating changes to the terms and provisions of the
Fund's administration agreement, the custodian agreement and the distribution
agreement with Callahan Financial Services, Inc., and (g) reviewing and paying
(or causing to be paid) all bills or statements for services rendered to the
Fund.
The advisory agreement provides that Goldman, Sachs & Co. may render similar
services to others so long as its services under such agreement are not impaired
thereby. The advisory agreement also provides that, subject to applicable
provisions of the 1940 Act, Goldman, Sachs & Co. will not be liable for any
error in judgment or mistake of law or for any loss suffered by the Fund except
a loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties, under the advisory agreement or the
transfer agency agreement. The advisory agreement provides further that the
Fund will indemnify Goldman, Sachs & Co. against certain liabilities, including
liabilities under federal and state securities laws, or, in lieu thereof,
contribute to payment for resulting losses.
B-9
<PAGE>
The advisory agreement will remain in effect with respect to a particular
Portfolio until March 31, 1997, and will continue from year to year thereafter
provided such continuance is specifically approved at least annually (a) by the
vote of a majority of the outstanding units of such Portfolio (as defined under
"Investment Restrictions") or by a majority of the Trustees of the Fund, and (b)
by the vote of a majority of the Trustees of the Fund who are not parties to the
advisory agreement or "interested persons" (as such term is defined in the 1940
Act) of any party thereto, cast in person at a meeting called for the purpose of
voting on such approval. The advisory agreement will terminate automatically
if assigned (as defined in the 1940 Act) and is terminable at any time with
respect to any Portfolio without penalty by the Trustees of the Fund or by vote
of a majority of the outstanding units of the Portfolio (as defined under
"Investment Restrictions") on 60 days' written notice to Goldman, Sachs & Co.
and by Goldman, Sachs & Co. on 60 days' written notice to the Fund.
Applicable regulations of state securities commissions (and provisions of the
advisory agreement) will require Goldman, Sachs & Co. to rebate a portion of its
advisory fee in an amount equal to any excess of annual Portfolio expenses
(including the advisory fee, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) over expense limitations imposed by such
state regulations, unless exemptions are obtained. CUFSLP has agreed to bear an
amount equal to the remaining portion of any such excess). The most stringent
expense limitation imposed by any of the states, as of this date, is imposed by
the California Department of Corporations which provides that the aggregate
annual expenses of a Portfolio will not exceed 2 1/2% of the first $30 million
of the average net assets, 2% percent of the next $70 million of the average net
assets and 1 1/2% of the remaining average net assets of the Portfolio for any
fiscal year, determined monthly or at more frequent intervals on a consistent
basis.
Expenses borne by the Money Market Portfolio, Government Securities Portfolio
and Mortgage Securities Portfolio include, subject to the limitations described
herein, the fees payable to Goldman, Sachs & Co. and CUFSLP, the fees and
expenses of the Fund's custodian, filing fees for the registration or
qualification of Portfolio units under federal and state securities laws,
expenses of the organization of the Portfolios, the fees of any trade
association of which the Fund is a member, taxes, interest, costs of liability
insurance, fidelity bonds, indemnification or contribution, any costs, expenses
or laws arising out of any liability of or claim for damages or other relief
asserted against the Fund for violation of any law, legal, auditing and tax
services fees and expenses, expenses of preparing and setting in type
prospectuses, statements of addition information, proxy material, reports and
notices and the printing and distributing
B-10
<PAGE>
of the same to the Portfolios' unitholders and regulatory authorities and
compensation and expenses of the Trustees.
For the fiscal years ended August 31, 1996, August 31, 1995 and August 31, 1994,
the amount of the advisory fee paid by each Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Money Market
Portfolio $541,946+ $410,109+ $752,090+
Government
Securities
Portfolio 1,067,553 1,078,346 1,647,179++
Mortgage
Securities
Portfolio 555,708+++ 388,187+++ 550,661+++
</TABLE>
- ---------------------
+ Waived additional advisory fees in the amount of $351,232, $109,898 and
$37,050, respectively, for such periods. Without waivers, the Money Market
Portfolio would have paid advisory fees of $893,178, $520,007 and $789,140,
respectively for such periods. In addition, the expenses of the Money
Market Portfolio were reduced or otherwise limited in the amounts of $0,
$78,198 and $198,584, respectively, by the Adviser for such periods.
++ Waived additional advisory fees in the amount of $175,010 for such period.
Without waivers, the Government Securities Portfolio would have paid an
advisory fee of $1,822,189 for such period.
+++ Waived additional advisory fees in the amount of $59,027, $140,912 and
$19,263, respectively, for such periods. Without waivers, the Mortgage
Securities Portfolio would have paid advisory fees of $614,735, $529,099
and $569,424 and respectively, for such periods.
PORTFOLIO TRANSACTIONS
In connection with portfolio transactions for the Fund, which are generally done
at a net price without a broker's commission (i.e., a dealer is dealing with the
Fund as principal and receives compensation equal to the spread between the
dealer's cost for a given security and the resale price of such security), the
Fund's advisory agreement provides that Goldman, Sachs & Co. shall attempt to
obtain the best net price and the most favorable execution. On occasions when
Goldman, Sachs & Co. deems the purchase or sale of a security to be in the best
interests of a
B-11
<PAGE>
Portfolio as well as its other customers (including any other Portfolio or other
investment company or advisory account for which Goldman, Sachs & Co. acts as
investment adviser), the advisory agreement provides that Goldman, Sachs & Co.,
to the extent permitted by applicable laws and regulations, may aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for such other customers in order to obtain the best net price and
most favorable execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by Goldman, Sachs & Co. in the manner it considers to be most equitable and
consistent with its fiduciary obligations to such Portfolio and such other
customers. In some instances, this procedure may adversely affect the size of
the position obtainable for such Portfolio. To the extent that the execution
and price offered by more than one dealer are believed to be comparable, the
advisory agreement permits Goldman, Sachs & Co., in its discretion, to purchase
and sell portfolio securities to and from dealers who provide the Fund with
brokerage or research services.
During the fiscal year ended August 31, 1995, the Funds acquired and sold
securities issued by Lehman Brothers, Salomon Brothers, Inc., Daiwa Securities
America, Inc., Chase Securities, Bear Stearns Companies, Inc., Morgan Stanley
Group, Inc., Swiss Bank Corp., Union Bank, Nomura Securities International and
Smith Barney Shearson, Inc. At August 31, 1996 the Money Market Portfolio held
the following amounts of securities of its regular brokers/dealers, as defined
in Rule 10b-1 under the 1940 Act, or their parents ($ in thousands): Chase
Securities - $42,117; Daiwa Securities America, Inc. - $5042; Bear Stearns
Companies, Inc. - $72,014; Smith Barney Shearson, Inc. - $2,150; Swiss Bank
Corp. - $8,475 and Nomura Securities International - $10,550. The Government
Securities Portfolio held the following: Chase Securities - $1,664; Bear
Stearns Companies, Inc. - $2,202; Nomura Securities International - $10,854;
Smith Barney Shearson, Inc. - $2,202 and Swiss Bank Corp. - $8,678. The Mortgage
Securities Portfolio held the following: Salomon Brothers, Inc. -$439; Nomura
Securities International - $2,152; Smith Barney Shearson, Inc. - $439 and Swiss
Bank Corp. - $1,738.
Activities of Goldman, Sachs & Co. and Its Affiliates and Other Accounts Managed
- --------------------------------------------------------------------------------
by Godman Sachs. The involvement of Goldman, Sachs & Co. and its advisory
- ----------------
affiliates, in the management of, or interest in , other accounts and other
activities of Goldman, Sachs & Co. may present conflicts of interest with
respect to the Portfolio or impede their investment activities.
Goldman, Sachs & Co. and its advisory affiliates, have proprietary
interests in, and manage or advise accounts or funds (including separate
accounts and other funds and collective investment vehicles) which have
investment objectives similar to those of the Portfolios and/or engage in
transactions in the same
B-12
<PAGE>
types of securities and instruments as the Portfolios. Goldman, Sachs & Co. and
its affiliates are major participants in the fixed income markets, in each case
on a proprietary basis and for the accounts of customers. As such, Goldman,
Sachs & Co. and its affiliates are actively engaged in transactions in the same
securities and instruments in which a Portfolios invest. Such activities could
affect the prices and availability of the securities and instruments in which
the Portfolios will invest, which could have an adverse impact on each
Portfolio's performance. Such transactions, particularly in respect of
proprietary accounts or customer accounts other than those included in the
Advisor and its advisory affiliates' asset management activities, will be
executed independently of the Portfolios' transactions and thus at prices or
rates that may be more or less favorable. When the Advisor and its advisory
affiliates seek to purchase or sell the same assets for their managed accounts,
including a Portfolio, the assets actually purchased or sold may be allocated
among the accounts on a basis determined in its good faith discretion to be
equitable. In some cases, this system may adversely affect the size or the
price of the assets purchased or sold for the Portfolios.
From time to time, a Portfolio's activities may be restricted because of
regulatory restrictions applicable to Goldman, Sachs & Co. and its affiliates,
and/or their internal policies designed to comply with such restrictions. As a
result, there may be periods, for example, when the Advisor will not initiate or
recommend certain types of transactions in certain securities or instruments
with respect to which the Advisor and/or its affiliates are performing services
or when position limits have been reached.
In connection with their management of the Portfolios, the Advisor may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman, Sachs & Co. and other affiliates. The Advisor will not be
under any obligation, however, to effect transactions on behalf of the
Portfolios in accordance with such analysis and models. In addition, neither
Goldman, Sachs & Co. nor any of its affiliates will have any obligation to make
available any information regarding their proprietary activities or strategies,
or the activities or strategies used for other accounts managed by them, for the
benefit of the management of the Portfolios and it is not anticipated that the
Advisor will have access to such information for the purpose of managing the
Portfolios. The proprietary activities or portfolio strategies of Goldman,
Sachs & Co. and its affiliates or the activities or strategies used for accounts
managed by them or other customer accounts could conflict with the transactions
and strategies employed by the Advisor in managing the Portfolios.
B-13
<PAGE>
The results of each Portfolio's investment activities may differ
significantly from the results achieved by the Advisor and its affiliates for
their proprietary accounts or accounts (including investment companies or
collective investment vehicles) managed or advised by them. It is possible that
Goldman, Sachs & Co. and its affiliates and such other accounts will achieve
investment results which are substantially more or less favorable than the
results achieved by the Portfolios. Moreover, it is possible that the
Portfolios will sustain losses during periods in which Goldman, Sachs & Co. and
its affiliates achieve significant profits on their trading for proprietary or
other accounts. The opposite result is also possible.
An investment policy committee which may include partners of Goldman, Sachs
& Co. and its affiliates may develop general policies regarding Portfolio
activities, but will not be involved in the day-to-day management of the
Portfolios. In such instances, those individuals may, as a result, obtain
information regarding the Portfolios' proposed investment activities which is
not generally available to the public. In addition, by virtue of their
affiliation with Goldman, Sachs & Co., any such member of an investment policy
committee will have direct or indirect interests in the activities of Goldman
Sachs and its affiliates in securities and investments similar to those in which
the Portfolios invest.
In addition, certain principals and certain of the employees of the Advisor
are also principals or employees of Goldman, Sachs & Co. or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Portfolios should be aware.
The Advisor may enter into transactions and invest in instruments on behalf
of a Portfolio in which customers of Goldman, Sachs & Co. serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of the Portfolios, and such party
may have no incentive to assure that the Portfolios obtain the best possible
prices or terms in connection with the transactions. Goldman, Sachs & Co. and
its affiliates may also create, write or issue derivative instruments for
customers of Goldman, Sachs & Co. or its affiliates, the underlying securities
or instruments of which may be those in which the Portfolios invest or which may
be based on the performance of a Portfolio. The Portfolios may, subject to
applicable law, purchase investments which are the subject of an underwriting or
other distribution by Goldman, Sachs & Co. or its affiliates and may also enter
into transactions with other clients of Goldman, Sachs & Co. or its affiliates
where such other clients have interests adverse to those of the Portfolios. To
the extent affiliated transactions
B-14
<PAGE>
are permitted, the Portfolios will deal with Goldman, Sachs & Co. and its
affiliates on an arm's-length basis.
Each Portfolio will be required to establish business relationships with
its counterparties based on the Portfolio's own credit standing. Neither
Goldman, Sachs & Co. nor its affiliates will have any obligation to allow their
credit to be used in connection with a Portfolio's establishment of its business
relationships, nor is it expected that a Portfolio's counterparties will rely on
the credit of Goldman, Sachs & Co. or any of its affiliates in evaluating the
Fund's creditworthiness.
It is possible that a Portfolio's holdings will include securities of
entities for which Goldman, Sachs & Co. performs investment banking services as
well as securities of entities in which Goldman, Sachs & Co. makes a market.
From time to time, Goldman, Sachs & Co.'s activities may limit the Portfolios'
flexibility in purchases and sales of securities. When Goldman, Sachs & Co. is
engaged in an underwriting or other distribution of securities of an entity, the
Advisor may be prohibited from purchasing or recommending the purchase of
certain securities of that entity for the Portfolios.
Transfer Agent
Under its transfer agency agreement, Goldman, Sachs & Co. serves as transfer
agent and dividend disbursing agent for the Fund. Goldman, Sachs & Co. has
undertaken to the Fund to (a) process and provide confirmations for purchase and
redemption transactions, (b) answer customer inquiries regarding the current
yield of, and certain other matters (e.g., account status information)
pertaining to, the Fund, (c) establish and maintain separate accounts with
respect to each unitholder, (d) provide periodic statements showing account
balances and (e) provide for dividends or distributions to unitholders.
B-15
<PAGE>
As compensation for the services rendered to the Fund as transfer agent,
Goldman, Sachs & Co. is entitled to a fee of $18 per year for each unitholder
account plus reimbursement for certain expenses.
For the last three fiscal years, the amount of the transfer agency fees accrued
by each Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Money Market
Portfolio * * *
Government
Securities
Portfolio $4,333 $4,252 $3,933
Mortgage
Securities
Portfolio $1,236 $1,407 $1,237
</TABLE>
* The transfer agent received no fees for the periods indicated above.
Administrator
As stated in the Prospectus, CUFSLP acts as administrator for the Fund. In
carrying out its duties, CUFSLP has undertaken to (a) review the preparation of
reports and proxy statements to unitholders, the periodic updating of the
Prospectus, this Additional Statement and the Registration Statement and the
preparation of all other reports filed with the SEC, (b) periodically review the
services performed by the investment adviser, the custodian, the distributors
and the transfer agent, and make such reports and recommendations to the
Trustees of the Fund concerning the performance of such services as the Trustees
reasonably request or as CUFSLP deems appropriate, (c) negotiate changes to the
terms and provisions of the Fund's advisory agreement, the custodian agreement,
the transfer agency agreement and the distribution agreement with Goldman, Sachs
& Co., to the extent requested by the Trustees of the Fund, and (d) provide the
Fund with personnel to perform such executive, administrative and clerical
services as may be reasonably requested by the Trustees of the Fund.
In addition, CUFSLP has undertaken to: (a) provide facilities, equipment and
personnel to serve the needs of investors, including communications systems and
personnel to handle unitholder inquiries, (b) develop and monitor investor
programs for credit unions, (c) provide assistance in connection with the
processing
B-16
<PAGE>
of unit purchase and redemption orders as reasonably requested by the transfer
agent or the Fund, (d) inform Goldman, Sachs & Co. in connection with the
portfolio management of the Fund as to anticipated purchases and redemptions by
unitholders and new investors, (e) provide information and assistance in
connection with the registration of the Fund's units in accordance with state
securities requirements, (f) make available and distribute information
concerning the Fund to unitholders as requested by the Fund, (g) handle
unitholder problems and calls relating to administrative matters, (h) provide
advice and assistance concerning the regulatory requirements applicable to
credit unions that invest in the Fund, (i) provide assistance in connection with
the preparation of the Fund's periodic financial statements and annual audit as
reasonably requested by the Fund or the Fund's independent accountants, (j)
furnish stationery and office supplies, and (k) generally assist in the Fund's
operations.
For the last three fiscal years, the amount of the administration fee earned by
CUFSLP was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Money Market
Portfolio $244,221 $102,002+ $262,423+
Government
Securities
Portfolio $533,777 $539,173 $823,589
Mortgage
Securities
Portfolio $153,910 $132,275 $142,349
</TABLE>
- ---------------------
+ Waived additional $251,230, administration fees $163,831 and in the amount of
$143,193 and respectively.
The administration agreement will remain in effect until March 31, 1997, and
will continue from year to year thereafter provided such continuance is
specifically approved at least annually (a) by the vote of a majority of the
Trustees and (b) by the vote of a majority of the Trustees of the Fund who are
not parties to the administration agreement or "interested persons" (as such
term is defined in the 1940 Act) of any party thereto (the "Disinterested
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. The administration agreement may be terminated with respect to a
Portfolio at any time, without the payment of any penalty, by a vote of a
majority of the Disinterested Trustees or by vote of the majority of the
outstanding units of the Portfolio (as defined under
B-17
<PAGE>
"Investment Restrictions") on 60 days' written notice to CUFSLP and by CUFSLP on
60 days' written notice to the Fund. The administration agreement provides that
it may be amended by the mutual consent of the Fund and CUFSLP, but the consent
of the Fund must be approved by vote of a majority of the Disinterested Trustees
cast in person at a meeting called for the purpose of voting on such amendment.
The administration agreement will terminate automatically if assigned (as
defined in the 1940 Act).
The administration agreement provides that CUFSLP will not be liable for any
error in judgment or mistake of law or for any loss suffered by the Fund except
a loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties, under the agreement. The agreement
provides further that the Fund will indemnify CUFSLP against certain
liabilities, including liabilities under the federal and state securities laws
or, in lieu thereof, contribute to payment for resulting losses.
The thirty-eight credit unions listed below are the limited partners of CUFSLP,
which created Trust for Credit Unions in conjunction with Goldman, Sachs & Co.
As of June 30, 1996, these credit unions had total assets of $23.3 billion from
twenty-two different states.
J. David Osborne, President
Larry Hoffman, Vice President-Finance
Anheuser-Busch Employees Credit Union
Larry Morgan, President
APCO Employees Credit Union
Douglas Ferraro, President
Kyle M. Markland, Sr. Vice President Finance
Bellco First Federal Credit Union
Gary Oakland, President
T. Brad Canfield, Vice President
Accounting/Investments
Boeing Employees Credit Union
John Siefken, President
Sandy Andrews, Sr. Vice President
Citizens Equity Federal Credit Union
Dean Nelson, President
Bryan Bennett, Vice President-Controller
City-County Federal Credit Union
Larry T. Wilson, President
Barry Hooks, Finance Manager
B-18
<PAGE>
Coastal Federal Credit Union
Tom Budd, Controller
Ron Unger, President
Dearborn Federal Credit Union
Donald Hersman, President
Kendrick Smith, Portfolio Manager
Eastern Financial Federal Credit Union
Thomas E. Sargent, President
Michael Osborne, Chief Financial Officer
First Technology Federal Credit Union
Brian Crawford, Controller
GTE Federal Credit Union
Stan Hollen, President
Judy Flores, Chief Financial Officer
The Golden 1 Credit Union
Charles Cockburn, President
Hudson Valley Federal Credit Union
Paul Horgen, President
Bobbi Olson - Chief Financial Officer
IBM Mid America Employees Federal Credit Union
Bob Jansen, President
Inland Employees Federal Credit Union
Jean Yokum, President
Greg Manweiler, Vice President Finance
Langley Federal Credit Union
Frank Berrish, President
Greg Manweiler, Vice President Finance
Langley Federal Credit Union
Dennis Pierce, President
Dennis Mann, Senior Vice President
Members America Credit Union
Joseph Bressi, President
Montgomery County Teachers Federal Credit Union
Douglas M. Allman, President
NASA Federal Credit Union
Lindsay Alexander, President
Tim Duvall, Finance Division Manager
NIH Federal Credit Union
B-19
<PAGE>
B-20
<PAGE>
Brad Beal, President
Paul Parrish, Sr. Vice President
Chief Financial Officer
Nevada Federal Credit Union
Joseph S. Coey, President
New Mexico Educators Federal Credit Union
Michael J. Maslak, President
Dave Doss, Chief Financial Officer
North Island Federal Credit Union
Rudy Hanley, President
Paul Sundermann, Chief Financial Officer
Orange County Teachers Federal Credit Union
Edgar F. Callahan, President
Andrew Hunter, Chief Financial Officer
Patelco Credit Union
Jeffrey Farver, President
San Antonio Federal Credit Union
Gregory Thomas, President
Space Coast Credit Union
Stephan Winninger, President
State Employees Credit Union
Donald Granato, President
Steel Works Community Federal Credit Union
Richard Rice, President
Teachers Credit Union
Betty Hobbs, President
Roy Dobbs, Executive Vice President
Tennessee Teachers Credit Union
Robert Siravo, President
Travis Federal Credit Union
Gregory Blount, President
Tropical Federal Credit Union
Philip L. Hart, President
Tulsa Federal Employees Credit Union
Leonard Greene, President
Unified Federal Credit Union
B-21
<PAGE>
E. Burton Eubanks, President
University Federal Credit Union
Frank Berrish, President
Visions Federal Credit Union
Custodian
State Street Bank and Trust Company ("State Street"), P.O. Box 1713, Boston,
Massachusetts 02105, is the custodian of the Fund's portfolio securities and
cash. State Street also maintains the Fund's accounting records. The Northern
Trust Company ("Northern") has been retained by State Street to serve as its
agent in connection with certain wire receipts and transfers of funds.
Auditors
Arthur Andersen LLP, independent public accountants, One International Place,
Boston, Massachusetts 02110, have been selected as auditors of the Fund. In
addition to audit services, Arthur Andersen LLP prepare the Fund's federal and
state tax returns, and provide consultation and assistance on accounting,
internal control and related matters. The financial statements of the Money
Market Portfolio, the Government Securities Portfolio and the Mortgage
Securities Portfolio are incorporated by reference into this Additional
Statement (under "Financial Statements") from the Fund's annual report to
unitholders for the fiscal year ended August 31, 1996 (the "Annual Report") and
the data set forth under "Financial Highlights" in the Prospectus have been
audited by Arthur Andersen LLP, as indicated in their report with respect
thereto, which is incorporated by reference in reliance upon the authority of
said firm as experts in giving said report.
AMORTIZED COST VALUATION
As stated in the Prospectus, the Money Market Portfolio seeks to maintain a net
asset value of $1.00 per unit and, in this connection, values its instruments on
the basis of amortized cost pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if it sold the
instrument. During such periods the yield to investors in the Portfolio may
differ somewhat from that obtained in a similar entity which uses available
indications as to market value to value its portfolio instruments. For example,
if the use of amortized cost resulted in a lower (higher) aggregate Portfolio
B-22
<PAGE>
value on a particular day, a prospective investor in the Portfolio would be able
to obtain a somewhat higher (lower) yield and ownership interest than would
result from investment in such similar entity and existing investors would
receive less (more) investment income and ownership interest. In this
connection, the amortized cost method may result in dilution of unitholder
interests. Similar effects arise out of the rounding of the Portfolio's net
asset value per unit to the nearest one cent. However, the Fund expects that
the procedures and limitations referred to in the following paragraphs of this
section will tend to minimize the differences referred to above.
Under Rule 2a-7, the Fund's Trustees, in supervising the Fund's operations and
delegating special responsibilities involving portfolio management to Goldman,
Sachs & Co., are obligated, as a particular responsibility within the overall
duty of care owed to the unitholders, to establish procedures reasonably
designed, taking into account current market conditions and the Money Market
Portfolio's investment objective, to stabilize the net asset value of such
Portfolio, as computed for the purposes of purchases and redemptions, at $1.00
per unit. The Trustees' procedures include periodically monitoring the
difference (the "Market Value Difference") between the amortized cost value per
unit and the net asset value per unit based upon available indications of
market value, considering whether steps should be taken in the event such Market
Value Difference exceeds 1/2 of 1%, and the taking of such steps as they
consider appropriate (e.g., selling portfolio instruments to shorten average
portfolio maturity or to realize capital gains or losses, reducing or
suspending unitholder income accruals, redeeming units in kind, canceling units
without monetary consideration, or utilizing a net asset value per unit based
upon available indications of market value which under such circumstances would
vary from $1.00) to eliminate or reduce to the extent reasonably practicable any
material dilution or other unfair results to investors or existing unitholders
which might arise from Market Value Differences. Available indications of
market value used by the Fund consist of actual market quotations or appropriate
substitutes which reflect current market conditions and include (a) quotations
or estimates of market value for individual portfolio instruments and/or (b)
values for individual portfolio instruments derived from market quotations
relating to varying maturities of a class of money market instruments.
Rule 2a-7 requires that the Money Market Portfolio limit its investments to
those which Goldman, Sachs & Co., under guidelines established by the Fund's
Board of Trustees, determines to present minimal credit risks and which are
"Eligible Securities" as defined by the SEC and described in the Prospectus.
The Rule also calls for the Money Market Portfolio to maintain a dollar weighted
average portfolio maturity (not more than 90 days) appropriate to its objective
of maintaining a stable net asset
B-23
<PAGE>
value per unit and precludes the purchase of any instrument deemed under such
Rule to have a remaining maturity of more than 397 days.
Generally, the maturity of an instrument held by the Money Market Portfolio
shall be deemed to be the period remaining until the date noted on the face of
the instrument as the date on which the principal amount must be paid or, in the
case of an instrument called for redemption, the date on which the redemption
payment must be made. However, instruments having variable or floating interest
rates or demand features may be deemed to have remaining maturities as follows:
(a) a government security with a variable rate of interest readjusted no less
frequently than every thirteen months may be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate; (b) an
instrument with a variable rate of interest, the principal amount of which is
scheduled on the face of the instrument to be paid in thirteen months or less,
may be deemed to have maturity equal to the period remaining until the next
readjustment of the interest rate; (c) an instrument with a variable rate of
interest that is subject to a demand feature may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand; (d) an instrument with a floating rate of interest
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount can be recovered through demand;
and (e) a repurchase agreement may be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur or, where no date is specified but the
agreement is subject to demand, the notice period applicable to a demand for the
repurchase of the securities.
DESCRIPTION OF UNITS
As the Prospectus indicates, the Fund's Trust Agreement permits the Trustees to
issue an unlimited number of full and fractional units of beneficial interest of
one or more separate series representing interests in different investment
portfolios. Under the terms of the Trust Agreement, each unit of each series
has a par value of $.001, represents an equal proportionate interest in a
particular investment portfolio with each other unit and is entitled to such
dividends out of the income belonging to such investment portfolio as are
declared by the Trustees. Upon liquidation of an investment portfolio,
unitholders thereof are entitled to share pro rata in the net assets belonging
to that investment portfolio available for distribution. Units do not have
preemptive or conversion rights. Units when issued as described in the
Prospectus are fully paid and nonassessable, except as expressly set forth
below.
B-24
<PAGE>
Any Trustee may be removed by the unitholders with or without cause at any
time by vote of those unitholders holding not less than two-thirds of the units
then outstanding, cast in person or by proxy at any meeting called for that
purpose. The Trustees shall promptly call a meeting of unitholders for the
purpose of voting upon the question of removal of any Trustee when requested in
writing to do so by the holders of record of not less than 10% of the
outstanding units.
Whenever ten or more unitholders of record who have been such for at least six
months preceding the date of application, and who hold in the aggregate either
units having a net asset value of at least $25,000 or at least 1% of the
outstanding units, whichever is less, shall apply to the Trustees in writing,
stating that they wish to communicate with other unitholders with a view to
obtaining signatures to a request for a unitholder meeting and include with such
application a form of communication and request which they wish to transmit, the
Trustees shall within five business days after receipt of such application
either (1) afford to such applicants access to a list of the names and addresses
of all unitholders as recorded on the books of the Fund or investment portfolio
involved; or (2) inform such applicants as to the approximate number of
unitholders of record, and the approximate cost of mailing to them the proposed
form of communication and request and, upon receipt of the material and the
expenses of mailing, shall promptly mail such materials to all unitholders
unless a majority of the Trustees believe that in their opinion either such
material contains untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be in violation
of applicable law. The Trustees shall thereafter comply with any order entered
by the SEC and the requirements of the 1940 Act and the Securities Exchange Act
of 1934.
In addition to Trustee election or removal as described in the Prospectus and as
further described herein, the Trust Agreement provides for unitholder voting
only (a) with respect to any contract as to which unitholder approval is
required by the 1940 Act, (b) with respect to any termination or reorganization
of the Fund or any Portfolio to the extent and as provided in the Trust
Agreement, (c) with respect to any amendment of the Trust Agreement (other than
amendments establishing and designating new investment portfolios, abolishing
investment portfolios, changing the name of the Fund or the name of any
investment portfolio, supplying any omission, curing any ambiguity or curing,
correcting or supplementing any provision thereof which is internally
inconsistent with any other provision thereof or which is defective or
inconsistent with the 1940 Act or with the requirements of the Internal Revenue
Code and applicable regulations for the Fund's obtaining the most favorable
treatment thereunder available to regulated investment companies), which
amendments require approval by a majority of the units entitled to vote, (d) to
the
B-25
<PAGE>
same extent as the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Fund or
the unitholders, and (e) with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, the Trust Agreement, the By-Laws of the
Fund, any registration of the Fund with the SEC or any state, or as the Trustees
may consider necessary or desirable.
Under Massachusetts law, there is a possibility that unitholders of a business
trust could, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Trust Agreement contains an express
disclaimer of unitholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trustees or any officer. The
Trust Agreement provides for indemnification out of Fund property of any
unitholder charged or held personally liable for the obligations or liabilities
of the Fund solely by reason of being or having been a unitholder of the Fund
and not because of such unitholder's acts or omissions or for some other reason.
The Trust Agreement also provides that the Fund shall, upon proper and timely
request, assume the defense of any charge made against any unitholder as such
for any obligation or liability of the Fund and satisfy any judgment thereon.
Thus, the risk of a unitholder incurring financial loss on account of unitholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations.
The Trust Agreement provides that on any matter submitted to a vote of the
unitholders, all units entitled to vote, irrespective of investment portfolio,
shall be voted in the aggregate and not by investment portfolio except that (a)
as to any matter with respect to which a separate vote of any investment
portfolio is required by the 1940 Act or would be required under the
Massachusetts Business Corporation Law if the Fund were a Massachusetts business
corporation, such requirements as to a separate vote by the investment portfolio
shall apply in lieu of the aggregate voting as described above, (b) in the event
that the separate vote requirements referred to in (a) above apply with respect
to one or more investment portfolios, then subject to (c) below, the units of
all other investment portfolios shall vote as a single investment portfolio, and
(c) as to any matter which does not affect the interest of a particular
investment portfolio, only unitholders of the affected investment portfolio
shall be entitled to vote thereon.
Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Fund shall
B-26
<PAGE>
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding units of each investment portfolio affected by
such matter. Rule 18f-2 further provides that an investment portfolio shall be
deemed to be affected by a matter unless the interests of each investment
portfolio in the matter are identical or the matter does not affect any interest
of the investment portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to an investment portfolio only if approved
by a majority of the outstanding units of such investment portfolio. However,
the Rule also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by unitholders of the Fund voting
together in the aggregate without regard to a particular investment portfolio.
As of October 18, 1996, the outstanding units of the Money Market Portfolio, the
Government Securities Portfolio and the Mortgage Securities Portfolio were
372,834,270.680, 54,121,383.318 and 33,699,607.857, respectively. To the Fund's
knowledge, as of such date, the only entities which may have owned 5% or more of
the outstanding units of the Money Market Portfolio were: AT&T Family Federal
Credit Union, PO Box 26000, Winston Salem, NC 27114 (5.55%), Dearborn Federal
Credit Union, 400 Town Center Drive, Dearborn, MI 48126 (5.45%), NASA Federal
Credit Union, PO Box 1588, Bowie, MD 20717-1588 (5.37%) and Tulsa Federal
Employee CU, PO Box 267, Tulsa, OK 74101 (6.25%). To the Fund's knowledge, as of
the same date, the only entities which may have owned 5% or more of the
outstanding units of the Government Securities Portfolio were: Apco Employees
Credit Union, 1608 7th Avenue, North, Birmingham, AL 35203 (5.55%), Boeing
Employees Credit Union, 12770 Gateway Drive, Tukwila, WA 98124-9750 (7.42%) and
Patelco Credit Union, 156 Second Street, San Francisco, CA 94105 (15.08%). To
the Fund's knowledge, as of the same date, the only entities which may have
owned 5% or more of the outstanding units of the Mortgage Securities Portfolio
were: Dearborn Federal Credit Union, 400 Town Center Drive, Dearborn, MI 48126
(5.04%), Eastern Financial Federal Credit Union, 700 South Royal Poinciana Blvd.
Miami Springs, FL 33166 (5.91%), First Technology Federal Credit Union, 3855
S.W. 153rd Drive, Beaverton, OR 97006 (13.25%), Orange County Teachers Federal
Credit Union, P.O. Box 11547, Santa Ana, CA 92711 (5.94%), Patelco Credit Union,
156 Second Street, San Francisco, CA 94105 (18.03%)and San Diego County Credit
Union, 9985 Pacific Heights Blvd., San Diego, CA 92121 (5.05%).
B-27
<PAGE>
ADJUSTABLE AND FIXED RATE MORTGAGE LOANS AND
MORTGAGE-RELATED SECURITIES
The Nature of Adjustable and Fixed Rate Mortgage Loans
The following is a general description of the adjustable and fixed rate mortgage
loans which may be expected to underlie the mortgage-related securities in which
the Government Securities Portfolio, the Mortgage Securities Portfolio and, to a
lesser extent, the Money Market Portfolio invest. The actual mortgage loans
underlying any particular issue of mortgage-related securities may differ
materially from those described below.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs included in a mortgage pool will
generally provide for a fixed initial mortgage interest rate for a specified
period of time. Thereafter, the interest rates (the "Mortgage Interest Rates")
may be subject to periodic adjustment based on changes in the applicable index
rate (the "Index Rate"). The adjusted rate would be equal to the Index Rate
plus a gross margin, which is a fixed percentage spread over the Index Rate
established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some mortgagors may
find difficult to make. However, certain ARMs provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime maximum
rate or below an applicable lifetime minimum rate for such ARM. Certain ARMs
may also be subject to limitations on the maximum amount by which the Mortgage
Interest Rate may adjust for any single adjustment period (the "Maximum
Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide instead or
as well for limitations on changes in the monthly payment on such ARMs.
Limitations on monthly payments can result in monthly payments which are more or
less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In
the event that a monthly payment is insufficient to pay the interest accruing on
a Negatively Amortizing ARM, any such excess interest is added to the principal
balance of the loan, causing negative amortization, and will be repaid through
future monthly payments. It may take borrowers under Negatively Amortizing ARMs
longer periods of time to accumulate equity and may increase the likelihood of
default by such borrowers. In the event that a monthly payment exceeds the sum
of the interest accrued at the applicable Mortgage Interest Rate and the
principal payment which would have been necessary to amortize the outstanding
principal balance over the remaining term of the loan, the excess (or
"accelerated amortization") further reduces the principal balance of the ARM.
Negatively Amortizing ARMs do not provide for the extension of their original
maturity to accommodate changes in their Mortgage Interest
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Rate. As a result, unless there is a periodic recalculation of the payment
amount (which there generally is), the final payment may be substantially larger
than the other payments. These limitations on periodic increases in interest
rates and on changes in monthly payments protect borrowers from unlimited
interest rate and payment increase, but may result in increased credit exposure
and prepayment risks for lenders.
There are a number of indices which provide the basis for rate adjustments on
ARMs. Commonly utilized indices include the one-year, three-year and five-year
constant maturity Treasury rates, the three-month Treasury Bill rate, the 180-
day Treasury Bill rate, rates of longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one year London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Home Loan Bank Cost of Funds Index, tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. The degree of
volatility in the market value of the Portfolios will be influenced by the
length of the interest rate reset periods and the degree of volatility in the
applicable indices.
Fixed Rate Mortgage Loans. Generally, fixed rate mortgage loans eligible for
inclusion in a mortgage pool (the "Fixed Rate Mortgage Loans") will bear simple
interest at fixed annual rates and have original terms to maturity ranging from
5 to 40 years. Fixed Rate Mortgage Loans generally provide for monthly payments
of principal and interest in substantially equal installments for the
contractual term of the mortgage note in sufficient amounts to amortize fully
principal by maturity, although certain Fixed Rate Mortgage Loans provide for a
large final "balloon" payment upon maturity.
Legal Considerations of Mortgage Loans. Legal Considerations of Mortgage Loans.
The following is a discussion of certain legal and regulatory aspects of the
ARMs and Fixed Rate Mortgage Loans expected to underlie the mortgage-related
securities in which the Portfolios may invest. These regulations may impair the
ability of a mortgage lender to enforce its rights under the mortgage documents.
These regulations may adversely affect the Portfolios' investments in both
privately-issued mortgage-related securities (in the case of the Mortgage
Securities Portfolio) and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities by delaying the receipt of
payments derived from principal or interest on mortgage loans affected by such
regulations.
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1. Foreclosure. A foreclosure of a defaulted mortgage loan may be delayed
due to compliance with statutory notice or service of process provisions,
difficulties in locating necessary parties or legal challenges to the
mortgagee's right to foreclose. Depending upon market conditions, the
ultimate proceeds of the sale of foreclosed property may not equal the
amounts owed on the mortgage loan.
Further, courts in some cases have imposed general equitable principles
upon foreclosure generally designed to relieve the borrower from the legal
effect of default and have required lenders to undertake affirmative and
expensive actions to determine the causes for the default and the
likelihood of loan reinstatement.
2. Rights of Redemption. In some states, after foreclosure of a mortgage
loan, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property, which right may diminish the
mortgagee's ability to sell the property.
3. Legislative Limitations. In addition to anti-deficiency and related
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of a secured mortgage
lender to enforce its security interest. For example, a bankruptcy court
may grant the debtor a reasonable time to cure any default on a mortgage
loan, including a payment default. The court in certain instances, may
also reduce the monthly payments due under such mortgage loan, change the
rate of interest, reduce the principal balance of the loan to the then-
current appraised value of the related mortgage property and alter the
mortgage loan repayment schedule and grant priority to certain liens over
the lien of the mortgage loan. If a court relieves a borrower's obligation
to repay amounts otherwise due on a mortgage loan, the mortgage loan
servicer will not be required to advance such amounts, and any loss in
respect thereof will be borne by the holders of securities backed by such
loans. In addition, numerous federal and state consumer protection laws
impose penalties for failure to comply with specific requirements in
connection with origination and servicing of mortgage loans.
4. "Due-on-Sale" Provisions. Fixed-rate mortgage loans may contain a so-
called "due-on-sale" clause permitting acceleration of the maturity of the
mortgage loan if the borrower transfers the property. The Garn-St. Germain
Depository Institutions Act of 1982 sets forth nine specific instances in
which no mortgage lender covered by that Act may exercise a "due-on-sale"
clause upon a transfer of property. The inability to enforce a "due-on-
sale" clause or the lack of
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such a clause in mortgage loan documents may result in a mortgage loan
being assumed by a purchaser of the property that bears an interest rate
below the current market rate.
5. Usury Laws. Some states prohibit charging interest on mortgage loans
in excess of statutory limits. If such limits are exceeded, substantial
penalties may be incurred and, in some cases, enforceability of the
obligation to pay principal and interest may be affected.
Mortgage-Related Securities
Mortgage-related securities represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
The investment characteristics of adjustable and fixed rate mortgage-related
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal of mortgage-related
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans. These differences can result in significantly greater price and
yield volatility than is the case with traditional fixed income securities. In
general, if a Portfolio purchases mortgage-related securities at a premium, a
faster than expected prepayment rate will reduce both the market value and the
yield to maturity from those which were anticipated. A prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity and market value. Conversely, if a Portfolio purchases mortgage-
related securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity
and market value.
Prepayments on a pool of mortgage loans are influenced by changes in current
interest rates and a variety of economic, geographic, social and other factors
(such as changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' equity in the mortgage properties and servicing decisions). The
timing and level of prepayments cannot be predicted. Generally, however,
prepayments on mortgage loans will increase during a period of falling mortgage
interest rates and decrease during a period of rising mortgage interest rates.
Accordingly, the amounts of prepayments available for reinvestment by a
Portfolio are likely to be greater during a period of declining mortgage
interest rates. If general interest rates decline, such prepayments are likely
to be reinvested at lower interest rates than the Portfolio was earning on the
mortgage-related securities that were prepaid.
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The rate of interest on mortgage-related securities is normally lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-related securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-related securities and this delay reduced the effective yield to
the holder of such securities.
The issuers of certain mortgage-backed obligations may elect to have the pool of
mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"), which
are subject to special federal income tax rules. A description of the types of
mortgage-related securities in which the Portfolios may invest is provided
below. The descriptions are general and summary in nature, and do not detail
every possible variation of the types of securities that are permissible for the
Portfolios.
1.Private Mortgage Pass-Through Securities
General Characteristics. The Mortgage Securities Portfolio may invest in
privately-issued mortgage pass-through securities ("Mortgage Pass-Throughs")
which represent participation interests in pools of private mortgage loans
conveyed to the issuing trust and generally serviced for the trust by the
originator. For federal income tax purposes, such trusts are generally treated
as grantor trusts or REMICs and, in either case, are generally not subject to
any significant amount of federal income tax at the entity level. Mortgage
Pass-Throughs (whether fixed or adjustable rate) provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
Each mortgage pool underlying Mortgage Pass-Throughs will consist of mortgage
loans evidenced by promissory notes secured by first mortgages or first deeds of
trust or other similar security instruments creating a first lien on the
mortgaged properties (the "Mortgaged Properties"). The Mortgaged Properties
will consist of residential properties upon which are located detached
individual dwelling units, individual condominiums, townhouses, duplexes,
triplexes, fourplexes, rowhouses, manufactured homes, individual units in
planned unit developments and other attached dwelling units, vacation homes,
second homes, residential invest-
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ment properties, multi-family units or properties with mixed residential and
commercial uses. A trust fund with respect to which a REMIC election has been
made may include regular interests in other REMICs which in turn will ultimately
evidence interests in mortgage loans.
The seller or servicer of the underlying mortgage obligations will generally
make representations and warranties to certificateholders as to certain
characteristics of the mortgage loans and as to the accuracy of certain
information furnished to the trustee in respect of each such mortgage loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the related certificateholders in a mortgage loan, the
seller or servicer generally will be obligated either to cure the breach in all
material respects, to repurchase the mortgage loan or, if the related agreement
so provides, to substitute in its place a mortgage loan pursuant to the
conditions set forth therein. Such a repurchase or substitution obligation
generally constitutes the sole remedy available to the related
certificateholders or the trustee for the material breach of any such
representation or warranty by the seller or servicer.
Description of Certificates. Mortgage Pass-Throughs may be issued in one or
more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index. Subclasses of certificates
as to which a REMIC election has been made may have the features and structures
described below under the caption "Multiple Class Pass-Through Securities and
Collateralized Mortgage Obligations."
Generally, each registered holder of a certificate will be entitled to receive
its pro rata share of monthly distributions of all or a portion of principal of
the underlying mortgage loans or of interest on the principal balances thereof,
which accrues at the applicable mortgage pass-through rate, or both. The
difference between the mortgage interest rate and the related mortgage pass-
through rate (less the amount, if any, of retained
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yield) with respect to each mortgage loan will generally be paid to the servicer
as a servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificateholders as principal of such
mortgage loan when paid by the mortgagor in subsequent monthly payments or at
maturity.
Ratings. The ratings assigned by an NRSRO to Mortgage Pass-Throughs address the
likelihood of the receipt of all distributions on the underlying mortgage loans
by the related certificateholders under the agreements pursuant to which such
certificates are issued. A rating agency's ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates, and
the extent to which the payment stream on such mortgage pool is adequate to make
payments required by such certificates. A rating agency's ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans. In addition, the rating assigned by
a rating agency to a certificate does not address the remote possibility that,
in the event of the insolvency of the issuer of certificates where a
subordinated interest was retained, the issuance and sale of the senior
certificates may be recharacterized as a financing and, as a result of such
recharacterization, payments on such certificates may be affected.
Types of Credit Support. Mortgage pools created by non-governmental issuers
generally offer a higher yield than government and government-related pools
because of the absence of direct or indirect government or agency payment
guarantees. To lessen the effect of failures by obligors on underlying assets
to make payments, Mortgage Pass-Throughs may contain elements of credit support.
Such credit support falls into two classes: liquidity protection and protection
against ultimate default by an obligor on the underlying mortgages. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pools of mortgages, the provision of a reserve fund, or a
combination thereof, to ensure, subject to certain limitations, that scheduled
payments on the underlying pool are made in a timely fashion. Protection
against ultimate default ensures ultimate payment of the obligations on at least
a portion of the mortgages in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained from third
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parties, through various means of structuring the transaction or through a
combination of such approaches.
In addition, one or more classes of certificates of Mortgage Pass-Throughs may
be subordinate certificates which provide that the rights of the subordinate
certificateholders to receive any or a specified portion of distributions with
respect to the underlying mortgage loans may be subordinated to the rights of
the senior certificateholders. If so structured, the subordination feature may
be enhanced by distributing to the senior certificateholders on certain
distribution dates, as payment of principal, a specified percentage (which
generally declines over time) of all principal prepayments received during the
preceding prepayment period ("shifting interest credit enhancement"). This will
have the effect of accelerating the amortization of the senior certificates
while increasing the interest in the trust fund evidenced by the subordinate
certificates. Increasing the interest of the subordinate certificates relative
to that of the senior certificate is intended to preserve the availability of
the subordination provided by the subordinate certificates. In addition,
because the senior certificateholders in a shifting interest credit enhancement
structure are entitled to receive a percentage of principal prepayments which is
greater than their proportionate interest in the trust fund, the rate of
principal prepayments on the mortgage loans will have an even greater effect on
the rate of principal payments and the amount of interest payments on, and the
yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificateholders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions
otherwise available to the subordinate certificateholders or by excess servicing
fees until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, is intended to enhance the
likelihood of timely receipt by senior certificateholders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificateholders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated
amount is reduced to zero, senior certificateholders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in
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the Reserve Fund will generally be used to offset the amount of any losses
realized with respect to the mortgage loans ("Realized Losses"). Realized
Losses remaining after application of such amounts will generally be applied to
reduce the ownership interest of the subordinate certificates in the mortgage
pool. If the subordinated amount has been reduced to zero, Realized Losses
generally will be allocated pro rata among all certificateholders in proportion
to their respective outstanding interests in the mortgage pool.
As an alternative, or in addition to the credit enhancement afforded by
subordination, credit enhancement for Mortgage Pass-Throughs may be provided by
mortgage insurance, hazard insurance, by the deposit of cash, certificates of
deposit, letters of credit, a limited guaranty or by such other methods as are
acceptable to a rating agency. In certain circumstances, such as where credit
enhancement is provided by guarantees or a letter of credit, the security is
subject to credit risk because of its exposure to an external credit enhancement
provider.
Voluntary Advances. Generally, in the event of delinquencies in payments on the
mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees to
make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
Optional Termination. Generally, the servicer may, at its option with respect
to any certificates, repurchase all of the underlying mortgage loans remaining
outstanding at such time as the aggregate outstanding principal balance of such
mortgage loans is less than a specified percentage (generally 5-10%) of the
aggregate outstanding principal balance of the mortgage loans as of the cut-off
date specified with respect to such series.
2.Government Mortgage-Related Securities
As stated in the Prospectus, certain mortgage-related securities acquired by the
Portfolios will be issued or guaranteed by the U.S. Government or one of its
agencies, instrumentalities or sponsored enterprises including but not limited
to the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC") ("Government Mortgage-Related Securities"). GNMA securities are
backed by the full faith and credit of the U.S. Government, which means that the
U.S. Government guarantees that the interest and principal will be paid when
due. FNMA securities and FHLMC securities are not backed by the full faith and
credit of the U.S. Government; however, because of their ability to borrow from
the U.S. Treasury, they are generally viewed by the market as high quality
securities with minimal
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credit risks. There are several types of guaranteed mortgage-related
securities currently available, including guaranteed mortgage pass-through
certificates and multiple-class securities, which include guaranteed REMIC pass-
through certificates and stripped mortgage-backed securities. The Portfolios
will be permitted to invest in other types of Government Mortgage-Related
Securities that may be available in the future to the extent such investment is
consistent with their respective investment policies and objectives.
GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of the
United States. GNMA is authorized to guarantee the timely payment of the
principal of and interest on certificates that are based on and backed by a pool
of mortgage loans insured by the Federal Housing Administration ("FHA Loans"),
or guaranteed by the Veterans Administration ("VA Loans"), or by pools of other
eligible mortgage loans. In order to meet its obligations under any guaranty,
GNMA is authorized to borrow from the United States Treasury in an unlimited
amount.
FNMA Certificates. FNMA is a stockholder-owned corporation chartered under an
act of the United States Congress. Each FNMA Certificate is issued and
guaranteed by and represents an undivided interest in a pool of mortgage loans
(a "Pool") formed by FNMA. Each Pool consists of residential mortgage loans
("Mortgage Loans") either previously owned by FNMA or purchased by it in
connection with the formation of the Pool. The Mortgage Loans may be either
conventional Mortgage Loans (i.e., not insured or guaranteed by any U.S.
Government agency) or Mortgage Loans that are either insured by the Federal
Housing Administration ("FHA") or guaranteed by the Veterans Administration
("VA"). The lenders originating and servicing the Mortgage Loans are subject to
certain eligibility requirements established by FNMA.
FNMA has certain contractual responsibilities. With respect to each Pool, FNMA
is obligated to distribute scheduled monthly installments of principal and
interest after FNMA's servicing and guaranty fee, whether or not received, to
certificate holders. FNMA is also obligated to distribute to holders of
certificates an amount equal to the full principal balance of any foreclosed
Mortgage Loan, whether or not such principal balance is actually recovered. The
obligations of FNMA under its guaranty of the FNMA Certificates are obligations
solely of FNMA.
FHLMC Certificates. FHLMC is a corporate instrumentality of the United States.
The principal activity of FHLMC currently is the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and their resale in the form of mortgage securities, primarily
FHLMC Certificates. A FHLMC Certificate represents a pro rata interest in a
group of mortgage loans or participation in mortgage loans (a "FHLMC Certificate
group") purchased by FHLMC.
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FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest at the rate provided for by such Certificate (whether or not
received on the underlying loans). FHLMC also guarantees to each registered
certificate holder ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. The obligations of FHLMC under its
guaranty of FHLMC Certificates are obligations solely of FHLMC.
The mortgage loans underlying the FHLMC Certificates will consist of adjustable
rate or fixed rate mortgage loans with original terms of maturity of between ten
and thirty years. Substantially all of these mortgage loans are secured by
first liens on one- to four-family residential properties or multi-family
projects. Each mortgage loan must meet the applicable standards set forth in
the law creating FHLMC. A FHLMC Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and participation comprising another FHLMC Certificate group.
3. Multiple Class Pass-Through Securities and Collateralized Mortgage
Obligations
As stated, the Government Securities Portfolio and the Mortgage Securities
Portfolio may also invest in multiple class mortgage-related securities,
including collateralized mortgage obligations and REMIC pass-through or
participation certificates (collectively, "CMOs"). These multiple class
securities may be issued by U.S. Government agencies, its instrumentalities or
sponsored enterprises, including FNMA and FHLMC or, in the case of the Mortgage
Securities Portfolio, by trusts formed by private originators of, if investors
in, mortgage loans. In general, CMOs represent direct ownership interests in, a
pool of residential mortgage loans or mortgage pass-through securities (the
"Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The Portfolios do not intend to
purchase residual interests.
Each class of CMOs often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates.
The principal of and interest on the Mortgage Assets may be allocated among the
several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage
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Assets generally are applied to the classes of CMOs in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs until all other classes having an earlier
final scheduled distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of CMOs may be issued in the parallel pay or sequential pay
structures. These securities include accrual certificates (also known as "Z-
Bonds"), which do not accrue interest at a specified rate until all other
certificates having an earlier final scheduled distribution date have been
retired and such Z-Bonds are converted thereafter to an interest-paying
security, and planned amortization class ("PAC") certificates, which are
parallel pay CMOs which generally require that specified amounts of principal be
applied on each payment date to one or more classes of a CMO (the "PAC
Certificates"), even though all other principal payments and prepayments of the
Mortgage Assets are then required to be applied to one or more other classes of
the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These tranches tend to have market prices and
yields that are much more volatile than the PAC classes.
FNMA CMOs are issued and guaranteed as to timely distribution of principal and
interest by FNMA. That is to say, FNMA will be obligated to distribute on a
timely basis to holders of FNMA CMO Certificates required installments of
principal and interest and to distribute the principal balance of each class of
CMO in full, whether or not sufficient funds are otherwise available.
For FHLMC CMOs, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates ("PCs"). PCs represent undivided
interests in specified level payment, residential mortgages or participation
therein purchased by FHLMC and placed in a PC pool. With respect to principal
payments on PCs, FHLMC generally guarantees ultimate collection of all principal
of the related mortgage loans without
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offset or deduction. FHLMC also guarantees timely payment of principal on
certain PCs, referred to as "Gold PCs."
Legislative and Regulatory Developments in Government-Sponsored Enterprises
In the past several years, there have been a number of federal legislative and
regulatory developments which may ultimately have a significant impact on the
business and operations of FHLMC, FNMA and other government-sponsored
enterprises ("GSEs").
Legislation Affecting FNMA and FHLMC: On October 28, 1992 the President signed
legislation which sets new capital requirements for FNMA and FHLMC, establishes
an oversight office within HUD, allows that office to establish additional
capital requirements based upon a risk-based capital stress test, requires the
two organizations to hold sufficient capital to cover interest rate changes, and
requires the agencies to establish goals to direct funds to lower income
borrowers.
The legislation, the Housing and Community Development Act of 1992, requires
FNMA and FHLMC to hold core capital equal to the sum of 2.5 percent of on-
balance-sheet assets and .45 percent of the unpaid principal balance of
outstanding mortgage-backed securities and other off-balance-sheet assets. The
legislation provides an 18-month transition period for FNMA and FHLMC to reach
this minimum capital level. The other requirements of the bill could increase
the amount of capital to be withheld.
Legislation Affecting the Federal Agricultural Mortgage Association: The Food,
Agricultural, Conservation and Trade Act Amendment of 1991 established minimum
core capital levels for the Federal Agriculture Mortgage Association ("Farmer
Mac") of (1) 2.50 percent of the aggregate on-balance sheet assets, (2) 0.45
percent of the unpaid balance of outstanding securities guaranteed by Farmer Mac
and (3) a linked-percentage of aggregate assets. The President, on October 28,
1992, signed Public Law 102-552, the "Farm Credit Banks and Associations Safety
and Soundness Act of 1992." The act was passed to enhance the financial
soundness of Farm Credit System banks and associations and further supplemented
capital requirements for Farm Credit System banks and associations.
The effects of any legislation or regulations implementing stricter capital or
other regulatory standards upon the future business and operations of FNMA and
FHLMC cannot be predicted.
INVESTMENT RESTRICTIONS
As the Prospectus states, the Fund may only invest in obligations authorized
under the Federal Credit Union Act. This restriction
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may not be changed without the approval of the holders of a majority of the
outstanding units of each affected Portfolio as described below. In addition,
to meet the requirements of federal and state securities laws, the Fund has
also adopted the following enumerated fundamental investment restrictions, none
of which may be changed with respect to a Portfolio without the approval of the
holders of a majority of the outstanding units of the Portfolio as described
below. The Fund may not:
(1) Invest any one Portfolio in the instruments of issuers conducting their
principal business activity in the same industry if immediately after such
investment the value of such Portfolio's investments in such industry would
exceed 25% of the value of its total assets; provided that there is no
limitation with respect to or arising out of (a) in the case of the
Mortgage Securities Portfolio, investments in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or
repurchase agreements by such Portfolio of securities collateralized by
such obligations; or (b) in the case of the Government Securities
Portfolio, investments in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or repurchase agreements
by such Portfolio of securities collateralized by such obligation or by
cash, certificates of deposit, bankers' acceptances and bank repurchase
agreements; or (c) in the case of the Money Market Portfolio, investments
in obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, repurchase agreements by such Portfolio of securities
collateralized by such obligations or by cash, certificates of deposit,
bankers' acceptances, bank repurchase agreements and other obligations
issued or guaranteed by bank (except commercial paper); and provided
further that during normal market conditions the Mortgage Securities
Portfolio intends to invest at least 25% of the value of its total assets
in mortgage-related securities. The current position of the staff of the
SEC is that only the Money Market Portfolio may reserve freedom of action
to concentrate in bank obligations and that the exclusion with respect to
bank instruments referred to above may only be applied to instruments of
domestic banks. For this purpose, the staff also takes the position that
foreign branches of domestic banks may, if certain conditions are met, be
treated as domestic banks. For this purpose, the staff also takes the
position that foreign branches of domestic banks may, if certain conditions
are met, be treated as domestic banks. The Fund intends to consider only
obligations of domestic banks (as construed to include foreign branches of
domestic banks to the extent they satisfy the above-referenced conditions)
to be within this exclusion until such time, if ever, that the SEC staff
modifies its position.
B-41
<PAGE>
(2) Invest any one Portfolio in the instruments of any one issuer, other
than the U.S. Government, its agencies or instrumentalities, if immediately
after such investment, more than 5% of the value of such Portfolio's total
assets would be invested in the instruments of such issuer, except that (a)
up to 25% of the value of the total assets of the Money Market Portfolio
and Government Securities Portfolio may be invested in repurchase
agreements, certificates of deposit, bankers' acceptances, time deposits
and federal funds without regard to such 5% limitation; (b) up to 25% of
the value of the total assets of each Securities Portfolio may be invested
without regard to such 5% limit and (c) such 5% limitation shall not apply
to repurchase agreements collateralized by obligations of the U.S.
Government, its agencies or instrumentalities.
(3) Make loans, except through (a) the purchase of debt obligations in
accordance with each Portfolio's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions in accordance with the investment objectives of each
Portfolio, (c) the lending of federal funds to qualified financial
institutions in accordance with the investment objectives of each Portfolio
and (d) the lending of securities in accordance with the investment
objective of the Government Securities Portfolio and the Mortgage
Securities Portfolio.
(4) Borrow money, except as a temporary measure, and then only in amounts
not exceeding one third of the value of the Portfolio's net assets.
(5) Mortgage, pledge or hypothecate any assets except to secure permitted
borrowings.
(6) Purchase or sell real estate, but this restriction shall not prevent
the Fund from investing directly or indirectly in portfolio instruments
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
(7) Purchase or sell commodities or commodity contracts.
(8) Purchase any voting securities except of investment companies (closed-
end investment companies in the case of the Money Market Portfolio and
Government Securities Portfolio) solely to the extent permitted by the 1940
Act, or invest in companies for the purpose of exercising control or
management. Subject to certain exceptions, the 1940 Act contains a
prohibition against the Fund's investing more than 5% of its total assets
in the securities of another investment company, investing more than 10% of
its assets in securities of such investment company and all other invest-
B-42
<PAGE>
ment companies or purchasing more than 3% of the total outstanding voting
stock of another investment company.
(9) Act as an underwriter of securities.
(10) Issue senior securities as defined in the 1940 Act except insofar as
the Fund may be deemed to have issued a senior security by reason of (a)
borrowing of money to the extent permitted herein or (b) purchasing
securities on a when-issued or delayed delivery basis.
(11) Purchase any security for the Money Market Portfolio that is
restricted as to disposition under federal securities laws (foreign
securities traded only in foreign markets are not regarded as restricted).
(12) Purchase any security on margin (except for delayed delivery or when-
issued transactions or such short-term credits as are necessary for the
clearance of transactions).
(13) Make short sales of securities or maintain a short position.
(14) Write, purchase or sell puts, calls or combinations thereof.
To meet the requirement of the state securities laws, each portfolio has also
adopted the following non-fundamental investment restrictions. (i) Each
Portfolio may invest up to 5% of its total assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one NRSRO. The securities
of such companies may have limited liquidity, which can result in their being
priced higher or lower than might otherwise be the case. In addition,
investments in unseasoned companies are more speculative and entail greater risk
than do investments in companies with an established operating record. (ii) Each
Portfolio may not invest more than 10% of its total assets in securities that
are subject to restrictions on resale ("restricted securities") under the
Securities Act of 1933, as amended, including securities eligible for resale in
reliance on Rule 144A under the 1933 Act. The restrictions in this paragraph
are not fundamental and may be changed without shareholder vote.
Pursuant to SEC Rule 2a-7, the Money Market Portfolio currently may not invest
more than 5% of its total assets in the securities of any one issuer (except
U.S. Government securities or repurchase agreements collateralized by such
obligations). The Portfolio may, however, invest more than 5% of its total
assets in the First Tier Securities of a single issuer for a period of
B-43
<PAGE>
up to three business days after the purchase thereof, although the Portfolio may
not make more than one such investment at any time. The limitations in this
paragraph are not, however, fundamental, and may be changed in the future
without shareholder vote to the extent permitted by the SEC.
"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Portfolio's net asset value. "U.S. Government securities"
shall mean securities issued or guaranteed by the U.S. Government or any of its
agencies, authorities or instrumentalities.
For purposes of the foregoing limitations, any limitation which involves a
maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Portfolio of the
Fund.
Borrowings by the Fund (if any) are not for investment leverage purposes but are
solely for extraordinary or emergency purposes or to facilitate management of
the Portfolios by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments is deemed to be disadvantageous or not
possible. If due to market fluctuations or other reasons the total assets of a
Portfolio fall below 300% of its borrowings, the Fund will promptly reduce the
borrowings of such Portfolio in accordance with the 1940 Act. No purchases of
securities will be made if borrowings exceed 5% of the value of the applicable
Portfolio's assets. Mortgage dollar rolls that are not accounted for as
financings shall not constitute borrowings.
The prohibition against short sales and short positions does not include
transactions sometimes referred to as "short sales against the box" where the
Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
As used in the Prospectus and this Additional Statement with respect to matters
required to be submitted to unitholders by the provisions of the 1940 Act, the
term "majority of the outstanding units" of either the Fund or a particular
Portfolio of the Fund means the vote of the lesser of (i) 67% or more of the
units of the Fund or such Portfolio present at a meeting, if the holders of more
than 50% of the outstanding units of the Fund or such Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding units of the Fund
or such Portfolio.
CALCULATION OF PERFORMANCE QUOTATIONS
From time to time, quotation of the Money Market Portfolio's "yield" and
"effective yield," and the yields and the total
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<PAGE>
return of the Government Securities Portfolio and the Mortgage Securities
Portfolio, may be quoted in advertisements or communications to unitholders.
These advertisements and communications may be part of marketing activities
conducted by either or both of the Fund's distributors on behalf of the
Portfolios. These performance figures are calculated in the following manner.
Money Market Portfolio
Yield--the net annualized yield based on a specified 7-calendar day period
- -----
calculated at simple interest rates. Yield is calculated by determining the net
change, exclusive of capital changes, in the value of a hypothetical preexisting
account having a balance of one unit at the beginning of the period and dividing
the difference by the value of the account at the beginning of the base period
to obtain the base period return. The yield is annualized by multiplying the
base period return by 365/7. The yield figure is stated to the nearest
hundredth of one percent.
Effective Yield--the net annualized yield for a specified 7-calendar day period
- ---------------
assuming a reinvestment of dividends (compounding). Effective yield is
calculated by the same method as yield except the yield figure is compounded by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the result, according to the following formula: Effective Yield =
[(Base Period Return + 1)/365/7*] - 1/.
For the seven-day period ended August 31, 1996, the yield and the effective
yield for the Money Market Portfolio were:
<TABLE>
<CAPTION>
7-Day Period
Ended August 31, 1996
---------------------------------------------
With Fee Waivers Without Fee Waivers
and Expense and Expense
Reimbursements Reimbursements
------------------- ------------------
<S> <C> <C>
Yield 5.13% 5.00%
Effective
Yield 5.26% 5.13%
</TABLE>
Government Securities Portfolio and Mortgage Securities Portfolio
Yield--The yield of the Government Securities Portfolio and the Mortgage
- -----
Securities Portfolio is calculated by dividing the net investment income per
unit (as described below) earned by such Portfolio during a 30-day period by the
maximum offering price per unit on the last day of the period and annualizing
the result on a semi-annual basis by adding one to the quotient, raising the sum
to the power of six, subtracting one from the result and then doubling the
difference. The Portfolio's net investment income per unit earned during the
period is based on the average daily number of units outstanding during the
period entitled to receive
B-45
<PAGE>
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
a-b
Yield =2[(--- + 1)/6/- 1]
cd
Where:
a= dividends and interest earned during the period.
b= expenses accrued for the period (net of fee waivers).
c= the average daily number of units outstanding during the period that
were entitled to receive dividends.
d= maximum offering price per unit on the last day of the period.
Except as noted below, interest earned on debt obligations held by the
Government Securities Portfolio and the Mortgage Securities Portfolio is
calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Portfolio. The
maturity of an obligation with a call provision is the next call date on which
the obligation reasonably may be expected to be called or, if none, the maturity
date. With respect to debt obligations purchased at a discount or premium, the
formula generally calls for amortization of the discount or premium. The
amortization schedule will be adjusted monthly to reflect changes in the market
values of such debt obligations.
With respect to mortgage-related obligations which are expected to be subject to
monthly payments of principal and interest ("pay downs"), (a) gain or loss
attributable to actual monthly pay downs are accounted for as an increase or
decrease to interest income during the period; and (b) the Portfolio may elect
either (i) to amortize the discount and premium on the remaining security, based
on the cost of the security, to the weighted average maturity date, if such
information is available, or to the remaining term of the security, if any, if
the weighted average maturity date is not available, or (ii) not to amortize
discount or premium on the remaining security.
B-46
<PAGE>
Total Return--The Government Securities Portfolio and the Mortgage Securities
- ------------
Portfolio compute average annual total return by determining the average annual
compounded rates of return during specified periods that equate the initial
amount invested to the ending redeemable value of such investment. This is done
by dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 and raising the quotient to a power equal to one divided by the number
of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
ERV/1/n/
T = [(-----)- 1]
P
Where:
T = average annual total return
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of years.
The Government Securities Portfolio and the Mortgage Securities Portfolio
compute their cumulative total return by determining the cumulative rate of
return during a specified period that likewise equates the initial amount
invested to the ending redeemable value of such investment. The formula for
calculating cumulative total return is as follows:
ERV
T = [(---- - 1)]
P
Under the methods prescribed by the SEC, standardized calculations of average
annual total return assume the reinvestment of all dividends and capital gains
distributions on the reinvestment dates during the period (although a Portfolio
may also publish non-standardized calculations without this assumption).
Calculations of aggregate total return also assume the reinvestment of all
dividends and capital gains distributions on the reinvestment date during the
period. The ending redeemable value (variable "ERV" in each formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the period covered by
the computations. Year-to-year total return is calculated in a similar manner.
B-47
<PAGE>
PERFORMANCE FIGURES
Value of $1,000 Investment
--------------------------
<TABLE>
<CAPTION>
Year Ending 8/31/96 Five Year ending 8/31/96
------------------- ------------------------
30-Day Period
Ending With Without With Without
8/31/96 Fee Waiver Fee Waiver Fee Waiver Fee Waiver
Government and/or expense and/or expense and/or expense and/or expense
Securities reimbursement reimbursement reimbursement reimbursement
Portfolio
<S> <C> <C> <C>
Yield 5.84% N/A N/A N/A N/A
Ending Redeemable
Value at 8/31/96 N/A $1,062.80 $1,062.80 $1,277.92 $1,274.76
Average Annual
Total Return N/A 6.26% 6.26% 5.02% 4.97%
Cumulative Total
Return N/A 6.28% 6.28% 27.79% 27.48%
Mortgage
Securities
Portfolio
Yield 6.62% N/A N/A N/A N/A
Ending Redeemable
Value at 8/31/96 N/A $1,056.83 $1,056.60 N/A N/A
Average Annual
Total Return N/A 5.67% 5.64% N/A N/A
Cumulative Total
Return N/A 5.68% 5.66% N/A N/A
<CAPTION>
Commencement of Operat-
ions through 8/31/96*
----------------------
With Without
Fee Waiver Fee Waiver
Government and/or expense and/or expense
Securities reimbursement reimbursement
Portfolio
<S> <C> <C>
Yield N/A N/A
Ending Redeemable
Value at 8/31/96 $1,290.95 $1,285.56
Average Annual
Total Return 5.08% 5.00%
Cumulative Total
Return 29.09% 28.56%
Mortgage
Securities
Portfolio
Yield N/A N/A
Ending Redeemable
Value at 8/31/96 $1,227.30 $1,225.74
Average Annual
Total Return 5.39% 5.36%
Cumulative Total
Return 22.73% 22.57%
</TABLE>
* For the periods from July 10, 1991 and October 9, 1992, (commencement of
operations for the Government Securities Portfolio and the Mortgage
Securities Portfolio, respectively) to August 31, 1996.
B-48
<PAGE>
All Portfolios
Each of the Portfolios may also quote from time to time distribution rates in
reports to unitholders and in sales literature. The distribution rate for a
specified period is calculated by dividing the total distribution per share by
the maximum offering price on the last day of the period and then annualizing
such amount.
For the thirty-day period ended August 31, 1996, the distribution rate of each
of the following Portfolios was:
<TABLE>
<CAPTION>
30-Day Period 30-Day Period
Ended August 31, 1996 Ended August 31, 1996
Portfolio With Expense Without Expense
--------- ------------------ ------------------
Reimbursement Reimbursement
------------------ ------------------
<S> <C> <C>
Government Securities 6.01% 6.01%
Mortgage Securities 6.54% 6.54%
</TABLE>
From time to time the Portfolio's comparative performance may be advertised as
measured by various independent sources, including, but not limited to, Lipper
Analytical Services, Inc., Barron's, The Wall Street Journal, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Business Week,
Financial World and Forbes. In addition, the Fund may from time to time
advertise the Portfolio's performance relative to certain indices and benchmark
investments, including (a) the Lehman Brothers Government/Corporate Bond Index,
(b) Lehman Brothers Government Index, (c) Lehman Brothers ARM Index; (d) Lehman
Brothers 1-2 year Government Index; (e) Lehman Brothers 1-3 year Government
Index;(f) Merrill Lynch 1-2.99 Year Treasury Index, (g) Merrill Lynch 2-Year
Treasury Curve Index, (h) the Salomon Brothers Treasury Yield Curve Rate of
Return Index, (i) the Payden & Rygel 2-Year Treasury Note Index, (j) 1-3 Year
U.S. Treasury Notes, (k) constant maturity U.S. Treasury yield indices, (l) the
Consumer Price Index, (m) the London Interbank Offered Rate, (n) other taxable
investments such as certificates of deposit, money market mutual funds,
repurchase agreements and commercial paper, and (o) historical data concerning
the relative performance of adjustable and fixed-rate mortgage loans.
The composition of the securities in such indices and the characteristics of
such benchmark investments are not identical to, and in some cases are very
different from, those of the Fund's Portfolios. These indices and averages are
generally unmanaged and the items included in the calculations of such indices
and averages may not be identical to the formulas used by the Fund to calculate
its performance figures.
From time to time advertisements or communications to unitholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of the Portfolios), as well as the views of Goldman,
Sachs & Co. as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Portfolios (such as the
supply and
B-49
<PAGE>
demand of mortgage-related securities and the relative performance of different
types of mortgage loans and mortgage-related securities as affected by
prepayment rates and other factors).
In addition, advertisements or unitholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
such Portfolio. Such advertisements or communications may include symbols,
headlines or other material which highlight or summarize the information
discussed in more detail therein.
Performance data is based on historical results and is not intended to indicate
future performance. Yield total return and distribution rates will vary based
on changes in market conditions, the level of interest rates, and Portfolio
expenses. The value of units of the Government Securities Portfolio and
Mortgage Securities Portfolio will fluctuate, and an investor's units may be
worth more or less than their original cost upon redemption.
OTHER INFORMATION
The Prospectus and this Additional Statement do not contain all the information
included in the Registration Statement filed with the SEC under the 1933 Act
with respect to the securities offered by the Prospectus. Certain portions of
the Registration Statement have been omitted from the Prospectus and this
Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference. Capitalized terms, to the extent
not otherwise defined herein, shall have the meanings as assigned to them in the
Prospectus.
FINANCIAL STATEMENTS
The financial statements and related report of Arthur Andersen LLP, independent
public accountants, contained in the 1996 Annual Report are hereby incorporated
by reference. A copy of the Annual Report accompanies or has preceded this
Additional Statement and may be obtained without charge by writing to Goldman,
Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606, or Callahan Credit Union
Financial Services Limited Partnership, 1001 Connecticut Ave., N.W., Suite 1022,
Washington, DC 20036-5504, or by calling Goldman, Sachs & Co. at (800) 342-5828
(800-DIAL-TCU) or Callahan Financial Services, Inc. at (800) 237-5678.
B-50
<PAGE>
DESCRIPTION OF SECURITIES RATINGS
A. LONG-TERM RATINGS
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than with Aaa securities.
Moody's applies numerical modifiers l, 2, and 3 in the Aa category. The
modifier 1 indicates that the company ranks in the higher end of the Aa
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of the Aa category.
Standard & Poor's Ratings Group
AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay interest and repay principal.
AA: Capacity to pay interest and repay principal is very strong, and differs
from AAA issues only in small degree.
Plus (+) or Minus (-): The AA rating may be modified by the addition of a plus
or minus sign to show relative standing within the AA category.
r: A rating may be modified by the addition of an "r" rating to highlight
derivative, hybrid and certain other obligations that Standard & Poor's
believes may experience high volatility or high variability in expected returns
due to non-credit risks. The absence of an "r" symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total
return.
__________________________
* The ratings system described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to
B-51
<PAGE>
securities at the time of issuance. While the rating agencies may from time to
time revise such ratings, they undertake no obligation to do so, and the ratings
indicated do not necessarily represent ratings which will be given to these
securities throughout the period they are held by a Portfolio.
Duff & Phelps, Inc.
AAA: Long-term fixed income securities which are rated AAA are judged to be of
the highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: Long-term fixed income securities which are rated AA are judged to be of
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
Duff & Phelps applies modifiers AA+, AA, and AA- in the AA category for long-
term fixed income securities. The modifier AA+ indicates that the security
ranks in the higher end of the AA category; the modifier AA indicates a mid-
range ranking; and the modifier AA- indicates that the issue ranks in the lower
end of the AA category.
Fitch Investors Service Inc.
AAA: Bonds which are rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds which are rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments; short-term debt of these issuers is generally rated F-1+.
Fitch applies plus (+) and minus (-) modifiers in the AA category to indicate
the relative position of a credit within the rating category. The modifier AA+
indicates that the security ranks at the higher end of the AA category than a
security rated AA or AA-.
IBCA Limited and IBCA Inc.
AAA: Obligations which are rated AAA are considered to have the lowest
expectations of investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk substantially.
AA: Obligations which are rated AA are considered to have a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.
B-52
<PAGE>
Thomson Bankwatch, Inc.
AAA: The highest category; indicates the ability to repay principal and
interest on a timely basis is extremely high.
AA: The second highest category indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
Ratings in the Long-Term Debt categories may include a plus (+) or minus (-)
designation which indicates where within the respective category the issue is
placed.
B. SHORT-TERM RATINGS
Moody's Investors Service, Inc.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
P-1: Issuers or related supporting institutions are considered to have a
superior capacity for repayment of short-term promissory obligations. Prime-1
or P-1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured
sources of alternate liquidity.
P-2: Issuers or related supporting institutions are considered to have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Group
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
A-1: The A-1 designation indicates the degree of safety regarding timely
payment is strong. Those issues determined to possess extreme-
B-53
<PAGE>
ly strong safety characteristics will be denoted with a plus sign (+)
designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Duff & Phelps, Inc.
Duff & Phelps' short-term debt ratings apply to all obligations with maturities
under one year.
Duff 1: Commercial paper and certificates of deposit rated Duff 1 are
considered to have a very high certainty of timely payment. Liquidity factors
are considered excellent and are supported by good fundamental protection
factors. Risk factors are minor.
Duff 2: Commercial paper and certificates of deposit rated Duff 2 are
considered to have a good certainty of timely payment. Liquidity factors and
company fundamentals are considered sound. Although ongoing internal funding
needs may enlarge total financing requirements, access to capital markets is
good and risk factors are small.
Duff & Phelps applies a plus and minus rating scale, Duff 1 plus, Duff 1 and
Duff 1 minus, in the Duff 1 top grade category for commercial paper and
certificates of deposits. The rating Duff 1 plus indicates that the security
has the highest certainty of timely payment; short-term liquidity is outstanding
and safety is just below risk-free U.S. Treasury short-term obligations. The
rating Duff 1 minus indicates a high certainty of timely payment; liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
Fitch Investors Service Inc.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years.
F-1: Short-term debt obligations rated F-1 are considered to be of very strong
credit quality. Those issues determined to possess exceptionally strong credit
quality and having the strongest degree of assurance for timely payment will be
denoted with a plus (+) sign designation.
F-2: Short-term debt obligations rated F-2 are considered to be of good credit
quality. Issues assigned this rating have a satisfactory degree of assurance
for timely payment, but the margin of safety is not as great as for issues
assigned F-1+ and F-1 ratings.
IBCA Limited and IBCA Inc.
A1: Short-term obligations rated A1 are supported by the highest capacity for
timely repayment. A plus (+) sign is added to those issues determined to
possess a particularly strong credit feature.
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<PAGE>
A2: Short-term obligations rated A2 are supported by a good capacity for timely
repayment.
Thomson Bankwatch, Inc.
The TBW short-term ratings apply only to unsecured instrument that have a
maturity of one year or less.
The TBW short-term ratings specifically assess the likelihood of an untimely or
incomplete payment of principal and interest.
TBW-1: The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2: The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high a for issues rated "TBW-1".
B-55
<PAGE>
B-2
- --------------------------------------------------------------------------------
1997-3.new
----------
PART B
STATEMENT OF ADDITIONAL INFORMATION
TRUST FOR CREDIT UNIONS
4900 Sears Tower
Chicago, Illinois 60606-6303
(Target Maturity Portfolio (Feb 97))
(Target Maturity Portfolio (May 97))
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. This Additional Statement should be read in conjunction with the
Prospectus dated December 30, 1996, (the "Prospectus") relating to the offering
of units of the Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97), (individually a "Portfolio" and collectively the "Portfolios") of
Trust for Credit Unions. A copy of the Prospectus may be obtained from Goldman,
Sachs & Co. at (800) 342-5828 (800-DIAL-TCU) or Callahan Credit Union Financial
Services Limited Partnership at ("CUFSLP") (800) 237-5678.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction B-3
Management B-5
Advisory and Other Services B-8
Portfolio Transaction B-11
Description of Units B-20
Adjustable and Fixed Rate Mortgage Loans and
Mortgage-Related Securities B-24
Investment Restrictions B-36
Calculation of Performance Quotations B-40
Other Information B-46
Financial Statements B-46
Description of Securities Ratings B-47
</TABLE>
<PAGE>
The date of this Additional Statement is December 30, 1996.
<PAGE>
UNITS OF THE PORTFOLIOS ARE NOT ENDORSED BY, INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, ANY CREDIT UNION
OR BY THE NATIONAL CREDIT UNION SHARE INSURANCE FUND, THE NATIONAL CREDIT UNION
ADMINISTRATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE PORTFOLIOS
INVOLVES RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL.
B-3
<PAGE>
INTRODUCTION
Each Portfolio is a separate, diversified portfolio of Trust for Credit Unions
(the "Fund"), an open-end management investment company.
The Portfolios are designed for state and federally chartered credit unions
which seek higher current yields than a three-year Treasury note from a "high
quality" mortgage-related securities portfolio that will terminate within a
prescribed period. "High quality" securities are rated, at the time of
purchase, in one of the two highest rating categories by a nationally recognized
statistical rating organization ("NRSRO") and also include securities issued or
guaranteed by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises. Investment in the Portfolio relieves investors from the
administrative and accounting burdens involved in direct investments, and also
provides related benefits as described below.
High Current Income. Each Portfolio seeks to achieve a high level of current
- --------------------
income. In considering whether a Portfolio has achieved this objective, the
investment adviser will compare such Portfolio's yield to that of a three-year
Treasury note maturing on or about February 15, 1997 and May 15, 1997, for the
Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio (May 97).
Unlike U.S. Treasury notes, it is expected that most investments made by a
Portfolio will not be backed by the full faith and credit of the U.S.
Government, and many investments will not be insured or guaranteed by any
government agency.
By selecting a term of three years, each Portfolio hopes to take advantage of a
portion of the yield curve that the investment adviser believes to be relatively
undervalued. In the investment adviser's view, this section of the curve has
historically offered a very attractive risk/return profile.
Preservation of Capital. Each Portfolio will seek to attain its objective to
- ------------------------
return $10 per unit by (1) preserving capital through active portfolio
management, including the purchase and sale of securities to change the
Portfolio's option-adjusted duration (see "Description of Investments -- Other
Portfolio Management Policies" in the Prospectus) and (2) reducing, over time,
the price sensitivity of a Portfolio to changes in interest rates in light of
expected cash flows and mortgage prepayments under different interest rate
scenarios. Duration, which is a measure of the price sensitivity of a
Portfolio, including expected cash flows and mortgage prepayments under a wide
range of interest rate scenarios, is reviewed and recalculated daily. In
connection with each Portfolio's goal to preserve capital, the investment
adviser will seek to limit a Portfolio's price volatility to that of a three-
year Treasury note maturing on or about February 15, 1997 and May 15, 1997,
respectively.
B-4
<PAGE>
However, there is no assurance that the investment adviser's strategies will be
successful. Each Portfolio's net asset value per unit will fluctuate more than
that of a money market fund.
Liquidity. Because a Portfolio's units may be redeemed, subject to the
- ----------
redemption fee for early withdrawal, upon request of its unitholder on any
Business Day, a Portfolio offers greater liquidity than many competing
investments such as certificates of deposit and direct investments in certain
mortgage-related securities.
Experienced Professional Management. Successfully creating and managing a
- ------------------------------------
diversified portfolio of mortgage-related securities requires professionals with
extensive experience. Members of Goldman, Sachs & Co.'s highly skilled
portfolio management team bring together many years of experience in the
analysis, valuation and trading of U.S. fixed income securities. At September
30, 1996, they were responsible for approximately $22.4 billion in fixed income
assets including approximately $7 billion in mortgage-related securities.
A Sophisticated Investment Process. The Portfolios' investment process starts
- -----------------------------------
with a review of trends for the overall economy as well as for different sectors
of the U.S. mortgage market. Goldman, Sachs & Co.'s portfolio managers then
analyze yield spreads, implied volatility and the shape of the yield curve.
In planning each Portfolio's strategies, the managers are able to draw upon
certain fundamental analysis and proprietary technical models of Goldman, Sachs
& Co. Among the quantitative techniques used in the Portfolio's investment
process are:
. option-adjusted analytics to make initial strategic asset allocations
within the mortgage markets and to reevaluate investments as market
conditions change; and
. analytics to estimate mortgage prepayments and cash flows under different
interest rate scenarios and to maintain an optimal portfolio structure.
The Portfolio managers may use these and other trading and hedging techniques in
response to market and interest rate conditions. In particular, these and other
evaluative tools help the portfolio managers select securities with investment
characteristics they believe are desirable.
Convenience of a Fund Structure. The Portfolios eliminate many of the
- --------------------------------
complications that direct ownership of mortgage securities entail. For example,
most mortgage-related securities generate monthly payments of both principal and
interest, just as the underlying mortgages do. To conserve their principal,
investors must make a special effort to segregate and reinvest the
B-5
<PAGE>
principal portion of each payment on their own. Each Portfolio relieves
investors of this chore by automatically reinvesting all principal payments
within a Portfolio and distributing only current income each month.
Laddered Maturities Program The Fund designed the program specifically for
- ---------------------------
credit unions with the help of a team of CFO's from leading credit unions. The
Portfolios that comprise the program may assist investors that wish to "ladder"
a portfolio (that is, construct a portfolio of securities with progressive
maturity dates) or match or hedge liabilities. A laddering strategy can be a
simple, convenient and effective method of establishing a disciplined, long-term
approach to investing. Specifically, a laddering strategy involves structuring
a portfolio so that a designated amount of money is invested continuously for a
fixed period on an ongoing basis. Laddering a portion of an investment
portfolio can result in more stable investment income, maturities timed to
coincide with cash flows, and maintenance of a conservative, interest rate
neutral approach to investing. Credit unions have typically used Treasury
securities, agency securities or certificates of deposit as core investments in
a laddering strategy. Unlike Treasury notes, investments in units of a
portfolio are not backed by the full faith and credit of the U.S. Government nor
issued or guaranteed by any government agency. Unlike certificates of deposit,
portfolio units do not provide a fixed yield for a stated period of time, and
return of principal is not assured.
MANAGEMENT
Information pertaining to the Trustees and officers of the Fund is set forth
below. Trustees deemed to be "interested persons" of the Fund for purposes of
the Investment Company Act of 1940 (the "1940 Act") are indicated by an
asterisk.
Gene R. Artemenko, Age 68, Route 4, Box 1593, Reeds Spring, Missouri 65737.
Trustee. Retired. Formerly, President and Treasurer of the United Air Lines
Employees' Credit Union until June 1991.
James C. Barr, Age 61, 1600 North Oak Street, #420, Arlington, Virginia 22209.
Trustee. Chief Executive Officer of the National Milk Producers Federation,
March 1985 to Present.
Edgar F. Callahan, Age 68, 156 Second Street, San Francisco, California 94105-
3993. Trustee. President and Chief Operating Officer of PATELCO Credit Union,
October 1987 to Present.
Robert M. Coen, Age 57, 2003 Sheridan Road, Evanston, Illinois 60208. Vice
Chairman and Trustee. Professor of Economics, Northwestern University.
B-6
<PAGE>
John T. Collins, Age 50, 1330 Connecticut Ave. N.W., Washington, D.C. 20036.
Trustee. Partner in the law firm of Steptoe & Johnson since January 1985.
Prior to January 1985, General Counsel to the U.S. Senate Banking
Committee.
Thomas S. Condit, Age 55, 306 No. Washington Street, Falls Church, VA 22046.
Trustee. Partner, New Media Publishing, Inc., January 1996 to Present. Chief
Executive Officer of Craver, Matthews, Smith & Co., Inc. ( a direct mail fund
raising company), June 1993 to January 1996. President and Chief Executive
Officer of National Cooperative Bank (a financial services company) June 1983 -
May 1993 and various positions with affiliated or subsidiary corporations from
June 1983 to January 1992.
Rudy J. Hanley, Age 53, 2115 N. Broadway, Santa Ana, California 92706.
Chairman and Trustee. Chief Executive Officer of Orange County Teachers Federal
Credit Union, September 1982 to Present. Director of Credit Union National
Association, November 1992 to September 1995.
Betty G. Hobbs, Age 58, 1400 8th Avenue so., Nashiville, Tennessee 37202.
Trustee. President and Chief Executive Officer of Tennessee Teachers Credit
Union for over 25 years.
John P. McNulty, Age 44, One New York Plaza, New York, NY 10004. Trustee. Co-
head, Goldman Sachs Asset Management, November 1995 to Present. General Partner,
Goldman, Sachs & Co., March 1980 to Present.
John L. Ostby, Age 77, HC-73,Box 840, Lake of the Woods, Locust Grove, Virginia
22508. Trustee. Attorney at Law of John Ostby, Esq. January 1991 to Present.
Formerly Senior Partner, Ostby and Nealon, July 1985 to December 1995.
Wendell A. Sebastian, Age 52, 1001 Connectivut Avenue, N.W., Ste 1022,
Washington, DC 20036. President and Trustee. President of Callahan Financial
Services, Inc., July 1996 to Present. President of GTE Federal Credit Union,
September 1991 to July 1996. Vice President of GTE Federal Credit Union, April
1989 to September 1991.
Robert Deutsch, Age 39, One New York Plaza, New York, NY 10004. Vice President.
Vice President of Goldman, Sachs & Co. 1989 to Present.
Charles W. Filson, Age 52, 1001 Connecticut Avenue, N.W., Suite 1022,
Washington, D.C. 20036-5504. Vice President. Director and Vice President of
Callahan Financial Services, Inc. since March 1989 and Treasurer thereof since
March 1987.
B-7
<PAGE>
Pauline Taylor, Age 50, 4900 Sears Tower, Chicago, IL 60606-6303. Vice
President. Vice President of Goldman, Sachs & Co., June 1992 to Present.
Independent Consultant from 1989-1992.
John W. Mosior, Age 58, 4900 Sears Tower, Chicago, Illinois 60606-6303. Vice
President. Vice President of Goldman, Sachs & Co. Manager, Shareholder
Servicing of Goldman Sachs Asset Management, November 1989 to Present.
Nancy L. Mucker, Age 47, 4900 Sears Tower, Chicago, Illinois 60606-6303. Vice
President, Vice President of Goldman, Sachs & Co., April 1985 to Present.
Manager, Shareholder Servicing of Goldman Sachs Asset Management, November 1989
to Present.
Scott M. Gilman, Age 37, One New York Plaza, New York, New York 10004.
Treasurer. Director, Mutual Fund Administration, Goldman Sachs Asset
Management, April 1994 to Present. Assistant Treasurer of Goldman Sachs Funds
Management, Inc., April 1993 to Present. Vice President of Goldman, Sachs &
Co., March 1990 to Present.
Michael J. Richman, Age 36, 85 Broad Street, New York, New York 10004.
Secretary. Associate General Counsel, Goldman Sachs Asset Management, February
1994 to Present. Vice President, Assistant General Counsel, Goldman, Sachs & Co.
and Counsel to the Funds Group, Goldman Sachs Asset Management, June 1992 to
Present. Formerly, Partner of Hale and Dorr from September 1991 to June 1992.
Formerly, Attorney-at-Law, Gaston & Snow from September 1985 to September
1991.
John Perlowski, Age 32, One New York Plaza, New York, 10004. Assistant
Secretary. Vice President, Goldman, Sachs & Co., July 1995 to Present.
Director/Fund Accounting & Custody, Investors Bank & Trust Co., November 1993 to
July 1995. Formerly, Manager, Audit Division, ARthur Andersen, September 1986
to November 1993.
Howard B. Surloff, Age 31, 85 Broad Street, New York, New York 10004. Assistant
Secretary. Assistant General Counsel and Vice President, Goldman, Sachs & Co,
since November 1995 to present. Vice President, Goldman, Sachs & Co., May 1994
to present. Gold Man, Sachs & Co. Counsel to the Funds Group, Goldman Sachs
Asset Management November 1993 to present. Formerly Associate of Shereff,
Friedman, Hoffman & Goodman, October 1990 to November 1993.
Kaysie Uniake, Age 35, One New York Plaza, New York, New York 10004. Assistant
Secretary. Vice President and Senior Portfolio Manager, Goldman Sachs Asset
Management 1988 to Present.
Elizabeth Alexander, Age 27, One New York Plaza, New York, New York 10004.
Assistant Secretary. Portfolio Manager, April 1996 to present. Junior Portfolio
Manager, 1995 to April 1996.
B-8
<PAGE>
Funds Trading Assistant, Goldman Sachs Asset Management 1993 to 1995. Formerly,
Compliance Analyst, Prudential Insurance, 1991 through 1993.
Steven Hartstein, Age 33, 85 Broad Street, New York, New York 10004. Assistant
Secretary. Legal Product Analyst, Goldman, Sachs & Co., June 1993 to present.
Funds Compliance Officer, Citibank Global Asset management, August 1991 to June
1993. Legal Assistant, Brown & Wood prior thereto.
Deborah Robinson, Age 25, One New York Plaza, New York, New York 10004.
Assistant Treasurer. Administrative Assistant, Goldman, Sachs & Co., January
1996 to Present. Secretary, Goldman, Sachs & Co., January 1994 to January 1996.
Secretary, Cleary, Gottlieb, Steen & Hamilton, September 1990 to January
1994.
As of October 31, 1996, the Trustees and Officers of the Fund, as a group, owned
in the aggregate less than 1% of the outstanding shares of the Fund. Each
officer holds comparable positions with certain other investment companies of
which Goldman, Sachs & Co., GSAM or an affiliate thereof is the investment
adviser and/or distributor.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended August
31, 1996:
<TABLE>
<CAPTION>
Pension or Total
Retirement
Compensation
Benefits Estimated From Goldman
Accrued Annual Sachs Mutual
Aggregate as Part Benefits Funds
Compensation of Trust's Upon including
Name of Trustee from the Trust Expenses Retirement the Trust)*
- --------------- -------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Gene R. Artemenko $10,000 -0- -0- $10,000
James C. Barr $10,000 -0- -0- $10,000
Edgar F. Callahan $0 -0- -0- -0-
Robert M. Coen $10,000 -0- -0- $10,000
John T. Collins $10,000 -0- -0- $10,000
Thomas S. Condit $10,000 -0- -0- $10,000
Rudolf J. Hanley $10,000 -0- -0- $10,000
John P. McNulty $0 -0- -0- -0-
John L. Ostby $10,000 -0- -0- $10,000
Wendell A. Sebastian $0 -0- -0- -0-
</TABLE>
* The Goldman Sachs Mutual Funds consisted of 72 mutual funds, including the
five series of the Trust, on August 31, 1996.
B-9
<PAGE>
ADVISORY AND OTHER SERVICES
Investment Adviser
As stated in the Prospectus, Goldman, Sachs & Co., through Goldman Sachs Asset
Management ("GSAM"), One New York Plaza, New York, New York 10004, a separate
operating division, acts as the Fund's investment adviser. See "Management-
Investment Adviser and Transfer Agent" in the Prospectus for a description of
the investment advisory duties of Goldman, Sachs & Co. Goldman, Sachs & Co.'s
administrative obligations include, subject to the general supervision of the
Trustees of the Fund, (a) providing supervision of all aspects of a Portfolio's
non-investment operations not performed by others pursuant to a Portfolio's
administration agreement or custodian agreement, (b) providing a Portfolio, to
the extent not provided pursuant to such agreements or the Fund's transfer
agency agreement, with personnel to perform such executive, administrative and
clerical services as are reasonably necessary to provide effective
administration of such Portfolio, (c) arranging, to the extent not provided
pursuant to such agreements, for the preparation, at a Portfolio's expense, of
its tax returns, reports to unitholders, periodic updating of the Prospectus and
reports filed with the Securities and Exchange Commission (the "SEC") and other
regulatory authorities, (d) providing the Fund, to the extent not provided
pursuant to such agreements, with adequate office space and necessary office
equipment and services, (e) maintaining all of a Portfolio's records other than
those maintained pursuant to such agreements, (f) to the extent requested by the
Trustees of the Fund, negotiating changes to the terms and provisions of the
Fund's administration agreement, the custodian agreement and the distribution
agreement with Callahan Financial Services, Inc., and (g) reviewing and paying
(or causing to be paid) all bills or statements for services rendered to a
Portfolio.
The advisory agreement provides that Goldman, Sachs & Co. may render similar
services to others so long as its services under such agreements are not
impaired thereby. The advisory agreement also provides that, subject to
applicable provisions of the 1940 Act, Goldman, Sachs & Co. will not be liable
for any error in judgment or mistake of law or for any loss suffered by the Fund
except a loss resulting from willful misfeasance, bad faith or gross negligence
in the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties, under the advisory agreement or the
transfer agency agreement. The advisory agreement provides further that the
Fund will indemnify Goldman, Sachs & Co. against certain liabilities, including
liabilities under federal and state securities laws, or, in lieu thereof,
contribute to payment for resulting losses.
The advisory agreement will remain in effect until March 31, 1997 with respect
to Target Maturity Portfolio (Feb 97) and
B-10
<PAGE>
Target Maturity Portfolio (May 97). After the initial term for a Portfolio, the
Advisory Agreement will continue from year to year thereafter with respect to a
Portfolio provided such continuance is specifically approved at least annually
(a) by the vote of a majority of the outstanding units of each Portfolio (as
defined under "Investment Restrictions") or by a majority of the Trustees of the
Fund, and (b) by the vote of a majority of the Trustees of the Fund who are not
parties to the advisory agreement or "interested persons" (as such term is
defined in the 1940 Act) of any party thereto, (the "Disinterested Trustees"),
cast in person at a meeting called for the purpose of voting on such approval.
The advisory agreement will terminate automatically if assigned (as defined in
the 1940 Act) and is terminable at any time without penalty with respect to a
Portfolio by the Trustees of the Fund or by vote of a majority of the
outstanding units of the relevant Portfolio (as defined under "Investment
Restrictions") on 60 days' written notice to Goldman, Sachs & Co. and by
Goldman, Sachs & Co. on 60 days' written notice to the Fund. The advisory
agreement may not be amended with respect to a Portfolio without the vote of a
majority of a Portfolio's outstanding units.
Applicable regulations of state securities commissions and the advisory
agreement will require Goldman, Sachs & Co. to rebate its advisory fee with
respect to a Portfolio in an amount equal to a portion of any excess of annual
Portfolio expenses (including the advisory fee, but excluding interest, taxes,
brokerage commissions and extraordinary expenses) over expense limitations
imposed by such state regulations, unless exemptions are obtained. Callahan
Credit Union Financial Services Limited Partnership ("CUFSLP") has agreed to
bear an amount equal to the remaining portion of any such excess.) The most
stringent expense limitation imposed by any of the states, as of this date, is
imposed by the California Department of Corporations which provides that the
aggregate annual expenses of a Portfolio will not exceed 2 1/2% of the first $30
million of the average net assets, 2% percent of the next $70 million of the
average net assets and 1 1/2% of the remaining average net assets of a Portfolio
for any fiscal year, determined monthly or at more frequent intervals on a
consistent basis.
Expenses borne by each Portfolio include, without limitation, the fees payable
to Goldman, Sachs & Co. and CUFSLP, the fees and expenses of the Fund's
custodian, filing fees for the registration or qualification of Portfolio units
under federal and state securities laws, expenses of the organization of the
Portfolios, the fees of any trade association of which the Fund is a member,
taxes, interest, costs of liability insurance, fidelity bonds, indemnification
or contribution, any costs, expenses or losses arising out of any liability of
or claim for damages or other relief asserted against the Fund for violation of
any law, legal, auditing and tax services fees and expenses,
B-11
<PAGE>
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Portfolios' unitholders and regulatory
authorities and compensation and expenses of the Trustees.
B-12
<PAGE>
For the periods indicated, the amount of the advisory fee incurred by each
Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Target Maturity
Portfolio (Feb 97)* $227,680 $227,279 $127,619
Target Maturity
Portfolio (May 97)** $158,732 $166,798 $ 47,744
</TABLE>
___________________
* Commenced operations February 15, 1994.
*** Commenced Operations May 23, 1994.
PORTFOLIO TRANSACTIONS
In connection with portfolio transactions for a Portfolio, which are generally
done at a net price without a broker's commission (i.e., a dealer is dealing
with a Portfolio as principal and receives compensation equal to the spread
between the dealer's cost for a given security and the resale price of such
security), the Portfolio's advisory agreement provides that Goldman, Sachs & Co.
shall attempt to obtain the best net price and the most favorable execution. On
occasions when Goldman, Sachs & Co. deems the purchase or sale of a security to
be in the best interests of a Portfolio as well as its other customers
(including any other portfolio or other investment company or advisory account
for which Goldman, Sachs & Co. acts as investment adviser), the advisory
agreement provides that Goldman, Sachs & Co., to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or
purchased for a Portfolio with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by Goldman, Sachs & Co. in
the manner it considers to be most equitable and consistent with its fiduciary
obligations to each Portfolio and such other customers. In some instances, this
procedure may adversely affect the size of the position obtainable for a
Portfolio. To the extent that the execution and price offered by more than one
dealer are believed to be comparable, the advisory agreement permits Goldman,
Sachs & Co., in its discretion, to purchase and sell portfolio securities to and
from dealers who provide the Fund with brokerage or research services.
During the fiscal year ended August 31, 1996, the Funds acquired and sold
securities issued by Lehman Brothers, Salomon Brothers Inc., Daiwa Securities
America, Inc., Chase Securities,
B-13
<PAGE>
Bear Stearns Companies, Inc., Morgan Stanley Group, Inc., Swiss Bank Corp. and
Union Bank, Nomura Securities International and Smith Barney Shearson, Inc. At
August 31, 1996, the Target Maturity Portfolio (Feb 97) held the following
amount of securities of its regular broker/dealers, as defined in Rule 10b-1
under the 1940 Act, or their partners ($ in thousands): Salomon Brothers Inc. -
$4,239; Chase Securities - $2,556; Bear Stearns Companies, Inc. -$1,200; Nomura
Securities International - $5,810; Smith Barney Shearson, Inc. - $1,200 and
Swiss Bank - $4,692. The Target Maturity Portfolio (May 97) held the following:
Salomon Brothers, Inc. - $1,625; Chase Securities - $305; Bear Stearns
Companies, Inc. - $405; Nomura Securities International - $1,987; Smith Barney
Shearson, Inc. - $405 and Swiss Bank - $1,598.
Activities of Goldman, Sachs & Co. and Its Affiliates and Other Accounts Managed
- --------------------------------------------------------------------------------
by Goldman, Sachs & Co. The involvement of Goldman, Sachs & Co. and its
- -----------------------
advisory affiliates, in the management of, or interest in , other accounts and
other activities of Goldman, Sachs & Co. may present conflicts of interest with
respect to the Portfolios or impede their investment activities.
Goldman, Sachs & Co. and its advisory affiliates have proprietary interests
in, and manage or advise, accounts or funds (including separate accounts and
other funds and collective investment vehicles) which have investment objectives
similar to those of the Portfolios and/or which engage in transactions in the
same types of securities and instruments as the Portfolios. Goldman, Sachs & Co.
and its affiliates are major participants in the fixed income markets, in each
case on a proprietary basis and for the accounts of customers. As such, Goldman,
Sachs & Co. and its affiliates are actively engaged in transactions in the same
securities and instruments in which the Portfolios invest. Such activities
could affect the prices and availability of the securities and instruments in
which the Portfolios will invest, which could have an adverse impact on each
Portfolio's performance. Such transactions, particularly in respect of
proprietary accounts or customer accounts other than those included in the
Advisor and its advisory affiliates' asset management activities, will be
executed independently of the Portfolios' transactions and thus at prices or
rates that may be more or less favorable. When the Advisor and its advisory
affiliates seek to purchase or sell the same assets for their managed accounts,
including a Portfolio, the assets actually purchased or sold may be allocated
among the accounts on a basis determined in its good faith discretion to be
equitable. In some cases, this system may adversely affect the size or the
price of the assets purchased or sold for the Portfolios.
From time to time, a Portfolios' activities may be restricted because of
regulatory restrictions applicable to Goldman, Sachs &
B-14
<PAGE>
Co. and its affiliates, and/or their internal policies designed to comply with
such restrictions. As a result, there may be periods, for example, when the
Advisor will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisor and/or its
affiliates are performing services or when position limits have been reached.
In connection with their management of the Portfolios, the Advisor may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman, Sachs & Co. and other affiliates. The Advisor will not be
under any obligation, however, to effect transactions on behalf of the
Portfolios in accordance with such analysis and models. In addition, neither
Goldman, Sachs & Co. nor any of its affiliates will have any obligation to make
available any information regarding their proprietary activities or strategies,
or the activities or strategies used for other accounts managed by them, for the
benefit of the management of the Portfolios and it is not anticipated that the
Advisor will have access to such information for the purpose of managing the
Portfolios. The proprietary activities or portfolio strategies of Goldman,
Sachs & Co. and its affiliates or the activities or strategies used for accounts
managed by them or other customer accounts could conflict with the transactions
and strategies employed by the Advisor in managing the Portfolios.
The results of each Portfolio's investment activities may differ significantly
from the results achieved by the Advisor and its affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman,
Sachs & Co. and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results achieved
by the Portfolios. Moreover, it is possible that the Portfolios will sustain
losses during periods in which Goldman, Sachs & Co. and its affiliates achieve
significant profits on their trading for proprietary or other accounts. The
opposite result is also possible.
An investment policy committee which may include partners of Goldman, Sachs &
Co. and its affiliates may develop general policies regarding Portfolio
activities, but will not be involved in the day-to-day management of the
Portfolios. In such instances, those individuals may, as a result, obtain
information regarding the Portfolios' proposed investment activities which is
not generally available to the public. In addition, by virtue of their
affiliation with Goldman, Sachs & Co., any such member of an investment policy
committee will have direct or indirect interests in the activities of Goldman,
Sachs & Co. and its affiliates in securities and investments similar to those in
which the Portfolios invest.
B-15
<PAGE>
In addition, certain principals and certain of the employees of the Advisor
are also principals or employees of Goldman, Sachs & Co. or its affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Portfolios should be aware.
The Advisor may enter into transactions and invest in instruments on behalf of
a Portfolio in which customers of Goldman, Sachs & Co. serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of the Portfolios, and such party
may have no incentive to assure that the Portfolios obtain the best possible
prices or terms in connection with the transactions. Goldman, Sachs & Co. and
its affiliates may also create, write or issue derivative instruments for
customers of Goldman, Sachs & Co. or its affiliates, the underlying securities
or instruments of which may be those in which the Portfolios invest or which may
be based on the performance of a Portfolio. The Portfolios may, subject to
applicable law, purchase investments which are the subject of an underwriting or
other distribution by Goldman, Sachs & Co. or its affiliates and may also enter
into transactions with other clients of Goldman, Sachs & Co. or its affiliates
where such other clients have interests adverse to those of the Portfolios. To
the extent affiliated transactions are permitted, the Portfolios will deal with
Goldman, Sachs & Co. and its affiliates on an arm's-length basis.
Each Portfolio will be required to establish business relationships with its
counterparties based on the Portfolio's own credit standing. Neither Goldman,
Sachs & Co. nor its affiliates will have any obligation to allow their credit to
be used in connection with a Portfolio's establishment of its business
relationships, nor is it expected that a Portfolio's counterparties will rely on
the credit of Goldman, Sachs & Co. or any of its affiliates in evaluating the
Portfolio's creditworthiness.
It is possible that a Portfolio's holdings will include securities of entities
for which Goldman, Sachs & Co. performs investment banking services as well as
securities of entities in which Goldman, Sachs & Co. makes a market. From time
to time, Goldman, Sachs & Co.'s activities may limit the Portfolios' flexibility
in purchases and sales of securities. When Goldman, Sachs & Co. is engaged in
an underwriting or other distribution of securities of an entity, the Advisor
may be prohibited from purchasing or recommending the purchase of certain
securities of that entity for the Portfolios.
Transfer Agent
Under its transfer agency agreement, Goldman, Sachs & Co. serves as transfer
agent and dividend disbursing agent for each
B-16
<PAGE>
Portfolio. Goldman, Sachs & Co. has undertaken to (a) process and provide
confirmations for purchase and redemption transactions, (b) answer customer
inquiries regarding the current yield of, and certain other matters (e.g.,
account status information) pertaining to, each Portfolio, (c) establish and
maintain separate accounts with respect to each unitholder, (d) provide periodic
statements showing account balances and (e) provide for the payment of dividends
or distributions to unitholders.
As compensation for the services rendered for a Portfolio as transfer agent,
Goldman, Sachs & Co. is also entitled to a fee of $18 per year for each
unitholder account plus reimbursement for certain expenses.
For the periods indicated, the amount of the transfer agency fees incurred by
each Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Target Maturity
Portfolio (Feb 97)* $2,593 $598 $324
Target Maturity
Portfolio (May 97)** $2,593 $376 $200
</TABLE>
___________________
* Commenced operations February 15, 1994.
** Commenced Operations May 23, 1994.
Administrator
As stated in the Prospectus, CUFSLP acts as administrator for the Portfolios.
In carrying out its duties, CUFSLP has undertaken to (a) review the preparation
of reports and proxy statements to unitholders, the periodic updating of the
Prospectus, this Additional Statement and the Registration Statement and the
preparation of all other reports filed with the SEC, (b) periodically review the
services performed by the investment adviser, the custodian, the distributors
and the transfer agent, and make such reports and recommendations to the
Trustees of the Fund concerning the performance of such services as the Trustees
reasonably request or as CUFSLP deems appropriate, (c) negotiate changes to the
terms and provisions of the Fund's advisory agreement, the custodian agreement,
the transfer agency agreement and the distribution agreement with Goldman, Sachs
& Co., to the extent requested by the Trustees of the Fund, and (d) provide the
Fund with personnel to perform such executive, administrative and clerical
services as may be reasonably requested by the Trustees of the Fund.
B-17
<PAGE>
In addition, CUFSLP has undertaken to: (a) provide facilities, equipment and
personnel to serve the needs of investors, including communications systems and
personnel to handle unitholder inquiries, (b) develop and monitor investor
programs for credit unions, (c) provide assistance in connection with the
processing of unit purchase and redemption orders as reasonably requested by the
transfer agent or the Fund, (d) inform Goldman, Sachs & Co. in connection with
the investment management of the Portfolios as to anticipated purchases and
redemptions by unitholders and new investors, (e) provide information and
assistance in connection with the registration of each Portfolio's units in
accordance with state securities requirements, (f) make available and distribute
information concerning the Portfolios to unitholders as requested by the Fund,
(g) handle unitholder problems and calls relating to administrative matters, (h)
provide advice and assistance concerning the regulatory requirements applicable
to credit unions that invest in a Portfolio, (i) provide assistance in
connection with the preparation of each Portfolio's periodic financial
statements and annual audit as reasonably requested by the Fund or the Fund's
independent accountants, (j) furnish stationery and office supplies, and (k)
generally assist in the Portfolios' operations.
For the periods indicated, the amount of the administration fee earned by CUFSLP
was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Target Maturity
Portfolio (Feb 97)* $47,545 $47,445 $26,652
Target Maturity
Portfolio (May 97)** $31,820 $33,360 $9,549
</TABLE>
___________________
* Commenced operations February 15, 1994.
** Commenced Operations May 23, 1994.
The administration agreement will remain in effect until March 31, 1997, and
will continue from year to year thereafter provided such continuance is
specifically approved at least annually (a) by the vote of a majority of the
Trustees and (b) by the vote of a majority of the Trustees of the Fund who are
not parties to the administration agreement or "interested persons" (as such
term is defined in the 1940 Act) of any party thereto (the "Disinterested
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. The administration agreement may be terminated with respect to a
Portfolio at any time, without the payment of any penalty, by a vote of a
majority of the Disinterested Trustees or by vote of the majority of the
outstanding units of the Portfolio (as
B-18
<PAGE>
defined under "Investment Restrictions") on 60 days' written notice to CUFSLP
and by CUFSLP on 60 days' written notice to the Fund. The administration
agreement provides that it may be amended by the mutual consent of the Fund and
CUFSLP, but the consent of the Fund must be approved by vote of a majority of
the Disinterested Trustees cast in person at a meeting called for the purpose of
voting on such amendment. The administration agreement will terminate
automatically if assigned (as defined in the 1940 Act).
The administration agreement provides that CUFSLP will not be liable for any
error in judgment or mistake of law or for any loss suffered by the Fund except
a loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties, under the agreement. The agreement
provides further that the Fund will indemnify CUFSLP against certain
liabilities, including liabilities under the federal and state securities laws
or, in lieu thereof, contribute to payment for resulting losses.
The thirty-eight credit unions listed below are the limited partners of CUFSLP,
which created Trust for Credit Unions in conjunction with Goldman, Sachs & Co.
As of June 30, 1996, these credit unions had total assets of $23.3 billion from
twenty-two different states.
J. David Osborne, President
Larry Hoffman, Vice President-Finance
Anheuser-Busch Employees Credit Union
Larry Morgan, President
APCO Employees Credit Union
Douglas Ferraro, President
Kyle M. Markland, Sr. Vice President Finance
Bellco First Federal Credit Union
Gary Oakland, President
T. Brad Canfield, Vice President
Accounting/Investments
Boeing Employees Credit Union
John Siefken, President
Sandy Andrews, Sr. Vice President
Citizens Equity Federal Credit Union
Dean Nelson, President
Bryan Bennett, Vice President-Controller
City-County Federal Credit Union
B-19
<PAGE>
Larry T. Wilson, President
Barry Hooks, Finance Manager
Coastal Federal Credit Union
Tom Budd, Controller
Ron Unger, President
Dearborn Federal Credit Union
Donald Hersman, President
Kendrick Smith, Portfolio Manager
Eastern Financial Federal Credit Union
Thomas E. Sargent, President
Michael Osborne, Chief Financial Officer
First Technology Federal Credit Union
Brian Crawford, Controller
GTE Federal Credit Union
Stan Hollen, President
Judy Flores, Chief Financial Officer
The Golden 1 Credit Union
Charles Cockburn, President
Hudson Valley Federal Credit Union
Paul Horgen, President
Bobbi Olson - Chief Financial Officer
IBM Mid America Employees Federal Credit Union
Bob Jansen, President
Inland Employees Federal Credit Union
Jean Yokum, President
Greg Manweiler, Vice President Finance
Langley Federal Credit Union
Frank Berrish, President
LICU Corporate Federal Credit Union
Dennis Pierce, President
Dennis Mann, Senior Vice President
Members America Credit Union
Joseph Bressi, President
Montgomery County Teachers Federal Credit Union
Douglas M. Allman, President
NASA Federal Credit Union
Lindsay Alexander, President
B-20
<PAGE>
Tim Duvall, Finance Division Manager
NIH Federal Credit Union
Brad Beal, President
Paul Parrish, Sr. Vice President
Chief Financial Officer
Nevada Federal Credit Union
Joseph S. Coey, President
New Mexico Educators Federal Credit Union
Michael J. Maslak, President
Dave Doss, Chief Financial Officer
North Island Federal Credit Union
Rudy Hanley, President
Paul Sundermann, Chief Financial Officer
Orange County Teachers Federal Credit Union
Edgar F. Callahan, President
Andrew Hunter, Chief Financial Officer
Patelco Credit Union
Jeffrey Farver, President
San Antonio Federal Credit Union
Gregory Thomas, President
Space Coast Credit Union
Stephan Winninger, President
State Employees Credit Union
Donald Granato, President
Steel Works Community Federal Credit Union
Richard Rice, President
Teachers Credit Union
Betty Hobbs, President
Roy Dobbs, Executive Vice President
Tennessee Teachers Credit Union
Robert Siravo, President
Travis Federal Credit Union
Gregory Blount, President
Tropical Federal Credit Union
Philip L. Hart, President
Tulsa Federal Employees Credit Union
B-21
<PAGE>
Leonard Greene, President
Unified Federal Credit Union
E. Burton Eubanks, President
University Federal Credit Union
Frank Berrish, President
Visions Federal Credit Union
Custodian
State Street Bank and Trust Company ("State Street"), P.O. Box 1713, Boston,
Massachusetts 02105, is the custodian of the Fund's portfolio securities and
cash. State Street also maintains the Fund's accounting records. The Northern
Trust Company ("Northern") has been retained by State Street to serve as its
agent in connection with certain wire receipts and transfers of funds.
Auditors
Arthur Andersen LLP, independent public accountants, One International Place,
Boston, Massachusetts, 02110, have been selected as auditors of the Fund. In
addition to audit services, Arthur Andersen LLP, prepares the Fund's federal and
state tax returns, and provide consultation and assistance on accounting,
internal control and related matters. The financial statements of the Target
Maturity Portfolio (Feb 97) and Target Maturity Portfolio (May 97) are
incorporated by reference into this Additional Statement (under "Financial
Statements") from the Fund's annual report to unitholders for the fiscal year
ended August 31, 1996(the "Annual Report") and the data set forth under
"Financial Highlights" in the Prospectus have been audited by Arthur Andersen
LLP, as indicated in their report with respect thereto, which is incorporated by
reference in reliance upon the authority of said firm as experts in giving said
report.
DESCRIPTION OF UNITS
As the Prospectus indicates, the Fund's Trust Agreement permits the Trustees to
issue an unlimited number of full and fractional units of beneficial interest of
one or more separate series representing interests in different investment
portfolios. Under the terms of the Trust Agreement, each unit of each series
has a par value of $.001, represents an equal proportionate interest in a
particular investment portfolio with each other unit and is entitled to such
dividends out of the income belonging to such investment portfolio as are
declared by the Trustees. All units of a Portfolio that are outstanding on its
Termination Date will be redeemed by the Fund at their net asset value, and each
B-22
<PAGE>
Portfolio will be liquidated without further unitholder action. Units do not
have preemptive or conversion rights. Units when issued as described in the
Prospectus are fully paid and nonassessable, except as expressly set forth
below.
Any Trustee may be removed by the Fund's unitholders with or without cause at
any time by vote of those unitholders holding not less than two-thirds of the
units then outstanding, cast in person or by proxy at any meeting called for
that purpose. The Trustees shall promptly call a meeting of unitholders for the
purpose of voting upon the question of removal of any Trustee when requested in
writing to do so by the holders of record of not less than 10% of the
outstanding units.
Whenever ten or more unitholders of record who have been such for at least six
months preceding the date of application, and who hold in the aggregate either
units having a net asset value of at least $25,000 or at least 1% of the
outstanding units, whichever is less, shall apply to the Trustees in writing
stating that they wish to communicate with other unitholders with a view to
obtaining signatures to a request for a unitholder meeting and include with such
application a form of communication and request which they wish to transmit, the
Trustees shall within five business days after receipt of such application
either (1) afford to such applicants access to a list of the names and addresses
of all unitholders as recorded on the books of the Fund or investment portfolio
involved; or (2) inform such applicants as to the approximate number of
unitholders of record, and the approximate cost of mailing to them the proposed
form of communication and request and, upon receipt of the material and the
expenses of mailing, shall promptly mail such materials to all unitholders
unless a majority of the Trustees believe that either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law. The Trustees shall thereafter comply with any order entered by
the SEC and the requirements of the 1940 Act and the Securities Exchange Act of
1934.
In addition to Trustee election or removal as described in the Prospectus and as
further described herein, the Trust Agreement provides for unitholder voting
only (a) with respect to any contract as to which unitholder approval is
required by the 1940 Act, (b) with respect to any termination or reorganization
of the Fund or any investment portfolio to the extent and as provided in the
Trust Agreement (the liquidation of a Portfolio at the relevant Termination Date
is not subject to further unitholders action), (c) with respect to any amendment
of the Trust Agreement (other than amendments establishing and designating new
investment portfolios, abolishing investment portfolios, changing the name of
the Fund or the name of any investment portfolio, supplying any omission, curing
any ambiguity or curing,
B-23
<PAGE>
correcting or supplementing any provision thereof which is internally
inconsistent with any other provision thereof or which is defective or
inconsistent with the 1940 Act or with the requirements of the Internal Revenue
Code and applicable regulations for the Fund's obtaining the most favorable
treatment thereunder available to regulated investment companies), which
amendments require approval by a majority of the units entitled to vote, (d) to
the same extent as the stockholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Fund or
the unitholders, and (e) with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, the Trust Agreement, the By-Laws of the
Fund, any registration of the Fund with the SEC or any State, or as the Trustees
may consider necessary or desirable.
Under Massachusetts law, there is a possibility that unitholders of a business
trust could, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Trust Agreement contains an express
disclaimer of unitholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trustees or any officer. The
Trust Agreement provides for indemnification out of Fund property of any
unitholder charged or held personally liable for the obligations or liabilities
of the Fund solely by reason of being or having been a unitholder of the Fund
and not because of such unitholder's acts or omissions or for some other reason.
The Trust Agreement also provides that the Fund shall, upon proper and timely
request, assume the defense of any charge made against any unitholder as such
for any obligation or liability of the Fund and satisfy any judgment thereon.
Thus, the risk of a unitholder's incurring financial loss on account of
unitholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations.
The Trust Agreement provides that on any matter submitted to a vote of the
unitholders, all units entitled to vote shall be voted in the aggregate and not
by investment portfolio except that (a) as to any matter with respect to which a
separate vote of any investment portfolio is required by the 1940 Act or would
be required under the Massachusetts Business Corporation Law if the Fund were a
Massachusetts business corporation, such requirements as to a separate vote by
the investment portfolio shall apply in lieu of the aggregate voting as
described above, (b) in the event that the separate vote requirements referred
to in (a) above apply with respect to one or more investment portfolios, then
subject to (c) below, the units of all other investment portfolios shall vote as
a single investment portfolio, and (c) as to any matter which does not affect
the interest of a particular investment portfolio, only unitholders
B-24
<PAGE>
of the affected investment portfolio shall be entitled to vote thereon.
Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Fund shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding units of each
investment portfolio affected by such matter. Rule 18f-2 further provides that
an investment portfolio shall be deemed to be affected by a matter unless the
interests of each investment portfolio in the matter are identical or the matter
does not affect any interest of the investment portfolio. Under the Rule, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of the outstanding units of such
investment portfolio. However, the Rule also provides that the ratification of
the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by unitholders of the Fund voting together in the aggregate without regard
to a particular investment portfolio.
As of October 18, 1996, the outstanding units of the Target Maturity Portfolio
(Feb 97) and Target Maturity Portfolio (May 97) were 9,809,980.030 and
6,350,000.000, respectively. To the Fund's knowledge, as of such date, the only
entities which may have owned 5% or more of the outstanding units of each
portfolio were: Target Maturity Portfolio (Feb 97) - Captial Corporate Federal
CU, 4807 Spicewood Springs Rd, Suite 5100, Austin, TX 78759-8438 (5.10%),
Citizens Equity FCU, 5700 N. Middle Road, Peoria, IL 61607 (7.14%), Eastern
Financial Federal CU, 700 South Royal Poinciana Blvd., Miami Springs, FL 33166
(5.10%), Hudson Valley Federal Credit Union, P.O. Box 1750, Poughkeepsie, NY
12601-0750 (5.10%), Langley Federal Credit Union, 1055 West Mercury Blvd, P.O.
Box 7463, Hampton, VA 23666 (5.10%), Orange County Teachers FCU, P.O. Box 11547,
Santa Ana, CA 92711 (17.33%) and Patelco Credit Union, 156 2nd Street, San
Francisco, CA 94105 (20.39%). Target Maturity Portfolio (May 97) - Boein
Employees Credit Union, 12770 Gateway Drive, Tukwila, WA 98124-9750 (7.87%),
Dearborn Federal Credit Union, 400 Town Center Drive, Dearborn, MI 48126
(9.45%), Eastern Financial Credit Union, 700 South Royal Poinciana Blvd., Miami
Springs, FL 33166 (7.78%), Langley Federal Credit Union, 1055 West Mercury
Blvd., P.O. Box 7463, Hampton, VA 23666 (7.87%), Orange County Teachers FCU,
P.O. Box 11547, Santa Ana, CA 92711 (7.87%), Patelco Credit Union, 156 Second
Street, San Francisco, CA 94105 (7.87%), Space Coast Credit Union, P.O. Box
2470, Melbourne, FL 32902 (14.17%) and Visions FCU, One Credit Union Plaza, 24
McKinley Ave, Endicott, NY 13760 (6.30%).
B-25
<PAGE>
ADJUSTABLE AND FIXED RATE MORTGAGE LOANS AND
MORTGAGE-RELATED SECURITIES
The Nature of Adjustable and Fixed Rate Mortgage Loans
The following is a general description of the adjustable and fixed rate mortgage
loans which may be expected to underlie the mortgage-related securities in which
each Portfolio invests. The actual mortgage loans underlying any particular
issue of mortgage-related securities may differ materially from those described
below.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs included in a mortgage pool will
generally provide for a fixed initial mortgage interest rate for a specified
period of time. Thereafter, the interest rates (the "Mortgage Interest Rates")
may be subject to periodic adjustment based on changes in the applicable index
rate (the "Index Rate"). The adjusted rate would be equal to the Index Rate
plus a gross margin, which is a fixed percentage spread over the Index Rate
established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some mortgagors may
find difficult to make. However, certain ARMs provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime maximum
rate or below an applicable lifetime minimum rate for such ARM. Certain ARMs
may also be subject to limitations on the maximum amount by which the Mortgage
Interest Rate may adjust for any single adjustment period (the "Maximum
Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide instead or
as well for limitations on changes in the monthly payment on such ARMs.
Limitations on monthly payments can result in monthly payments which are more or
less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In
the event that a monthly payment is insufficient to pay the interest accruing on
a Negatively Amortizing ARM, any such excess interest is added to the principal
balance of the loan, causing negative amortization, and will be repaid through
future monthly payments. It may take borrowers under Negatively Amortizing ARMs
longer periods of time to accumulate equity and may increase the likelihood of
default by such borrowers. In the event that a monthly payment exceeds the sum
of the interest accrued at the applicable Mortgage Interest Rate and the
principal payment which would have been necessary to amortize the outstanding
principal balance over the remaining term of the loan, the excess (or
"accelerated amortization") further reduces the principal balance of the ARM.
Negatively Amortizing ARMs do not provide for the extension of their original
maturity to accommodate changes in their Mortgage Interest Rate. As a result,
unless there is a periodic
B-26
<PAGE>
recalculation of the payment amount (which there generally is), the final
payment may be substantially larger than the other payments. These limitations
on periodic increases in interest rates and on changes in monthly payments
protect borrowers from unlimited interest rate and payment increases, but may
result in increased credit exposure and prepayment risks for lenders.
There are a number of indices which provide the basis for rate adjustments on
ARMs. Commonly utilized indices include the one-year, three-year and five-year
constant maturity Treasury rates, the three-month Treasury Bill rate, the 180-
day Treasury Bill rate, rates of longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month, or one-year London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Home Loan Bank Cost of Funds Index, tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. The degree of
volatility in the market value of a Portfolio and therefore in the net asset
value of a Portfolio's units will be influenced by the length of the interest
rate reset periods and the degree of volatility in the applicable indices.
Fixed Rate Mortgage Loans. Generally, fixed rate mortgage loans eligible for
inclusion in a mortgage pool (the "Fixed Rate Mortgage Loans") will bear simple
interest at fixed annual rates and have original terms to maturity ranging from
5 to 40 years. Fixed Rate Mortgage Loans generally provide for monthly payments
of principal and interest in substantially equal installments for the
contractual term of the mortgage note in sufficient amounts to amortize fully
principal by maturity, although certain Fixed Rate Mortgage Loans provide for a
large final "balloon" payment upon maturity.
Legal Considerations of Mortgage Loans. The following is a discussion of
certain legal and regulatory aspects of the ARMs and Fixed Rate Mortgage Loans
expected to underlie the mortgage-related securities in which a Portfolio may
invest. These regulations may impair the ability of a mortgage lender to
enforce its rights under the mortgage documents. These regulations may
adversely affect a Portfolio's investments in both privately issued mortgage-
related securities and those issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
1. Foreclosure. A foreclosure of a defaulted mortgage loan may be delayed due
to compliance with statutory notice or service of process provisions,
difficulties in locating necessary parties or legal challenges to the
mortgagee's right to foreclose. Depending upon market conditions, the
ultimate
B-27
<PAGE>
proceeds of the sale of foreclosed property may not equal the amounts owed on
the mortgage loan.
Further, courts in some cases have imposed general equitable principles upon
foreclosure generally designed to relieve the borrower from the legal effect
of default and have required lenders to undertake affirmative and expensive
actions to determine the causes for the default and the likelihood of loan
reinstatement.
2. Rights of Redemption. In some states, after foreclosure of a mortgage
loan, the borrower and foreclosed junior lienors are given a statutory period
in which to redeem the property, which right may diminish the mortgagee's
ability to sell the property.
3. Legislative Limitations. In addition to anti-deficiency and related
legislation, numerous other federal and state statutory provisions, including
the federal bankruptcy laws and state laws affording relief to debtors, may
interfere with or affect the ability of a secured mortgage lender to enforce
its security interest. For example, a bankruptcy court may grant the debtor a
reasonable time to cure any default on a mortgage loan, including a payment
default. The court, in certain instances, may also reduce the monthly
payments due under such mortgage loan, change the rate of interest, reduce the
principal balance of the loan to the then-current appraised value of the
related mortgage property, alter the mortgage loan repayment schedule, and
grant priority to certain liens over the lien of the mortgage loan. If a
court relieves a borrower's obligation to repay amounts otherwise due on a
mortgage loan, the mortgage loan servicer will not be required to advance such
amounts, and any loss may be borne by the holders of securities backed by such
loans. In addition, numerous federal and state consumer protection laws
impose penalties for failure to comply with specific requirements in
connection with origination and servicing of mortgage loans.
4. "Due on Sale" Provisions. Fixed rate mortgage loans may contain a so
called "due on sale" clause permitting acceleration of the maturity of the
mortgage loan if the borrower transfers the property. The Garn St. Germain
Depository Institutions Act of 1982 sets forth nine specific instances in
which no mortgage lender covered by that Act may exercise a "due on sale"
clause upon a transfer of property. The inability to enforce a "due on sale"
clause or the lack of such a clause in a mortgage loan documents may result in
a mortgage loan being assumed by a purchaser of the property that bears an
interest rate below the current market rate.
5. Usury Laws. Some states prohibit charging interest on mortgage loans in
excess of statutory limits. If such limits
B-28
<PAGE>
are exceeded, substantial penalties may be incurred and, in some cases,
enforceability of the obligation to pay principal and interest may be
affected.
Mortgage-Related Securities
Mortgage-related securities represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
The investment characteristics of adjustable and fixed rate mortgage-related
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal of mortgage-related
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans. These differences can result in significantly greater price and
yield volatility than is the case with traditional fixed income securities. In
general, if a Portfolio purchases mortgage-related securities at a premium, a
faster than expected prepayment rate will reduce both the market value and the
yield to maturity from those which were anticipated. A prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity and market value. Conversely, if a Portfolio purchases mortgage-
related securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity
and market value.
Prepayments on a pool of mortgage loans are influenced by changes in current
interest rates and a variety of economic, geographic, social and other factors
(such as changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' equity in the mortgage properties and servicing decisions). The
timing and level of prepayments cannot be predicted. Generally, however,
prepayments on mortgage loans will increase during a period of falling mortgage
interest rates and decrease during a period of rising mortgage interest rates.
Accordingly, the amounts of prepayments available for reinvestment by a
Portfolio are likely to be greater during a period of declining mortgage
interest rates. If general interest rates decline, such prepayments are likely
to be reinvested at lower interest rates than the Portfolio was earning on the
mortgage-related securities that were prepaid.
The rate of interest on mortgage-related securities is normally lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may
B-29
<PAGE>
vary from the coupon rate, even if adjustable, if the mortgage-related
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the issuer
receives mortgage payments from the servicer and the time the issuer makes the
payments on the mortgage-related securities and this delay reduces the effective
yield to the holder of such securities.
The issuers of certain mortgage-related securities may elect to have the pool of
mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"), which
are subject to special federal income tax rules. A description of the types of
mortgage-related securities in which a Portfolio may invest is provided below.
The descriptions are general and summary in nature, and do not detail every
possible variation of the types of securities that are permissible for a
Portfolio.
1. Private Mortgage Pass-Through Securities
General Characteristics. Privately issued mortgage pass-through securities
("Private Mortgage Pass-Throughs") represent participation interests in pools of
mortgage loans conveyed to the issuing trust and generally serviced for the
trust by the originator. For federal income tax purposes, such trusts are
generally treated as grantor trusts or REMICs and, in either case, are generally
not subject to any significant amount of federal income tax at the entity level.
Private Mortgage Pass-Throughs (whether fixed or adjustable rate) provide for
monthly payments that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
Each mortgage pool underlying Private Mortgage Pass-Throughs will consist of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instruments creating a first lien on
the mortgaged properties (the "Mortgaged Properties"). The Mortgaged Properties
may consist of residential properties upon which is located detached individual
dwelling units, individual condominium units, townhouses, duplexes, triplexes,
fourplexes, rowhouses, manufactured homes, individual units in planned unit
developments and other attached dwelling units, vacation homes, second homes,
residential investment properties, multi-family units or properties with mixed
residential and commercial uses. A trust fund with respect to which a REMIC
election has been made may include regular interests in other REMICs which in
turn will ultimately evidence interests in mortgage loans.
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The seller or servicer of the underlying mortgage obligations will generally
make representations and warranties to certificate holders as to certain
characteristics of the mortgage loans and as to the accuracy of certain
information furnished to the trustee in respect of each such mortgage loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the related certificate holders in a mortgage loan, the
seller or servicer generally will be obligated either to cure the breach in all
material respects, to repurchase the mortgage loan or, if the related agreement
so provides, to substitute in its place a mortgage loan pursuant to the
conditions set forth therein. Such a repurchase or substitution obligation
generally constitutes the sole remedy available to the related
certificate holders or the trustee for a material breach of any such
representation or warranty by the seller or servicer.
Description of Certificates. Private Mortgage Pass-Throughs may be issued in
one or more classes of senior certificates and one or more classes of
subordinate certificates. Each such class may bear a different pass-through
rate. Generally, each certificate will evidence the specified interest of the
holder thereof in the payments of principal or interest or both in respect of
the mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index. Subclasses of certificates
as to which a REMIC election has been made may have the features and structures
described below under the caption "Multiple Class Pass-Through Securities and
Collateralized Mortgage Obligations."
Generally, each registered holder of a certificate will be entitled to receive
its pro rata share of monthly distributions of all or a portion of principal of
--------
the underlying mortgage loans or of interest on the principal balances thereof,
which accrues at the applicable mortgage pass-through rate, or both. The
difference between the mortgage interest rate and the related mortgage pass-
through rate (less the amount, if any, of retained yield) with respect to each
mortgage loan will generally be paid to the servicer as a servicing fee. Since
certain adjustable rate mortgage loans included in a mortgage pool may provide
for deferred interest (i.e., negative amortization), the amount of interest
actually paid by a mortgagor in any month may be less than the amount of
interest accrued on the outstanding principal
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balance of the related mortgage loan during the relevant period at the
applicable mortgage interest rate. In such event, the amount of interest that
is treated as deferred interest will be added to the principal balance of the
related mortgage loan and will be distributed pro rata to certificateholders as
--------
principal of such mortgage loan when paid by the mortgagor in subsequent monthly
payments or at maturity.
Ratings. The ratings assigned by an NRSRO to Private Mortgage Pass-Throughs
address the likelihood of the receipt of all distributions on the underlying
mortgage loans by the related certificateholders under the agreements pursuant
to which such certificates are issued. A rating agency's ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on such mortgage pool
is adequate to make payments required by such certificates. A rating agency's
ratings on such certificates do not, however, constitute a statement regarding
frequency of prepayments on the related mortgage loans. In addition, the rating
assigned by a rating agency to a certificate does not address the remote
possibility that, in the event of the insolvency of the issuer of certificates
where a subordinated interest was retained, the issuance and sale of the senior
certificates may be recharacterized as a financing and, as a result of such
recharacterization, payments on such certificates may be affected.
Types of Credit Support. Mortgage pools created by non-governmental issuers
generally offer a higher yield than government and government-related pools
because of the absence of direct or indirect government or agency payment
guarantees. To lessen the effect of failures by obligors on underlying assets
to make payments, Private Mortgage Pass-Throughs may contain elements of credit
support. Such credit support falls into two classes: liquidity protection and
protection against ultimate default by an obligor on the underlying mortgages.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pools of mortgages, the provision of a reserve fund, or
a combination thereof, to ensure, subject to certain limitations, that scheduled
payments on the underlying pool are made in a timely fashion. Protection
against ultimate default ensures ultimate payment of the obligations on at least
a portion of the mortgages in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained from third parties,
through various means of structuring the transaction or through a combination of
such approaches.
In addition, one or more classes of certificates of Private Mortgage Pass-
Throughs may be subordinate certificates which
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provide that the rights of the subordinate certificateholders to receive any or
a specified portion of distributions with respect to the underlying mortgage
loans may be subordinated to the rights of the senior certificateholders. If so
structured, the subordination feature may be enhanced by distributing to the
senior certificateholders on certain distribution dates, as payment of
principal, a specified percentage (which generally declines over time) of all
principal prepayments received during the preceding prepayment period ("shifting
interest credit enhancement"). This will have the effect of accelerating the
amortization of the senior certificates while increasing the interest in the
trust fund evidenced by the subordinate certificates. Increasing the interest
of the subordinate certificates relative to that of the senior certificates is
intended to preserve the availability of the subordination provided by the
subordinate certificates. In addition, because the senior certificateholders in
a shifting interest credit enhancement structure are entitled to receive a
percentage of principal prepayments which is greater than their proportionate
interest in the trust fund, the rate of principal prepayments on the mortgage
loans will have an even greater effect on the rate of principal payments and the
amount of interest payments on, and the yield to maturity of, the senior
certificates.
In addition to providing for a preferential right of the senior
certificateholders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificateholders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance the
likelihood of timely receipt by senior certificateholders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificateholders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated
amount is reduced to zero, senior certificateholders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in the Reserve Fund will generally be used to offset the
amount of any losses realized with respect to the mortgage loans ("Realized
Losses"). Realized Losses remaining after application of such amounts will
generally be applied to reduce the ownership
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interest of the subordinate certificates in the mortgage pool. If the
subordinated amount has been reduced to zero, Realized Losses generally will be
allocated pro rata among all certificateholders in proportion to their
--------
respective outstanding interests in the mortgage pool.
As an alternative, or in addition to the credit enhancement afforded by
subordination, credit enhancement for Private Mortgage Pass-Throughs may be
provided by mortgage insurance, by the deposit of cash, certificates of deposit,
letters of credit, a limited guaranty or by such other methods as are acceptable
to a rating agency. In certain circumstances, such as where credit enhancement
is provided by insurance, guarantees or a letter of credit, the security is
subject to credit risk because of its exposure to an external credit enhancement
provider.
Voluntary Advances. Generally, in the event of delinquencies in payments on the
mortgage loans underlying the Private Mortgage Pass-Throughs, the servicer
agrees to make advances of cash for the benefit of certificateholders, but only
to the extent that it determines such voluntary advances will be recoverable
from future payments and collections on the mortgage loans or otherwise.
Optional Termination. Generally, the servicer may, at its option with respect
to any certificates, repurchase all of the underlying mortgage loans remaining
outstanding at such time as the aggregate outstanding principal balance of such
mortgage loans is less than a specified percentage (generally 5-10%) of the
aggregate outstanding principal balance of the mortgage loans as of the cut-off
date specified with respect to such series.
2. Government Mortgage-Related Securities
As stated in the Prospectus, certain mortgage-related securities acquired by a
Portfolio will be issued or guaranteed by the U.S. Government or one of its
agencies, instrumentalities or sponsored enterprises, including but not limited
to the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC") ("Government Mortgage-Related Securities"). GNMA securities are
backed by the full faith and credit of the U.S. Government, which means that the
U.S. Government guarantees that the interest and principal will be paid when
due. FNMA securities and FHLMC securities are not backed by the full faith and
credit of the U.S. Government; however, because of their ability to borrow from
the U.S. Treasury, they are generally viewed by the market as high quality
securities with minimal credit risks. There are several types of these
guaranteed mortgage-related securities currently available, including guaranteed
mortgage pass-through certificates and multiple-class securities, which include
guaranteed REMIC pass-through
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certificates and stripped mortgage-backed securities. A Portfolio will be
permitted to invest in other types of Government Mortgage-Related Securities
that may be available in the future to the extent such investment is consistent
with its investment policies and objective.
GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of the
United States. GNMA is authorized to guarantee the timely payment of the
principal of and interest on certificates that are based on and backed by a pool
of mortgage loans insured by the Federal Housing Administration ("FHA Loans"),
or guaranteed by the Veterans Administration ("VA Loans"), or by pools of other
eligible mortgage loans. In order to meet its obligations under any guaranty,
GNMA is authorized to borrow from the United States Treasury in an unlimited
amount.
FNMA Certificates. FNMA is a stockholder-owned corporation chartered under an
act of the United States Congress. Each FNMA Certificate is issued and
guaranteed by and represents an undivided interest in a pool of mortgage loans
(a "Pool") formed by FNMA. Each Pool consists of residential mortgage loans
("Mortgage Loans") either previously owned by FNMA or purchased by it in
connection with the formation of the Pool. The Mortgage Loans may be either
private Mortgage Loans (i.e., not insured or guaranteed by any U.S. Government
agency) or Mortgage Loans that are either insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans Administration ("VA"). The
lenders originating and servicing the Mortgage Loans are subject to certain
eligibility requirements established by FNMA.
FNMA has certain contractual responsibilities. With respect to each Pool, FNMA
is obligated to distribute scheduled monthly installments of principal and
interest after FNMA's servicing and guaranty fee, whether or not received, to
Certificate holders. FNMA is also obligated to distribute to holders of
Certificates an amount equal to the full principal balance of any foreclosed
Mortgage Loan, whether or not such principal balance is actually recovered. The
obligations of FNMA under its guaranty of the FNMA Certificates are obligations
solely of FNMA.
FHLMC Certificates. FHLMC is a corporate instrumentality of the United States.
The principal activity of FHLMC currently is the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and their resale in the form of mortgage securities, primarily
FHLMC Certificates. A FHLMC Certificate represents a pro rata interest in a
group of mortgage loans or participations in mortgage loans (a "FHLMC
Certificate group") purchased by FHLMC.
FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest at the rate provided for by such Certificate (whether or not
received on the underlying loans).
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FHLMC also guarantees to each registered Certificate holder ultimate collection
of all principal of the related mortgage loans, without any offset or deduction,
but does not, generally, guarantee the timely payment of scheduled principal.
The obligations of FHLMC under its guaranty of FHLMC Certificates are
obligations solely of FHLMC.
The mortgage loans underlying the FHLMC Certificates will consist of adjustable
rate or fixed rate mortgage loans with original terms of maturity of between ten
and thirty years. Substantially all of these mortgage loans are secured by
first liens on one- to four-family residential properties or multi-family
projects. Each mortgage loan must meet the applicable standards set forth in
the law creating FHLMC. A FHLMC Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and participations comprising another FHLMC Certificate group.
3. Multiple Class Pass-Through Securities and
Collateralized Mortgage Obligations
As stated, a Portfolio may invest in multiple class mortgage-related securities,
including collateralized mortgage obligations and REMIC pass-through or
participation certificates (collectively, "CMOs"). These multiple class
mortgage-related securities may be issued by U.S. Government agencies,
instrumentalities or sponsored enterprises, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs represent direct ownership interests in a pool of mortgage loans
or mortgage pass-through securities (the "Mortgage Assets"), the payments on
which are used to make payments on the CMOs. Investors may purchase beneficial
interests in CMOs, which are known as "regular" interests or "residual"
interests. Each Portfolio does not intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and is scheduled to be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among the
several classes of a CMO in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final scheduled distribution dates. Thus, no
payment of principal will be made on any class of sequential pay
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CMOs until all other classes having an earlier final scheduled distribution date
have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final scheduled distribution date of each class.
A wide variety of CMOs may be issued in the parallel pay or sequential pay
structures. These securities include accrual certificates (also known as "Z-
Bonds"), which do not accrue interest at a specified rate until all other
certificates having an earlier final scheduled distribution date have been
retired and such "Z-Bonds" are converted thereafter to an interest-paying
security, and planned amortization class ("PAC") certificates, which are
parallel pay CMOs which generally require that specified amounts of principal be
applied on each payment date to one or more classes of a CMO (the "PAC
Certificates"), even though all other principal payments and prepayments of the
Mortgage Assets are then required to be applied to one or more other classes of
the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
scheduled distribution date of each class of PAC. In order to create PAC
tranches, one or more tranches generally must be created that absorb most of the
prepayment volatility in the underlying Mortgage Assets. These tranches tend to
have market prices and yields that are much more volatile than the PAC classes.
FNMA CMOs are issued and guaranteed as to timely distribution of principal and
interest by FNMA. That is to say, FNMA will be obligated to distribute on a
timely basis to holders of FNMA CMO certificates required installments of
principal and interest and to distribute the principal balance of each class of
a CMO in full, whether or not sufficient funds are otherwise available.
For FHLMC CMOs, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates ("PCs"). PCs represent undivided
interests in specified level payment, residential mortgages or participations
therein purchased by FHLMC and placed in a PC pool. With respect to principal
payments on PCs, FHLMC generally guarantees ultimate collection of all principal
of the related mortgage loans without
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offset or deduction. FHLMC also guarantees timely payment of principal on
certain PCs, referred to as "Gold PCs."
Legislative and Regulatory Developments in Government-Sponsored Enterprises
In the past several years, there have been a number of federal legislative and
regulatory developments which may ultimately have a significant impact on the
business and operations of FHLMC, FNMA and other government-sponsored
enterprises ("GSEs").
Legislation Affecting FNMA and FHLMC: On October 28, 1992 the President signed
legislation which sets new capital requirements for FNMA and FHLMC, establishes
an oversight office within HUD, allows that office to establish additional
capital requirements based upon a risk-based capital stress test, requires the
two organizations to hold sufficient capital to cover interest rate changes, and
requires the agencies to establish goals to direct funds to lower income
borrowers.
The legislation, the Housing and Community Development Act of 1992, requires
FNMA and FHLMC to hold core capital equal to the sum of 2.5 percent of on-
balance-sheet assets and .45 percent of the unpaid principal balance of
outstanding mortgage-backed securities and other off-balance-sheet assets. The
legislation provides an 18-month transition period for FNMA and FHLMC to reach
this minimum capital level. The other requirements of the bill could increase
the amount of capital to be withheld.
Legislation Affecting the Federal Agricultural Mortgage Association: The Food,
Agricultural, Conservation and Trade Act Amendment of 1991 established minimum
core capital levels for the Federal Agriculture Mortgage Association ("Farmer
Mac") of (1) 2.50 percent of the aggregate on-balance sheet assets, (2) 0.45
percent of the unpaid balance of outstanding securities guaranteed by Farmer Mac
and (3) a linked-percentage of aggregate assets. The President, on October 28,
1992, signed Public Law 102-552, the "Farm Credit Banks and Associations Safety
and Soundness Act of 1992." The act was passed to enhance the financial
soundness of Farm Credit System banks and associations and further supplemented
capital requirements for Farm Credit System banks and associations.
The effects of any legislation or regulations implementing stricter capital or
other regulatory standards upon the future business and operations of FNMA and
FHLMC cannot be predicted.
INVESTMENT RESTRICTIONS
As the Prospectus states, a Portfolio may only invest in obligations authorized
under the Federal Credit Union Act. This
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restriction may not be changed without the approval of the holders of a majority
of the outstanding units of a Portfolio as described below. In addition, to
meet the requirements of federal and state securities laws, each Portfolio has
also adopted the following enumerated fundamental investment restrictions, none
of which may be changed without the approval of the holders of a majority of the
outstanding units of the Portfolio as described below. A Portfolio may not:
A. Invest in the instruments of issuers conducting their principal business
activity in the same industry if immediately after such investment the value
of the Portfolio's investments in such industry would exceed 25% of the value
of its total assets; provided that there is no limitation with respect to or
arising out of investments in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or repurchase agreements by
the Portfolio of securities collateralized by such obligations; and provided
further that during normal market conditions each Portfolio intends to invest
at least 25% of the value of its total assets in mortgage-related securities.
B. Invest in the instruments of any one issuer, other than the U.S.
Government, its agencies or instrumentalities, if immediately after such
investment, more than 5% of the value of the Portfolio's total assets would be
invested in the instruments of such issuer, except that (a) up to 25% of the
value of the total assets of the Portfolio may be invested without regard to
such 5% limitation and (b) such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the U.S. Government, its agencies
or instrumentalities.
C. Make loans, except through (a) the purchase of debt obligations in
accordance with the Portfolio's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions in accordance with the investment objectives of the Portfolio,
(c) the lending of federal funds to qualified financial institutions in
accordance with the investment objectives of the Portfolio and (d) the lending
of securities in accordance with the investment objective of the Portfolio.
D. Borrow money, except for temporary or short-term purposes, provided that
the Portfolio maintains asset coverage of 300% for all such borrowing.
E. Mortgage, pledge or hypothecate any assets except to secure permitted
borrowings.
F. Purchase or sell real estate, but this restriction shall not prevent the
Portfolio from investing directly or
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indirectly in portfolio instruments secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein.
G. Purchase or sell commodities or commodity contracts.
H. Purchase any voting securities except of investment companies (solely to
the extent permitted by the 1940 Act) and as otherwise consistent with its
investment objective and policies, or invest in companies for the purpose of
exercising control or management. Subject to certain exceptions, the 1940 Act
contains a prohibition against each Portfolio investing more than 5% of its
total assets in the securities of another investment company, investing more
than 10% of its assets in securities of such investment company and all other
investment companies or purchasing more than 3% of the total outstanding
voting stock of another investment company.
I. Act as an underwriter of securities.
J. Issue senior securities as defined in the 1940 Act except insofar as the
Portfolio may be deemed to have issued a senior security by reason of (a)
borrowing of money to the extent permitted herein, or (b) purchasing
securities on a when-issued or delayed delivery basis, or (c) entering into a
mortgage dollar roll.
K. Purchase any security on margin (except for delayed delivery or when-issued
transactions or such short-term credits as are necessary for the clearance of
transactions).
L. Make short sales of securities or maintain a short position.
M. Write, purchase or sell puts, calls or combinations thereof.
Each Portfolio, to meet the requirements of state securities laws, has also
adopted the following enumerated non-fundamental investment restrictions. A
Portfolio:
(1) will prohibit the purchase or retention by such Portfolio of the
securities of any issuer if the officers, directors or trustees of the
Trust, its advisers, or managers owning beneficially more than one-half of
one percent of the securities of an issuer together own beneficially more
than five percent of the securities of that issuer;
(2) will not invest (a) more than 15% of its net assets in illiquid
investments, including repurchase agreements maturing in more than seven
days, securities that are not
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readily marketable and restricted securities not eligible for resale
pursuant to Rule 144A under the Securities Act of 1933; or (b) more than
10% of its net assets in restricted securities (including those eligible
for resale under Rule 144A).
(3) may invest up to 5% of its total assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one nationally recognized
statistical rating organization. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
For purposes of the foregoing limitations, any limitation which involves a
maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Portfolio. In
addition, securities held in escrow or separate accounts in connection with a
Portfolio's investment practices are not deemed to be pledged for purposes of
the foregoing limitations.
Borrowings by a Portfolio (if any) are not for investment leverage purposes but
are solely for temporary or short-term purposes or to facilitate management of
the Portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments is deemed to be disadvantageous or not
possible. If due to market fluctuations or other reasons the total assets of a
Portfolio fall below 300% of its borrowings, the Fund will promptly reduce the
borrowings of such Portfolio in accordance with the 1940 Act. No purchases of
securities will be made if such borrowings exceed 5% of the value of a
Portfolio's assets. Mortgage dollar rolls that are not accounted for as
financings shall not constitute borrowings.
The prohibition against short sales and short positions does not include
transactions sometimes referred to as "short sales against the box" where a
Portfolio contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
As used in the Prospectus and this Additional Statement with respect to matters
required to be submitted to unitholders by the provisions of the 1940 Act, the
term "majority of the outstanding units" of either the Fund or a Portfolio means
the vote of the lesser of (i) 67% or more of the units of the Fund or a
Portfolio
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present at a meeting, if the holders of more than 50% of the outstanding units
of the Fund or Portfolio are present or represented by proxy, or (ii) more than
50% of the outstanding units of the Fund or a Portfolio.
CALCULATION OF PERFORMANCE QUOTATIONS
From time to time, the yield, the distribution rate and the total return of a
Portfolio may be quoted in advertisements or communications to unitholders.
These advertisements and communications may be part of marketing activities
conducted by either or both of the Fund's co-distributors on behalf of a
Portfolio. Performance figures are calculated in the following manner:
Yield Calculations. The yield of a Portfolio is calculated by dividing the net
investment income per unit (as described below) earned by a Portfolio during a
30-day period by the maximum offering price per unit on the last day of the
period and annualizing the result on a semi-annual basis by adding one to the
quotient, raising the sum to the power of six, subtracting one from the result
and then doubling the difference. A Portfolio's net investment income per unit
earned during the period is based on the average daily number of units
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
Yield = 2[[((a-b)/cd) + 1](CIRCUMFLEX)(6) - 1]
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of units outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per unit on the last day of the period.
Except as noted below, interest earned on debt obligations held by a Portfolio
is calculated by computing the yield to maturity of each obligation held by a
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of
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the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by a Portfolio. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
With respect to mortgage-related obligations which are expected to be subject to
monthly payments of principal and interest ("pay downs"), (a) gain or loss
attributable to actual monthly pay downs is accounted for as an increase or
decrease to interest income during the period; and (b) a Portfolio may elect
either (i) to amortize the discount and premium on the remaining security, based
on the cost of the security, to the weighted average maturity date, if such
information is available, or to the remaining term of the security, if any, if
the weighted average maturity date is not available, or (ii) not to amortize
discount or premium on the remaining security.
Distribution Rate Calculations. The distribution rate for a specified period is
calculated by dividing the total distribution per unit by the maximum offering
price or net asset value on the last day of the period and then annualizing such
amount.
Total Return Calculations. A Portfolio computes its average annual total return
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
T = [(ERV/P)(CIRCUMFLEX)(1/n)] - 1
Where:
T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
B-43
<PAGE>
n = period covered by the computation, expressed in terms of years.
Each Portfolio computes its cumulative total return by determining the
cumulative rate of return during a specified period that likewise equates the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating cumulative total return is as follows:
T = (ERV/P) - 1
Under the methods prescribed by the SEC, standardized calculations of average
annual total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period (although a Portfolio
may also publish non-standardized calculations without this assumption).
Calculations of cumulative total return also assume the reinvestment of all
dividends and capital gains distributions on the reinvestment date during the
period. The ending redeemable value (variable "ERV" in each formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges (such as a Portfolio's redemption fee
for early withdrawal) at the end of the period covered by the computations
(although, again, a Portfolio may also publish non-standardized calculations
without this deduction). Year-to-year total return is calculated in a similar
manner.
B-44
<PAGE>
PERFORMANCE FIGURES
<TABLE>
<CAPTION>
Value of $1,000 Investment
------------------------------------------------------------------------------
Commencement of Operations
Year Ending 8/31/96 5/23/94 through 8/31/96
-----------------------------------------------------------------------------
30-Day Period
Ending Without With Without With
08/31/96 Redemption Fee Redemption Fee Redemption Fee Redemption Fee
-------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Target Maturity Portfolio (Feb 97)
Yield 6.21% N/A N/A N/A N/A
Distribution Rate 5.38% N/A N/A N/A N/A
Ending Redeemable
Value at 8/31/96 N/A $1,067.22 $1,061.90 $1,137.53 $1,131.67
Average Annual
Total Return N/A 6.70% 6.17% 5.19% 4.98%
Cumulative Total
Return N/A 6.72% 6.19% 13.75% 13.17%
</TABLE>
B-45
<PAGE>
PERFORMANCE FIGURES
<TABLE>
<CAPTION>
Value of $1,000 Investment
------------------------------------------------------------------------------
Commencement of Operations
Year Ending 8/31/96 5/23/94 through 8/31/96
-----------------------------------------------------------------------------
30-Day Period
Ending Without With Without With
08/31/96 Redemption Fee Redemption Fee Redemption Fee Redemption Fee
-------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Target Maturity Portfolio (May 97)
Yield 6.43% N/A N/A N/A N/A
Distribution Rate 6.64% N/A N/A N/A N/A
Ending Redeemable
Value at 8/31/96 N/A $1,067.85 $1,062,51 $1,160.66 $1,154.86
Average Annual
Total Return N/A 6.77% 6.23% 6.75% 6.52%
Cumulative Total
Return N/A 6.79% 6.25% 16.07% 15.49%
</TABLE>
B-46
<PAGE>
From time to time a Portfolio's comparative performance may be advertised as
measured by various independent sources, including, but not limited to, Lipper
Analytical Services, Inc., Barron's, The Wall Street Journal, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Business Week,
Financial World and Forbes. In addition, the Fund may from time to time
advertise the Portfolio's performance relative to certain indices and benchmark
investments, including (a) the Lehman Brothers Government/Corporate Bond Index,
(b) Lehman Brothers Government Index, (c) Lehman Brothers ARM Index; (d) Lehman
Brothers 1-2 year Government Index; (e) Lehman Brothers 1-3 year Government
Index;(f) Merrill Lynch 1-2.99 Year Treasury Index, (g) Merrill Lynch 2-Year
Treasury Curve Index, (h) the Salomon Brothers Treasury Yield Curve Rate of
Return Index, (i) the Payden & Rygel 2-Year Treasury Note Index, (j) 1-3 Year
U.S. Treasury Notes, (k) constant maturity U.S. Treasury yield indices, (l) the
Consumer Price Index, (m) the London Interbank Offered Rate, (n) other taxable
investments such as certificates of deposit, money market mutual funds,
repurchase agreements and commercial paper, and (o) historical data concerning
the relative performance of adjustable and fixed-rate mortgage loans.
The composition of the securities in such indices and the characteristics of
such benchmark investments are not identical to, and in some cases are very
different from, those of a Portfolio. These indices and averages are generally
unmanaged and the items included in the calculations of such indices and
averages may not be identical to the formulas used by a Portfolio to calculate
its performance figures.
From time to time advertisements or communications to unitholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of the Portfolios), as well as the views of Goldman,
Sachs & Co. as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Portfolios (such as the
supply and demand of mortgage-related securities and the relative performance of
different types of mortgage loans and mortgage-related securities as affected by
prepayment rates and other factors).
In addition, advertisements or unitholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in a
Portfolio. Such advertisements or communications may include symbols, headlines
or other material which highlight or summarize the information discussed in more
detail therein.
Performance data is based on historical results and is not intended to indicate
future performance. Yield, total return and distribution rates will vary based
on changes in market conditions, the level of interest rates, portfolio
investments and portfolio expenses. The value of the Portfolios' units will
fluctuate, and an investor's units may be worth more or less than their original
cost upon redemption.
B-47
<PAGE>
OTHER INFORMATION
General
The Prospectus for the Portfolios and this Additional Statement do not contain
all the information included in the Registration Statement filed with the SEC
under the 1933 Act with respect to the securities offered by the Prospectus.
Certain portions of the Registration Statement have been omitted from the
Prospectus and this Additional Statement pursuant to the rules and regulations
of the SEC. The Registration Statement including the exhibits filed therewith
may be examined at the office of the SEC in Washington, D.C.
Statements contained in the Portfolios' Prospectus or in this Additional
Statement as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
Capitalized terms, to the extent not otherwise defined herein, shall have the
meanings as assigned to them in the Prospectus.
FINANCIAL STATEMENTS
The financial statements and related report of Arthur Andersen LLP, independent
public accountants, contained in the 1996 Annual Report are hereby incorporated
by reference. A copy of the Annual Report accompanies or has preceded this
Additional Statement and may be obtained without charge by writing to Goldman,
Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606, or Callahan Credit Union
Financial Services Limited Partnership, 1001 Connecticut Ave., N.W., Suite
1022, Washington, DC 20036-5504, or by calling Goldman, Sachs & Co. at (800)
342-5828 or Callahan Financial Services, Inc. at (800) 237-5678.
B-48
<PAGE>
DESCRIPTION OF SECURITIES RATINGS
A. LONG-TERM RATINGS
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Moody's applies numerical modifiers l, 2, and 3 in the Aa category. The
modifier 1 indicates that the company ranks in the higher end of the Aa
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of the Aa category.
Standard & Poor's Ratings Group
AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay interest and repay principal.
AA: Capacity to pay interest and repay principal is very strong, and differs
from AAA issues only in small degree.
Plus (+) or Minus (-): The AA rating may be modified by the addition of a plus
or minus sign to show relative standing within the AA category.
r: A rating may be modified by the addition of an "r" rating to highlight
derivative, hybrid and certain other obligations that Standard & Poor's believes
may experience high volatility or high variability in expected returns due to
non-credit risks. The absence of an "r" symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total
return.
- ------------------------
* The ratings system described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group at the date of this Additional
B-49
<PAGE>
Statement for the securities listed. Ratings are generally given to securities
at the time of issuance. While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so, and the ratings indicated
do not necessarily represent ratings which will be given to these securities
throughout the period they are held by a Portfolio.
Duff & Phelps, Inc.
AAA: Long-term fixed income securities which are rated AAA are judged to be of
the highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: Long-term fixed income securities which are rated AA are judged to be of
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
Duff & Phelps applies modifiers AA+, AA, and AA- in the AA category for long-
term fixed income securities. The modifier AA+ indicates that the security
ranks in the higher end of the AA category; the modifier AA indicates a mid-
range ranking; and the modifier AA-indicates that the issue ranks in the lower
end of the AA category.
Fitch Investors Service Inc.
AAA: Bonds which are rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds which are rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments; short-term debt of these issuers is generally rated F-1+.
Fitch applies plus (+) and minus (-) modifiers in the AA category to indicate
the relative position of a credit within the rating category. The modifier AA+
indicates that the security ranks at the higher end of the AA category than a
security rated AA or AA-.
IBCA Limited and IBCA Inc.
AAA: Obligations which are rated AAA are considered to have the lowest
expectations of investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk
substantially.
B-50
<PAGE>
AA: Obligations which are rated AA are considered to have a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.
Thomson Bankwatch, Inc.
AAA: The highest category; indicates the ability to repay principal and interest
on a timely basis is extremely high.
AA:The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
Ratings in the Long-Term Debt categories may include a plus (+) or minus (-)
designation which indicates where within the respective category the issue is
placed.
B. SHORT-TERM RATINGS
Moody's Investors Service, Inc.
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months.
P-1: Issuers or related supporting institutions are considered to have a
superior capacity for repayment of short-term promissory obligations. Prime-1
or P-1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured sources
of alternate liquidity.
P-2: Issuers or related supporting institutions are considered to have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation.
B-51
<PAGE>
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Group
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
A-1: The A-1 designation indicates the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics will be denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Duff & Phelps, Inc.
Duff & Phelps' short-term debt ratings apply to all obligations with maturities
under one year.
Duff 1: Commercial paper and certificates of deposit rated Duff 1 are
considered to have a very high certainty of timely payment. Liquidity factors
are considered excellent and are supported by good fundamental protection
factors. Risk factors are minor.
Duff 2: Commercial paper and certificates of deposit rated Duff 2 are
considered to have a good certainty of timely payment. Liquidity factors and
company fundamentals are considered sound. Although ongoing internal funding
needs may enlarge total financing requirements, access to capital markets is
good and risk factors are small.
Duff & Phelps applies a plus and minus rating scale, Duff 1 plus, Duff 1 and
Duff 1 minus, in the Duff 1 top grade category for commercial paper and
certificates of deposits. The rating Duff 1 plus indicates that the security
has the highest certainty of timely payment; short-term liquidity is outstanding
and safety is just below risk-free U.S. Treasury short-term obligations. The
rating Duff 1 minus indicates a high certainty of timely payment; liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
Fitch Investors Service Inc.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years.
B-52
<PAGE>
F-1: Short-term debt obligations rated F-1 are considered to be of very strong
credit quality. Those issues determined to possess exceptionally strong credit
quality and having the strongest degree of assurance for timely payment will be
denoted with a plus (+) sign designation.
F-2: Short-term debt obligations rated F-2 are considered to be of good credit
quality. Issues assigned this rating have a satisfactory degree of assurance
for timely payment, but the margin of safety is not as great as for issues
assigned F-1+ and F-1 ratings.
IBCA Limited and IBCA Inc.
A1: Short-term obligations rated A1 are supported by the capacity for timely
repayment. A plus (+) sign is added to those issues determined to possess a
particularly strong credit feature.
A2: Short-term obligations rated A2 are supported by a good capacity for timely
repayment.
Thomson Bankwatch, Inc.
The TBW short-term ratings apply only to unsecured instrument that have a
maturity of one year or less.
The TBW short-term ratings specifically assess the likelihood of an untimely or
incomplete payment of principal and interest.
TBW-1: The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2: The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high a for issues rated "TBW-1".
B-53
<PAGE>
-------------------------------------------
TRUST
---
for Credit Unions
-------------------------------------------
Annual Report
-------------------------------------
August 31, 1996
<PAGE>
Dear TCU Investor,
Thank you for your support of the Trust for Credit Unions (TCU) over the
past year. Since the first TCU portfolio opened in 1988, over 300 credit unions
have invested in the portfolios. As of August 31, 1996, TCU's assets totaled
more than $1.4 billion, accounting for over two-thirds of credit unions' mutual
fund investments.* We are pleased that so many credit unions have made TCU part
of their investment strategy.
Over the past year, the level of total credit union investments increased
slightly (up 4.2% from June 1995 to June 1996) and credit unions' mutual fund
investments grew by 4.0%.* During the same period, TCU's assets increased by
over $100 million, reflecting its competitive performance and ease of liquidity.
We are pleased to report that all of the TCU portfolios have performed very
well for the 12 months ended August 31, 1996, outperforming their benchmarks.
The portfolios' strong results during the period were largely due to successful
sector allocation and security selection by Goldman Sachs Asset Management, the
investment adviser.
On September 30, 1996, three Trustees were elected at a special shareholder
meeting. These Trustees were Rudolf J. Hanley, Chief Executive Officer of Orange
County Federal Credit Union; Betty G. Hobbs, President and Chief Executive
Officer of Tennessee Teachers Credit Union; and John P. McNulty, General Partner
of Goldman, Sachs & Co. and Co-Head of Goldman Sachs Asset Management. For
additional details and information on the other matters approved at the
shareholder meeting, please refer to the "Unaudited Supplemental Information"
section.
The upcoming year will undoubtedly bring many challenges and opportunities
to the credit union community. We look forward to working with you to help you
meet your future financial needs.
Sincerely,
/s/ Wendell A. Sebastian /s/ Robert F. Deutsch
Wendell A. Sebastian Robert F. Deutsch
President Vice President
Callahan Financial Services, Inc. Goldman Sachs Asset Management
and Trust for Credit Unions and Trust for Credit Unions
September 30, 1996
*Source: Callahan & Associates, Inc.
<PAGE>
Dear TCU Investor,
We are pleased to have the opportunity to review the performance of each of
the Trust for Credit Unions portfolios for the 12-month period ended August 31,
1996. To help put your portfolios' performance in perspective, the following is
a brief overview of some of the key events affecting the economy and financial
markets during the period.
Economic Review: Economy Accelerated Following Year-End Weakness
The economy nearly ground to a halt in late 1995, with fourth-quarter real
Gross Domestic Product (GDP) growing at only 0.5% (annualized), in large part
due to bloated inventories and anemic consumer spending. During January and
February 1996, the government delays in releasing economic data and the
distorting effects of the harsh winter storms made it difficult to get an
accurate reading on the economy's health. However, when data finally became
available, it became clear that the economy rebounded faster than expected,
recording real GDP growth of 2.0% for the first quarter of 1996. Growth
continued to accelerate during the second quarter, with trade, factory orders,
automobile sales and industrial production all showing significant improvement.
As a result, GDP increased a robust 4.8% during the second quarter, its highest
rate in two years.
The pace of economic growth appeared to moderate in July, somewhat
tempering concerns of potential overheating. July employment growth was below
expectations, housing starts and manufacturing data were weak, and retail sales,
while stronger than expected, were nevertheless still relatively soft. In
August, key indicators sent mixed signals regarding the economy's health,
leading investors to rapidly change their views from slowing growth to
strengthening and back again as the latest reports became available. For
example, in August, retail sales and industrial production were sluggish. In
contrast, the unemployment rate fell to the lowest level in more than seven
years, reviving fears of rising labor costs. However, inflation remained under
control, as lower than expected producer- and consumer-price data for August
eventually indicated.
Bond Market Sold Off Following a 1995 Rally, Then Stabilized During the Summer
In September 1995, the U.S. bond market began to trend higher following a
generally lackluster summer. The rebound continued from October through January
1996, as weak economic data and tame inflation helped fuel robust upward
momentum. However, in February 1996 the bond market began to falter, and a sharp
rise in interest rates triggered a dramatic decline in bond prices that
continued from March through the beginning of May. The primary catalysts of the
abrupt sell-off were stronger than expected economic and job growth as well as
surging commodity prices, which aroused investors' fear of higher inflation and
increased bond market volatility. Though the bond market stabilized from mid-May
through July and briefly surged in early August, it had come under pressure
again by the end of August.
During the period, the yield curve shifted upward and steepened
dramatically everywhere but at the shortest end. The yield on six-month Treasury
bills fell slightly from 5.51% on August 31, 1995 to approximately 5.48% on
August 31, 1996. For the same time period, the yield on the 30-year U.S.
Treasury bond rose from 6.65% a year ago to 7.12%, breaking the psychologically
important 7.0% level. For the 12-month period ended August 31, 1996, the total
returns of the one-year and 30-year Treasuries were 5.40% and -0.79%,
respectively.
2
<PAGE>
Historical Treasury Yield Curve
[GRAPH CHART APPEARS HERE]
8/31/95 8/31/96
------- -------
3-Month 5.44% 5.28%
6-Month 5.51% 5.48%
1-Year 5.63% 5.89%
2-Year 5.85% 6.34%
3-Year 5.94% 6.52%
5-Year 6.07% 6.73%
10-Year 6.29% 6.94%
30-Year 6.65% 7.12%
Source: Bloomberg, L.P.
The yield curve shifted upward and steepened considerably in the one- to
five-year range.
The Fed Eased in December and January, Then Remained Neutral
The U.S. Federal Reserve ("the Fed") left the Federal funds rate unchanged
at 5.75% from September 1995 through November. However, in response to generally
sluggish year-end 1995 economic conditions, the Fed cut the Federal funds rate
by 25 basis points in December 1995 and an additional 25 basis points in January
1996. Despite stronger than expected growth during the second half of the fund's
fiscal year, the Fed remained neutral and left the Federal funds rate at 5.25%
as of August 31, 1996.
The ARM Market Strengthened as Prepayment Risk Declined
The performance of adjustable rate mortgage securities (ARMs), which
represent a significant portion of the non-money market TCU portfolios, was
closely linked to the changing direction of interest rates during the period. In
September 1995, declining interest rates spurred homeowners to switch to
long-term, fixed rate mortgages, resulting in increased refinancing activity and
widening spreads between ARMs and Treasuries. Prepayments continued to depress
the ARM market, reaching a high in February 1996, when long-term interest rates
began to rise. From February through August, spreads between ARMs and Treasuries
tightened significantly as mortgage prepayment fears eased. In terms of the
market's technical balance, strong investor demand for ARMs, coupled with no
significant new issuance from agencies and declining private label supply, have
supported ARM prices. In addition, the ARM market benefited from strong inflows
from nontraditional buyers, such as "crossover" corporate bond investors,
seeking more attractive relative spreads from short-duration instruments.
Economic Outlook: Healthy Economic Growth for the Near Term
Key economic indicators continue to send mixed signals, with economists
divided on whether the economy's momentum will slow or strengthen in the coming
months. As of this writing, the pause in growth during the summer appears
temporary, rather than indicative of a deeper, more sustained slowdown. The
Fed's "wait and see" stance is likely to continue until more convincing signs of
inflation emerge as policy makers attempt to strike a balance between containing
inflation and not snuffing out growth.
3
<PAGE>
TCU Money Market Portfolio
Objective
The objective of the TCU Money Market Portfolio (MMP) is to maximize
current income to the extent consistent with the preservation of capital and
maintenance of liquidity through investments in high-quality money market
instruments authorized under the Federal Credit Union Act.
Performance Review
For the 12-month period ended August 31, 1996, the TCU Money Market
Portfolio had an average annual total return of 5.51%, outperforming Donoghue's
All-Taxable Money Market Index total return of 5.08%. As of August 31, 1996, the
portfolio had a seven-day current yield of 5.13% and an effective yield of
5.26%./1/
Portfolio Composition and Investment Strategies
During the first half of the portfolio's fiscal year, September 1995
through February 1996, we lengthened the portfolio's weighted average maturity
as short-term interest rates declined. When the near-term direction of
short-term interest rates became less clear during the latter half of the year,
the portfolio's weighted average maturity was shortened.
As of August 31, the portfolio's largest sector allocation continued to be
repurchase agreements (70.8%), to help credit unions meet their liquidity needs.
During the period, we reduced the portfolio's weighting in domestic bank notes
to 3.5% from 10.4% a year ago in favor of domestic certificates of deposit (CDs)
(12.9%), which were more plentiful. Other holdings included Federal funds
(7.0%), bankers' acceptances (3.5%) and variable rate obligations (2.3%).
The portfolio's Eurodollar CDs matured during the period, but we did not
roll the position over when we determined that the sector was not priced at
enough of a premium over domestic alternatives. In addition, we did not roll
over the portfolio's investments in U.S. government agency securities because
the spread between bank obligations and government agencies widened, rendering
agencies less attractive than alternative investments.
__________________
/1/ Please note that an investment in the portfolio is neither insured nor
guaranteed by the U.S. government. There can be no assurance that the portfolio
will be able to maintain a stable net asset value of $1.00.
4
<PAGE>
Portfolio Composition as of August 31, 1996*
[PIE CHART APPEARS HERE]
Variable Rate Obligations 2.3%
Banker's Acceptance 3.5%
Bank Notes 3.5%
Federal Funds 7.0%
Certificates of Deposits 12.9%
Repurchase Agreements 70.8%
* These percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
Looking Forward
Going forward, we currently forecast rising rates during the remainder of
1996 into early 1997. Therefore, we expect the portfolio to operate with a
relatively short average maturity of 10 to 20 days over the next few months. We
intend to continue stressing high-quality securities and will structure the
portfolio in an attempt to remain competitive with other short-term investments.
5
<PAGE>
TCU Government Securities Portfolio
Objective
The TCU Government Securities Portfolio (GSP) seeks a high level of current
income consistent with low volatility of principal by investing in obligations
authorized under the Federal Credit Union Act. Operating since July 10, 1991,
the portfolio invests primarily in ARMs issued by the U.S. government, its
agencies or instrumentalities. The TCU GSP's maximum duration is equal to that
of a two-year U.S. Treasury security, and its target duration is to be no
shorter than that of a 6-month U.S. Treasury security and no longer than that of
a one-year U.S. Treasury security. As of August 31, 1996, its actual duration
was 0.78 years, nearly the same as the duration of the portfolio's benchmark,
which was 0.75 years.
Performance Review
For the 12-month period ended August 31, 1996, the average annual total
return of the TCU GSP was 6.26% (6.26% in dividend income and 0.0% in price
appreciation), compared with 5.41% for the nine-month Treasury average. (The
nine-month Treasury return is calculated by averaging the six-month Treasury
bill and the one-year Treasury bill.) The portfolio's average annual total
return for the five years ended August 31, 1996 was 5.02%.
The strong performance of the portfolio relative to the benchmark was
primarily due to the portfolio's large ARM position (74.9%), which outperformed
equal-duration Treasuries as spreads narrowed.
We are pleased to note that the portfolio also performed well compared with
its peers. For the 12 months ended August 31, 1996, TCU GSP ranked within the
top 20% (ninth out of 56) of adjustable rate mortgage funds based on total
return, according to Lipper Analytical Services, Inc. (Please note that Lipper
rankings do not take sales charges into account and that past performance is not
a guarantee of future results.)
The portfolio's net asset value (NAV) held steady during the period,
closing at $9.76 on August 31, 1996, unchanged from its level a year earlier.
During the 12-month period, the portfolio's distribution rate declined 25 basis
points to 6.00% on August 31 as ARM coupons reset lower while the market
rallied. The portfolio's SEC 30-day yield was 5.84% as of August 31, down from
6.09% last year.
Portfolio Composition and Investment Strategies
During the period, we shifted the portfolio's sector allocations to
maintain approximately the same duration as the benchmark and offset the
shortening of ARM durations due to faster prepayments. These changes included
initiating a 23.5% position in longer duration Treasuries, cutting the
portfolio's shorter duration ARM holdings to 74.9% from 86.4% and liquidating
most of the repurchase agreement/cash equivalent position (0.5% as of August
31).
As part of our overall term structure management, we sold the portfolio's
Small Business Administration (SBA) pools (a 3.1% allocation as of August 31,
1995). Finally, super floaters were trimmed to a 1.1% weighting, down from 2.0%
a year earlier. Super floaters are approximately four times as sensitive to
interest rate movements as regular floaters, and they had a neutral effect on
the portfolio's performance during the period.
6
<PAGE>
Within the ARM sector, we continued to emphasize seasoned issues, which
generally have shorter durations and more stable prepayment patterns than
nonseasoned securities.
Portfolio Composition as of August 31, 1996*
[PIE CHART APPEARS HERE]
ARMS 74.9%
U.S. Treasuries 23.5%
Super Floaters 1.1%
Repos/Cash Equivalents 0.5%
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
Looking Forward
We have a constructive outlook for ARMs in the coming months. We expect the
spreads between ARMs and Treasuries to continue to narrow as crossover investors
from other short-duration fixed income sectors turn to ARMs for their more
attractive yields. Demand for seasoned ARMs indexed to the one-year constant
maturity Treasury (CMT) remains strong as investors seek the prepayment
stability in a falling rate environment and the reduced cap risk in a rising
rate environment that these securities offer.
7
<PAGE>
TCU Mortgage Securities Portfolio
Objective
The TCU Mortgage Securities Portfolio (MSP) seeks a high level of current
income consistent with relatively low volatility of principal by investing in
obligations authorized under the Federal Credit Union Act. The portfolio, which
commenced operations on October 9, 1992, invests in adjustable rate and fixed
rate mortgage securities issued by the U.S. government, its agencies or
instrumentalities and in mortgage securities rated AA or better by nationally
recognized rating agencies. The portfolio's maximum duration will not exceed
that of a three-year U.S. Treasury security and its target duration is equal to
that of its benchmark, the two-year U.S. Treasury security. As of August 31,
1996, the portfolio's actual duration was 1.88 years, in line with its
benchmark.
Performance Review
The portfolio's average annual total return for the 12 months ended August
31, 1996 was 5.67% (6.62% from dividend income and -0.95% from price
depreciation), compared with 4.87% for the two-year U.S. Treasury note. The
portfolio's significant outperformance over the benchmark was due to the
incremental yield advantage of mortgage securities, particularly private-label
ARMs, over comparable duration Treasuries.
During the 12-month period, the portfolio outperformed all of its peers,
ranking first out of 57 short-term U.S. government funds based on total return,
according to Lipper Analytical Services, Inc. (Please note that Lipper rankings
do not take sales charges into account and that past performance is not a
guarantee of future results.)
Despite this strong relative performance, the portfolio's NAV declined
$0.09 during the past year to $9.65 on August 31, 1996, primarily due to the
impact of rising interest rates.
Portfolio Composition and Investment Strategies
Over the 12-month period ended August 31, we shifted the portfolio's
weightings to maintain approximately the same duration as that of the benchmark.
These changes included reducing the portfolio's ARM holdings, which tend to have
short durations, to 30.4% from 44.4% a year ago, and approximately doubling its
position in longer duration fixed rate mortgage pass-throughs to 8.2%.
Other portfolio adjustments were a significant increase in planned
amortization class collateralized mortgage obligations (PAC CMOs) to 22.1% from
9.6% a year earlier as they offered attractive relative value and incremental
yield potential over Treasuries, and the liquidation of CMO floaters (2.9% as of
August 31, 1995). The portfolio's weightings in U.S. Treasuries (18.5%) and
sequential-pay CMOs (18.5%) were little changed from a year ago.
8
<PAGE>
Portfolio Composition as of August 31, 1996*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
ARMs 30.4%
PACs 22.1%
U.S. Treasuries 18.5%
Sequentials 18.5%
Fixed Rate Mortgage Pass-Through 8.2%
Repos/Cash Equivalents 2.3%
</TABLE>
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
Looking Forward
In the near term, we have a constructive view for ARMs. We believe the
technical balance for the ARM market should remain favorable in the coming
months, with ARMs continuing to benefit from the increased demand of
nontraditional ARM investors seeking higher short-term yields. We currently have
a neutral outlook for CMOs, which are generally trading at fair spreads relative
to equal-duration Treasuries but do not offer significant value over mortgage
pass-throughs. Despite this more challenging CMO environment, we continue to
identify specific areas within the CMO market that offer attractive investment
opportunities.
- ----------------------
TCU Target Maturity Portfolios
Objectives
The TCU Target Maturity Portfolios (TMPs) have dual objectives: to seek a
high level of current income and to return $10 per unit to investors at or about
three years after the portfolio's inception. However, there is no assurance that
these objectives will be achieved. The portfolios invest primarily in
mortgage-related securities issued by the U.S. government, its agencies or
instrumentalities and in privately issued mortgage-related securities.
<TABLE>
<CAPTION>
U.S. Treasury Portfolio Duration Commencement
Portfolio Benchmark as of 8/31/96 of Operations
- -------------------- ------------------- --------------------- ----------------
<S> <C> <C> <C>
TMP (Feb 97) 4.75% due 2/97 0.49 years 2/15/94
TMP (May 97) 6.50% due 5/97 0.71 years 5/23/94
</TABLE>
9
<PAGE>
Target Maturity Portfolio (Feb 97)
Performance Review
For the 12 months ended August 31, 1996, the portfolio achieved an average
annual total return of 6.70% (7.23% from dividend income and -0.53% from price
depreciation), compared with 6.02% for the portfolio's benchmark, the 4.75% U.S.
Treasury note due in February 1997. The portfolio's significant outperformance
was primarily due to the strong performance of its ARM holdings. Rising interest
rates during the period impacted the portfolio's NAV, which declined $0.05 to
$9.66 as of August 31, 1996.
Portfolio Composition Highlights
The primary changes to the portfolio's sector allocations during the period
under review were made to lower its duration to 0.49 years, down from 1.42 years
in August 1995, in anticipation of its February 1997 maturity. Though the
portfolio's 39.7% weighting in seasoned ARMs, which generally have short
durations, was approximately the same as one year ago, longer term Treasuries
were cut significantly to 2.2% from 18.9%, and repurchase agreements/cash
equivalents were raised to 21.0% from 0.2%.
Other changes included the reduction of sequential-pay CMOs to 18.1% of the
portfolio when their spreads tightened relative to Treasuries. We added to the
portfolio's holdings in CMO floaters, a 15.9% allocation as of August 31, 1996,
due to their very short durations and attractive yield spreads over cash
equivalents. Finally, we established new portfolio positions in fixed rate
mortgage pass-throughs (1.9%) and targeted amortization class (TAC) CMOs (1.2%).
Portfolio Composition as of August 31, 1996*
[PIE CHART APPEARS HERE]
ARMs 39.7%
Repos/Cash Equivalents 21.0%
Sequentials 18.1%
Floaters 15.9%
U.S. Treasuries 2.2%
Fixed Rate Mortgage Pass Throughs 1.9%
TACs 1.2%
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
10
<PAGE>
Target Maturity Portfolio (May 97)
Performance Review
The portfolio achieved an average annual total return of 6.77% for the
12-month period ended August 31, 1996 (7.18% from dividend income and -0.41%
from price depreciation), compared with 6.04% for the fund's benchmark, the
6.50% U.S. Treasury note due May 1997. The portfolio's NAV at the close of its
fiscal year was $9.95, a decrease of $0.04 from August 31, 1995.
Portfolio Composition Highlights
As of August 31, 1996, ARMs were the largest sector allocation at 45.9% of
the portfolio. Though the ARM sector was cut from 52.1% a year earlier, this
reduction was somewhat offset by the initiation of a 6.5% position in floaters,
which have a similar structure as ARMs. Our preference of one sector over
another is based on where we perceive greater relative value and individual
security selection.
The most significant change in the portfolio's allocation was a reduction
in sequential-pay CMOs to 5.0%, down from 29.6% a year ago, after they performed
well when their spreads tightened relative to Treasuries. Inverse floaters were
increased to a 7.4% weighting because they contributed incremental yield and
potential incremental return. In addition, we initiated positions in PAC CMOs
(5.8%), which offered attractive relative value as well as incremental yield
over Treasuries, and fixed rate mortgage pass-throughs (2.2%). We continued to
use U.S. Treasuries (15.2%) and repurchase agreements/cash equivalents (12.0%)
to manage the portfolio's duration to match that of the benchmark.
Portfolio Composition as of August 31, 1996*
[PIE CHART APPEARS HERE]
ARMs 45.9%
U.S. Treasuries 15.2%
Repos/Cash Equivalents 12.0%
Inverse Floaters 7.4%
Floaters 6.5%
PACs 5.8%
Sequentials 5.0%
Fixed Rate Mortgage Pass-Throughs 2.2%
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
11
<PAGE>
Investment Strategy and Outlook for TCU TMPs
In the coming months, we intend to shift the allocation of the TCU TMPs to
emphasize shorter duration securities in anticipation of their approaching
maturities.
In general, we have a constructive outlook for the ARM market, which
continues to offer attractive yield relative to other short-duration fixed
income sectors.
Distribution Policy
As required by tax law, all mutual funds, including the TCU portfolios,
must distribute substantially all of the taxable income they generate each year.
. For the TCU Money Market Portfolio, substantially all of the net
investment income and net short-term capital gains will be declared as a
dividend on a daily basis and paid monthly. If the portfolio were to
realize any net long-term capital gains, they would be distributed by
December 31.
. For the TCU Government Securities Portfolio and the Mortgage Securities
Portfolio, we pay monthly dividends based on the income each portfolio is
expected to generate during the month. The amount of the dividend will
reflect changes in interest rates (i.e., as interest rates increase,
dividends will increase and as interest rates decline, dividends will be
reduced). In addition, because these TCU portfolios invest in mortgage
securities that are subject to prepayments, we cannot precisely predict the
amount of principal and interest that a portfolio will receive. Therefore,
at times, a portfolio may distribute amounts above or below current income
levels. Any excess income, overdistributions or net capital gains generated
will be paid out in a special distribution or adjusted by December 31.
. For the TCU Target Maturity Portfolios, the monthly dividends are based on
the prevailing interest rates at the time of each portfolio's inception.
For these portfolios, the monthly dividends are held constant despite any
changes in interest rates or changes in the rate of prepayments. As noted,
any excess income, overdistribution or net capital gains generated are paid
out or adjusted at year-end. The amount of these adjustments may be more
significant than in portfolios in which the dividend is reset each month.
In December 1995, the TMP (Feb 97) and the TMP (May 97) paid special
dividends of $0.1606 per share and $0.0340 per share, respectively.
12
<PAGE>
In conclusion, we thank you for your investment in the TCU portfolios and
we look forward to continuing our relationship.
Sincerely,
/s/ Laurie H. Wollmuth
Laurie H. Wollmuth
Portfolio Manager
TCU Money Market Portfolio
/s/ Jonathan A. Beinner /s/ James B. Clark
Jonathan A. Beinner James B. Clark
/s/ Peter D. Dion /s/ James P. McCarthy
Peter D. Dion James P. McCarthy
Portfolio Managers
TCU Government Securities Portfolio
TCU Mortgage Securities Portfolio
TCU Target Maturity Portfolio (Feb 1997)
TCU Target Maturity Portfolio (May 1997)
Goldman Sachs Asset Management
September 30, 1996
13
<PAGE>
TRUST FOR CREDIT UNIONS
PERFORMANCE COMPARISON
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended August 31, 1996. Each of
the Trust for Credit Union portfolios is compared to its benchmarks assuming the
following initial investment:
<TABLE>
<CAPTION>
Initial
Portfolio Investment Compare to:
- ----------------------------------------------- -------------- -----------------------------------------------------------
<S> <C> <C>
Government Securities ("GSP"): $100,000 Lehman Brothers Mutual Fund Adjustable Rate Mortgage
Index ("Lehman ARM Index")/(c)/; Lehman Brothers Mutual
Fund Short (1-2) Government Index ("Lehman 1-2 Gov't
Index"); 1-Year U.S. Treasury Bill ("1-year T-Bill");
6-Month U.S. Treasury Bill ("6-month T-Bill").
Mortgage Securities ("MSP"): $500,000 Lehman ARM Index; Lehman Brothers Mutual Fund Short (1-3)
Government Index ("Lehman 1-3 Gov't Index");
2-Year U.S. Treasury Note ("2-year T-Note").
Target Maturity (Feb 97) ("TMP (Feb 97)"): $1,000,000 Lehman ARM Index; Lehman 1-3 Gov't Index; 4.75% U.S.
Treasury Note due 02/15/97 ("T-Note 4.75%").
Target Maturity (May 97) ("TMP (May 97)"): $1,000,000 Lehman ARM Index; Lehman 1-3 Gov't Index; 6.50% U.S.
Treasury Note due 05/15/97 ("T-Note 6.50%").
</TABLE>
All performance data shown represents past performance and should not be
considered indicative of future performance, which will fluctuate as market
conditions change. The investment return and principal value of an investment
will fluctuate with changes in market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Government Securities Portfolio
[GRAPH OF GOVERNMENT SECURITIES PORTFOLIO APPEARS HERE]
<TABLE>
<CAPTION>
GSP Lehman ARM Index(c) Lehman 1-2 Gov't Index 1-year T-Bill 6-Month T-Bill
--- ------------------- ---------------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
August 1, 1991(b) $100,000 N/A* $100,000 $100,000 $100,000
August 31, 1991 $100,585 N/A* $101,250 $100,832 $100,603
August 31, 1992 $107,303 $108,179 $110,607 $107,760 $106,172
August 31, 1993 $111,661 $114,961 $116,102 $111,873 $109,850
August 31, 1994 $114,266 $115,868 $118,784 $114,846 $113,692
August 31, 1995 $120,920 $125,399 $127,130 $122,280 $120,538
August 31, 1996 $128,513 $133,475 $133,930 $128,900 $127,060
</TABLE>
- ----------------------------------------
Average Annual Total Return
- ----------------------------------------
One Year Five Year Since inception(a)
- ----------------------------------------
6.26% 5.02% 5.08%
- ----------------------------------------
Mortgage Securities Portfolio
[GRAPH OF MORTGAGE SECURITIES PORTFOLIO APPEARS HERE]
<TABLE>
<CAPTION>
MSP Lehman Arm Index Lehman 1-3 Gov't Index 2-year T-Note
--- ---------------- ---------------------- -------------
<S> <C> <C> <C> <C>
November 1, 1992(b) $500,000 $500,000 $500,000 $500,000
August 31, 1993 $532,570 $532,860 $526,097 $526,329
August 31, 1994 $537,871 $537,066 $535,052 $534,055
August 31, 1995 $581,995 $581,250 $574,700 $574,400
August 31, 1996 $615,069 $618,650 $604,750 $602,350
</TABLE>
- -----------------------------------
Average Annual Total
- -----------------------------------
One Year Since Inception(a)
- -----------------------------------
5.67% 5.39%
- -----------------------------------
14
<PAGE>
TRUST FOR CREDIT UNIONS
PERFORMANCE COMPARISON - (Continued)
Target Maturity Portfolio (Feb 97)
[GRAPHIC OF TARGET MATURITY PORTFOLIO APPEARS HERE]
<TABLE>
<CAPTION>
TMP(Feb 97)(d) TMP(Feb 97)(e) Lehman ARM Index Lehman 1-3 Gov't Index T-Note 4.75%
-------------- -------------- ---------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
March 1, 1994(b) $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000
August 31, 1994 $996,630 $996,630 $999,122 $1,007,226 $996,823
August 31, 1995 $1,071,183 $1,071,183 $1,081,300 $1,081,800 $1,068,531
August 31, 1996 $1,143,152 $1,137,262 $1,150,900 $1,138,400 $1,133,000
</TABLE>
Average Annual Total Return
--------------------------------
One Year Since inception(a)
- -------------------------------------------------
TMP(Feb 97)(d) 6.70% 5.19%
- -------------------------------------------------
TMP(Feb 97)(e) 6.17% 4.99%
- -------------------------------------------------
Target Maturity Portfolio (May 97)
[GRAPH OF TARGET MATURITY PORTFOLIO APPEARS HERE]
<TABLE>
<CAPTION>
TMP(May 97)(d) TMP(May 97)(e) Lehman ARM Index Lehman 1-3 Gov't Index T-Note 6.50%
-------------- -------------- ---------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
June 1, 1994(b) $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000
August 31, 1994 $1,013,022 $1,013,022 $1,013,254 $1,014,840 $1,015,554
August 31, 1995 $1,091,028 $1,091,028 $1,096,600 $1,090,000 $1,091,600
August 31, 1996 $1,165,056 $1,159,234 $1,167,200 $1,147,100 $1,157,500
</TABLE>
Average Annual Total Return
--------------------------------
One Year Since inception(a)
- -------------------------------------------------
TMP(May 97)(d) 6.77% 6.75%
- -------------------------------------------------
TMP(May 97)(e) 6.23% 6.52%
- -------------------------------------------------
(a) The Government Securities, Mortgage Securities, Target Maturity (Feb 97),
and Target Maturity (May 97) Portfolios commenced operations July 10, 1991,
October 9, 1992, February 15, 1994 and May 23, 1994, respectively.
(b) For comparative purposes, initial investments are assumed to be made on the
first day of the month following each portfolio's inception.
(c) The calculation of The Lehman ARM Index was initiated for the month ended
January 31, 1992. For comparative purposes in this graph, an initial
investment for this index is assumed on January 1, 1992, at a value equal
to the Government Securities Portfolio's investment at such date.
(d) Does not include effect of redemption fee.
(e) Includes effect of 0.50% redemption fee, assuming redemption at the end
of the period presented.
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Unitholders and Trustees of
Trust for Credit Unions:
We have audited the accompanying statements of assets and liabilities of
Trust for Credit Unions (a Massachusetts business trust comprising the Money
Market Portfolio, the Government Securities Portfolio, the Mortgage Securities
Portfolio, the Target Maturity Portfolio (Feb 97) and the Target Maturity
Portfolio (May 97)), including the statements of investments as of August 31,
1996, the related statements of operations for the year then ended and the
statements of changes in net assets and financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting the Trust for Credit
Unions as of August 31, 1996, the results of their operations for the year then
ended, and the changes in their net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 3, 1996
16
<PAGE>
TRUST FOR CREDIT UNIONS
-----------------
MONEY MARKET PORTFOLIO
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------- -------- ---------- ------------
<S> <C> <C> <C>
Bank Notes (3.5%)
Bank of America, Illinois
$ 10,000 5.33% 10/11/96 $ 10,000
SouthTrust Bank, N.A.
5,000 5.57 10/10/96 5,000
----------
Total Bank Notes................. $ 15,000
----------
Bankers' Acceptances (3.5%)
NationsBank of Texas, N.A.
$ 5,000 5.26%(a) 09/19/96 $ 4,987
NationsBank, N.A.
10,000 5.37(a) 11/04/96 9,906
----------
Total Bankers' Acceptances....... $ 14,893
----------
Certificates of Deposit (12.9%)
Fifth Third Bank of Cincinatti
$ 10,000 5.41% 09/03/96 $ 10,000
First Alabama Bank
10,000 5.34 10/07/96 10,000
First Tennessee Bank
15,000 5.36 10/04/96 15,000
Morgan Guaranty Trust Co.
5,000 5.54 10/17/96 5,001
U.S. National Bank of Oregon
15,000 5.29 09/16/96 15,000
----------
Total Certificates of Deposit.... $ 55,001
----------
Federal Funds (7.0%)
American Express Centurion Bank
$ 15,000 5.34% 09/10/96 $ 15,000
Branch Banking & Trust Co.
15,000 5.31 09/16/96 15,000
----------
Total Federal Funds.............. $ 30,000
----------
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------- -------- ---------- -----------
<S> <C> <C> <C>
Variable Rate Demand Note (2.3%)
PNC Bank, N.A.
$ 10,000 5.21% 09/03/96 $ 10,000
----------
Repurchase Agreements (71.0%)
Bear Stearns Companies, Inc., dated
08/16/96, repurchase price $50,199
(FHLMC: $51,216, 7.50-8.00%,
01/01/08-07/01/26)
$ 50,000 5.31% 09/12/96 $ 50,000
CS First Boston Corp., dated 08/05/96,
repurchase price $50,222 (FNMA: $51,566,
6.12-6.23%, 02/01/32-10/01/32)
50,000 5.33 09/04/96 50,000
Goldman, Sachs & Co., dated 08/16/96,
repurchase price $25,118 (FNMA: $25,790,
6.12-7.31%, 12/01/33-01/01/35)
25,000 5.32 09/17/96 25,000
Joint Repurchase Agreement Accounts
152,800 5.26 09/03/96 152,800
25,000 5.26 09/03/96 25,000
----------
Total Repurchase Agreements...... $ 302,800
----------
Total Investments ............... $ 427,694/(b)/
==========
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/ The rate disclosed for this security represents the yield to maturity.
/(b)/ The amount stated also represents aggregate cost for federal income tax
purposes.
The accompanying notes are an integral
part of these financial statements.
17
<PAGE>
TRUST FOR CREDIT UNIONS
--------------
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------- --------- ---------- --------
Mortgage Backed Obligations (76.3%)
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)/(a)/ (25.0%)
<S> <C> <C> <C>
$ 1,527 8.09% 04/01/18 $ 1,566
9,271 7.62 05/01/18 9,568
2,995 7.30 07/01/18 3,085
1,884 7.81 01/01/19 1,936
5,354 7.36 02/01/22 5,483
29,368 7.76 02/01/22 30,486
26,037 7.78 04/01/22 27,008
2,297 6.88 11/01/22 2,318
4,954 6.89 11/01/22 4,964
14,408 7.65 11/01/22 14,900
11,193 7.68 06/01/24 11,484
3,550 7.20 02/01/28 3,644
6,321 7.17 04/01/28 6,477
2,934 7.15 07/01/29 2,976
8,115 7.20 05/01/31 8,284
--------
Total Adjustable Rate FHLMC...... $134,179
========
Adjustable Rate Federal National Mortgage Association
(FNMA)/(a)/ (40.9%)
$ 4,043 6.52% 03/01/17 $ 4,077
2,473 7.24 11/01/17 2,546
17,145 7.33 12/01/17 17,648
5,108 7.07 08/01/18 5,251
4,722 7.53 09/01/18 4,878
1,701 7.35 11/01/18 1,749
26,207 7.27 06/01/19 26,931
2,651 7.27 07/01/19 2,721
6,957 7.00 12/01/19 6,883
4,712 7.65 03/01/20 4,906
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------- --------- ---------- --------
Mortgage Backed Obligations--(Continued)
Adjustable Rate FNMA--(Continued)
<S> <C> <C> <C>
$ 2,135 7.37% 05/01/20 $ 2,184
17,807 7.23 04/01/21 18,320
37,832 7.45 09/01/21 39,200
2,243 7.30 10/01/21 2,279
1,456 7.76 11/01/21 1,490
2,598 7.53 02/01/22 2,695
24,678 7.53 09/01/22 25,539
23,125 7.44 09/01/25 23,993
5,859 7.32 07/01/27 6,022
4,058 7.29 10/01/27 4,169
15,702 6.09 02/01/31 15,575
--------
Total Adjustable Rate FNMA....... $219,056
========
Adjustable Rate Giant/(a)/ (1.8%)
$ 9,270 7.32% TBA/(b)/ $ 9,547
--------
Adjustable Rate Government National Mortgage
Association (GNMA)/(a)/ (4.6%)
$24,588 6.00% 10/20/25 $ 24,605
--------
Collateralized Mortgage Obligations (CMOs)(4.0%)
Adjustable Rate CMOs/(a)/ (2.9%)
FNMA REMIC Trust 1990-145, Class A
$15,403 6.49% 12/25/20 $ 15,382
--------
Super Floater CMOs/(a)/ (1.1%)
FNMA REMIC Trust 1992-157, Class FA
$ 6,288 1.22% 03/25/04 $ 6,053
--------
Total CMOs ...................... $ 21,435
--------
Total Mortgage Backed
Obligations (cost $412,138) ... $408,822
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
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--------------
GOVERNMENT SECURITIES PORTFOLIO - (Continued)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------- --------- ---------- ----------
<S> <C> <C> <C>
U.S. Treasury Obligations (23.2%)
U.S. Treasury Notes
$ 89,000 7.25% 11/15/96 $ 89,292
27,000 5.63 10/31/97 26,868
8,000 5.88 04/30/98 7,950
----------
Total U.S. Treasury Obligations
(cost $124,836) ............... $ 124,110
----------
Repurchase Agreements (4.8%)
Joint Repurchase Agreement Account (c)
$ 25,600 5.26% 09/03/96 $ 25,600
----------
Total Repurchase Agreements
(cost $25,600) ................ $ 25,600
----------
Total Investments (cost
$562,574(d)) .................. $ 558,532
==========
</TABLE>
- -----------------------------------------------------------
<TABLE>
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments
in which value exceeds cost .......... $ 398
Gross unrealized loss for investments
in which cost exceeds value .......... (4,662)
==========
Net unrealized loss .................... $ (4,264)
==========
</TABLE>
- -----------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/ Variable rate security. Coupon rate disclosed is that which is in effect
at August 31, 1996.
/(b)/ TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally +/- 2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
/(c)/ A portion of this security is being segregated for open TBA purchases.
/(d)/ The aggregate cost for federal income tax purposes is $562,796.
The accompanying notes are an integral
part of these financial statements.
19
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--------------
MORTGAGE SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
Principal Interest Maturity
Amount Rate Date Value
- ---------- --------- ---------- ----------
Mortgage Backed Obligations (79.8%)
Adjustable Rate Government National Mortgage
Association (GNMA)/(a)/ (4.1%)
$ 13,499 6.00% 10/20/25 $ 13,509
--------
Fixed Rate Federal National Mortgage Association (FNMA)
(6.5%)
$ 3,475 6.00% 09/01/07 $ 3,332
7,655 6.50 06/01/08 7,418
1,581 6.00 10/01/08 1,500
3,371 6.00 06/01/09 3,198
6,587 6.00 10/01/09 6,249
--------
Total Fixed Rate FNMA............ $ 21,697
--------
Fixed Rate GNMA (1.7%)
$ 5,037 10.00% 10/15/16 $ 5,525
--------
Collateralized Mortgage Obligations (CMOs) (67.5%)
Adjustable Rate CMOs(a) (26.5%)
Citicorp Mortgage Securities, Inc. 1992-17, Class A
$ 7,889 7.42% 10/25/22 $ 8,035
CMC Securities Corp. II 1993-H, Class A1
4,239 7.43 09/25/23 4,290
CMC Securities Corp. II 1993-I, Class A2
4,282 6.88 09/25/23 4,309
Imperial Savings Association 1988-3, Class A
2,331 7.32 01/25/18 2,348
Independent National Mortgage Corp.
1994-W, Class A1
7,176 8.09 12/25/24 7,330
Principal Interest Maturity
Amount Rate Date Value
--------- --------- ---------- ----------
Mortgage Backed Obligations--(Continued)
Adjustable Rate CMOs--(Continued)
Merrill Lynch Mortgage Investors, Inc.
1994-I, Class A1
$ 7,760 7.38% 01/25/05 $ 7,914
Prudential Home Mortgage 1992-8, Class A1
282 8.03 04/25/22 287
Prudential Home Mortgage 1992-24, Class A1
3,111 8.21 09/25/22 3,167
Resolution Trust Corp. 1992-4, Class B2
4,500 7.35 07/25/28 4,549
Resolution Trust Corp. 1992-11, Class A2
2,998 7.36 10/25/24 3,022
Resolution Trust Corp. 1992-11, Class B2
7,501 7.36 10/25/24 7,542
Resolution Trust Corp. 1994-1, Class M3
4,671 7.95 09/25/29 4,787
Resolution Trust Corp. 1995-1, Class A3
6,776 7.23 10/25/28 6,894
Resolution Trust Corp. 1995-1, Class M3
3,189 7.23 10/25/28 3,229
Ryland Mortgage Securities Corp. 1989-FN1,
Class A
1,507 7.44 11/01/18 1,523
Ryland Mortgage Securities Corp. 1991-4,
Class A1
2,163 7.21 02/25/20 2,157
Ryland Mortgage Securities Corp. 1991-7,
Class A1
1,314 6.55 06/25/21 1,316
The accompanying notes are an integral
part of these financial statements.
20
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--------------
MORTGAGE SECURITIES PORTFOLIO - (Continued)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
Principal Interest Maturity
Amount Rate Date Value
- ---------- --------- ---------- ----------
Mortgage Backed Obligations--(Continued)
Adjustable Rate CMOs--(Continued)
Ryland Mortgage Securities Corp. 1991-B1,
Class 1
$ 1,843 7.26% 03/25/20 $ 1,861
Ryland Mortgage Securities Corp. 1992-3,
Class A2
383 7.33 06/25/20 385
Salomon Brothers Mortgage Securities
1994-20, Class A
6,383 7.72 12/25/24 6,501
Saxon Mortgage Securities Corp. 1992-1,
Class B1
6,800 7.66 09/25/22 6,835
----------
Total Adjustable Rate CMOs....... $ 88,281
----------
Planned Amortization Class (PAC) CMOs (22.2%)
CMC Securities Corp. 1993-F, Class A2
$ 5,000 6.75% 11/25/23 $ 4,960
FHLMC Series 1584, Class E
8,800 5.75 10/15/16 8,514
FHLMC Series 1684, Class F
14,000 5.75 08/15/20 13,082
FNMA REMIC Trust 1993-86, Class D
12,693 5.50 05/25/04 12,528
GE Capital Mortgage Services, Inc. 1994-7,
Class A6
2,443 5.50 02/25/09 2,355
GE Capital Mortgage Services, Inc. 1994-11,
Class A1
11,472 6.50 03/25/24 11,360
Principal Interest Maturity
Amount Rate Date Value
- --------- --------- ---------- ----------
Mortgage Backed Obligations--(Continued)
Planned Amortization Class (PAC) CMOs--(Continued)
GE Capital Mortgage Services, Inc. 1994-13,
Class A1
$ 3,544 6.50% 04/25/24 $ 3,507
Housing Securities, Inc. 1993-E, Class E8
10,429 10.00 02/25/08 10,804
Prudential Home Mortgage 1993-54, Class A4
4,721 6.50 01/25/24 4,628
Residential Funding Mortgage Securities
1994-S12, Class A-3
2,188 04/25/09 2,168
----------
Total PAC CMOs................... $ 73,906
----------
Sequential Fixed Rate CMOs (18.8%)
CMC Securities Corp. 1993-C, Class C3
$ 3,844 9.55% 04/25/08 $ 3,992
FNMA REMIC Trust 1988-12, Class A
3,968 10.00 02/25/18 4,195
FNMA REMIC Trust 1989-12, Class X
7,305 10.00 12/25/14 7,551
FNMA REMIC Trust 1989-59, Class H
15,000 7.75 10/25/18 15,161
Prudential Home Mortgage 1992-20, Class A6
2,257 7.65 08/25/22 2,260
Prudential Home Mortgage 1992-39, Class A3
5,467 5.80 12/25/07 5,432
Prudential Home Mortgage 1992-A, Class 1B1
8,113 7.20 04/28/22 8,073
Prudential Home Mortgage 1993-38, Class A4
13,254 9.55 09/25/23 13,863
The accompanying notes are an integral
part of these financial statements.
21
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--------------
MORTGAGE SECURITIES PORTFOLIO - (Continued)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
Principal Interest Maturity
Amount Rate Date Value
- ---------- --------- ---------- ----------
Mortgage Backed Obligations--(Continued)
Sequential Fixed Rate CMOs--(Continued)
Ryland Mortgage Securities Corp. 72, Class D
$ 1,807 9.85% 12/01/16 $ 1,856
----------
Total Sequential Fixed Rate
CMOs ........................... $ 62,383
----------
Total CMOs ...................... $ 224,570
----------
Total Mortgage Backed
Obligations (cost $265,716) ... $ 265,301
----------
U.S. Treasury Obligations (18.3%)
U.S. Treasury Notes
$ 10,250 5.88% 04/30/98 $ 10,186
13,000 5.13 06/30/98 12,740
12,200 6.88 08/31/99 12,307
22,670 7.88 11/15/04 24,013
U.S. Treasury Principal-Only Stripped
Security/(b)/
2,600 6.92% 11/15/04 1,476
----------
Total U.S. Treasury Obligations
(cost $61,425) ................ $ 60,722
Repurchase Agreements (1.5%)
Joint Repurchase Agreement Account
$ 5,100 5.26% 09/03/96 $ 5,100
----------
Total Repurchase Agreements
(cost $5,100) ................. $ 5,100
----------
Total Investments
(cost $332,241/(c)/) .......... $ 331,123
==========
- -----------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments
in which value exceeds cost .......... $ 1,526
Gross unrealized loss for investments
in which cost exceeds value .......... (2,701)
==========
Net unrealized loss .................... $ (1,175)
==========
- -----------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/Variable rate security. Coupon rate disclosed is that which is in effect
at August 31, 1996.
/(b)/The interest rate disclosed for these securitites represents effective
yield to maturity.
/(c)/The aggregate cost for federal income tax purposes is $332,298.
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
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--------------
TARGET MATURITY PORTFOLIO (FEB 97)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
Principal Interest Maturity
Amount Rate Date Value
- ---------- -------- ---------- ---------
Mortgage Backed Obligations (76.9%)
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)/(a)/ (4.2%)
$ 3,813 8.00% 09/01/18 $ 3,941
---------
Fixed Rate Government National Mortgage Association(1.9%)
$ 1,666 10.00% 10/15/16 $ 1,827
---------
Collateralized Mortgage Obligations (CMOs)(70.8%)
Adjustable Rate CMOs(a) (35.6%)
Capstead Securities Corp. 1992-14, Class A
$ 1,766 7.14% 10/25/22 $ 1,775
Chase Mortgage Finance Corp. 1990-E,
Class A1
1,645 7.06 11/25/20 1,658
CMC Securities Corp. II 1993-H, Class A1
3,564 7.43 09/25/23 3,608
Imperial Savings Association 1987-3, Class A1
2,196 7.42 06/25/17 2,195
Merrill Lynch Mortgage Investors, Inc.
1994-I, Class A1
2,841 7.38 01/25/05 2,897
Prudential Home Mortgage 1992-8, Class A1
1,127 8.03 04/25/22 1,148
Resolution Trust Corp. 1992-11, Class B2
2,700 7.36 10/25/24 2,715
Resolution Trust Corp. 1994-1, Class M3
1,687 7.95 09/25/29 1,729
Resolution Trust Corp. 1995-1, Class A3
3,986 7.23 10/25/28 4,055
Ryland Mortgage Securities Corp. 1992-L10,
Class A
1,471 7.50 08/25/22 1,481
Principal Interest Maturity
Amount Rate Date Value
- --------- -------- ---------- ---------
Mortgage Backed Obligations--(Continued)
Adjustable Rate CMOs--(Continued)
Salomon Brothers Mortgage Securities
1990-3A, Class 1
$ 1,901 6.43% 11/25/20 $ 1,901
Salomon Brothers Mortgage Securities
1994-20, Class A
2,295 7.72 12/25/24 2,338
Saxon Mortgage Securities Corp. 1992-4,
Class A
594 7.33 12/25/22 599
Saxon Mortgage Securities Corp. 1992-6,
Class A
967 7.42 01/25/23 976
Saxon Mortgage Securities Corp. 1994-11,
Class A
1,884 7.64 12/25/24 1,928
Saxon Mortgage Securities Corp. 1995-1B,
Class A2
2,703 7.74 04/25/25 2,761
---------
Total Adjustable Rate CMOs........ $ 33,764
---------
Regular Floater CMOs/(a)/ (16.0%)
Capstead Securities Corp. 1993-1, Class F
$ 391 6.25% 03/01/18 $ 392
Collateralized Mortgage Securities Corp.
1990-6, Class H
3,000 6.14 10/20/20 3,029
Collateralized Mortgage Securities Corp.
Series T, Class 1
338 6.24 10/20/18 338
DLJ Mortgage Acceptance Corp. 1996-Q5,
Class A1
3,642 6.00 06/25/26 3,641
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
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--------------
TARGET MATURITY PORTFOLIO (FEB 97) - (Continued)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
Principal Interest Maturity
Amount Rate Date Value
- ---------- -------- ---------- ---------
Mortgage Backed Obligations--(Continued)
Regular Floater CMOs--(Continued)
FBC Mortgage Securities Trust A, Class 1
$ 301 6.19% 01/20/18 $ 301
FHLMC Series 1011, Class F
3,418 6.34 11/15/20 3,470
Residential Funding Mortgage Securities
1993-S13, Class A5
2,299 6.19 03/25/08 2,302
Resolution Trust Corp 1993-C1, Class A2
1,677 6.60 05/25/24 1,677
---------
Total Regular Floater CMOs........ $ 15,150
---------
Sequential Fixed Rate CMOs (18.0%)
FHLMC Series 1028, Class F
$ 1,694 9.30% 05/15/05 $ 1,708
FHLMC Series 1056, Class G
24 8.00 12/15/18 23
FNMA REMIC Trust 1989-10, Class D
5,000 9.50 07/25/09 5,140
FNMA REMIC Trust 1989-80, Class E
5,655 9.00 09/25/18 5,831
Prudential Home Mortgage 1993-38, Class A4
4,203 9.55 09/25/23 4,396
---------
Total Sequential Fixed Rate CMOs.. $ 17,098
---------
Principal Interest Maturity
Amount Rate Date Value
- --------- -------- ---------- ---------
Mortgage Backed Obligations--(Continued)
Targeted Amortization Class (TAC) CMOs (1.2%)
FNMA REMIC Trust G-35, Class K
$ 1,099 8.00% 06/25/20 $ 1,101
---------
Total CMOs ....................... $ 67,113
---------
Total Mortgage Backed Obligations
(cost $72,790) ................. $ 72,881
---------
U.S. Treasury Obligations (2.1%)
United States Treasury Note
$ 2,000 5.63% 10/31/97 $ 1,990
---------
Total U.S. Treasury Obligations
(cost $1,993) .................. $ 1,990
---------
Repurchase Agreements (14.6%)
Joint Repurchase Agreement Account
$ 13,800 5.26% 09/03/96 $ 13,800
---------
Total Repurchase Agreements (cost
$13,800) ....................... $ 13,800
=========
Total Investments
(cost $88,583(b)) .............. $ 88,671
=========
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
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--------------
TARGET MATURITY PORTFOLIO (FEB 97) - (Continued)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
- -----------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost .............. $ 377
Gross unrealized loss for investments in
which cost exceeds value .............. (330)
---------
Net unrealized gain ..................... $ 47
=========
- -----------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
(a)Variable rate security. Coupon rate disclosed is that which is in effect at
August 31, 1996.
(b)The aggregate cost for federal income tax purposes is $88,624.
The accompanying notes are an integral
part of these financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
TRUST FOR CREDIT UNIONS
--------------
TARGET MATURITY PORTFOLIO (MAY 97)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
Principal Interest Maturity
Amount Rate Date Value
- ---------- --------- ---------- ---------
<S> <C> <C> <C>
Mortgage Backed Obligations (72.6%)
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(a) (3.7%)
$ 2,246 7.67% 07/01/30 $ 2,326
---------
Fixed Rate Government National Mortgage Association
(2.2%)
$ 1,266 10.00% 10/15/16 $ 1,388
---------
Collateralized Mortgage Obligations (CMOs) (66.7%)
Adjustable Rate CMOs(a) (42.4%)
Citicorp Mortgage Securities, Inc.
1992-17, Class A
$ 1,793 7.42% 10/25/22 $ 1,826
DLJ Mortgage Acceptance Corp. 1996-Q5,
Class A1
2,428 6.00 06/25/26 2,427
Imperial Savings Association 1987-3, Class A1
1,495 7.42 06/15/17 1,494
Independent National Mortgage Corp.
1994-W, Class A1
1,794 8.07 12/25/24 1,833
Merrill Lynch Mortgage Investors, Inc.
1994-I, Class A1
2,079 7.38 01/25/05 2,120
Prudential Home Mortgage 1992-24, Class A1
2,208 8.21 09/25/22 2,247
Resolution Trust Corp. 1992-11, Class A2
2,141 7.36 10/25/24 2,159
Resolution Trust Corp. 1994-1, Class M3
1,201 7.95 09/25/29 1,231
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------- --------- ---------- ---------
<S> <C> <C> <C>
Mortgage Backed Obligations--(Continued)
Adjustable Rate CMOs--(Continued)
Ryland Mortgage Securities Corp. 1992-L1,
Class A1
$ 2,079 6.84% 02/25/22 $ 2,083
Salomon Brothers Mortgage Securities
1994-20, Class A
1,596 7.72 12/25/24 1,625
Saxon Mortgage Securities Corp. 1992-3,
Class A
1,189 7.43 11/25/22 1,199
Saxon Mortgage Securities Corp. 1992-4,
Class A
1,484 7.33 12/25/22 1,498
Saxon Mortgage Securities Corp. 1992-6,
Class A
1,692 7.42 01/25/23 1,708
Saxon Mortgage Securities Corp. 1994-11,
Class A
1,300 7.64 12/25/24 1,330
Saxon Mortgage Securities Corp. 1995-1B,
Class A2
1,954 7.74 04/25/25 1,995
---------
Total Adjustable Rate CMOs........ $ 26,775
---------
Inverse Floater CMOs(a) (7.4%)
FHLMC Series 1266, Class F
$ 2,956 9.83% 05/15/97 $ 2,953
FHLMC Series 1284, Class E
1,742 8.75 05/15/97 1,737
---------
Total Inverse Floater CMOs........ $ 4,690
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
TRUST FOR CREDIT UNIONS
--------------
TARGET MATURITY PORTFOLIO (MAY 97) - (Continued)
STATEMENT OF INVESTMENTS
August 31, 1996
($ in Thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------- --------- ---------- ---------
<S> <C> <C> <C>
Mortgage Backed Obligations--(Continued)
Planned Amortization Class (PAC) CMOs (5.8%)
FNMA REMIC Trust 1990-24, Class E
$ 3,500 9.00% 03/25/20 $ 3,660
---------
Regular Floater CMOs(a) (6.1%)
FHLMC Series 1011, Class F
$ 2,442 6.34% 11/15/20 $ 2,479
Residential Funding Mortgage Securities
1993-S13, Class A5
1,396 6.19 03/25/08 1,398
---------
Total Regular Floater CMOs........ $ 3,877
---------
Sequential Fixed Rate CMOs (5.0%)
Prudential Home Mortgage 1993-38, Class A4
$ 3,015 9.55% 09/25/23 $ 3,154
---------
Total CMOs ....................... $ 42,156
---------
Total Mortgage Backed Obligations
(cost $45,705) ................. $ 45,870
---------
U.S. Treasury Obligations (15.0%)
U.S. Treasury Note
$ 9,500 5.63% 10/31/97 $ 9,453
---------
Total U.S. Treasury Obligations
(cost $9,476) .................. $ 9,453
---------
Repurchase Agreements (7.4%)
Joint Repurchase Agreement Account
$ 4,700 5.26% 09/03/96 $ 4,700
---------
Total Repurchase Agreements (cost
$4,700) ........................ $ 4,700
---------
Total Investments
(cost $59,881(b)) .............. $ 60,023
=========
<CAPTION>
- ----------------------------------------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost .............. $ 339
Gross unrealized loss for investments in
which cost exceeds value .............. (197)
---------
Net unrealized gain ..................... $ 142
=========
- -----------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/ Variable rate security. Coupon rate disclosed is that which is in effect
at August 31, 1996.
/(b)/ The amount stated also represents the aggregate cost for federal income
tax purposes.
The accompanying notes are an integral
part of these financial statements.
27
<PAGE>
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--------------
STATEMENTS OF ASSETS AND LIABILITIES
August 31, 1996
<TABLE>
<CAPTION>
Target Target
Money Government Mortgage Maturity Maturity
Market Securities Securities Portfolio Portfolio
Portfolio Portfolio Portfolio (Feb 97) (May 97)
------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost:
$427,693,870, $562,573,997, $332,240,860,
$88,583,110 and
$59,880,881, respectively) ................... $427,693,870 $558,531,575 $331,123,140 $ 88,670,699 $60,022,984
Cash ........................................... 37,902 27,445 98,726 79,540 71,875
Receivables:
Investment securities sold ................... -- 2,680,117 -- 5,876,683 2,940,882
Interest ..................................... 993,161 5,721,937 2,951,881 579,945 524,314
Deferred organization expenses, net ............ -- -- 10,004 1,833 1,320
Other assets ................................... 5,069 78,036 -- 3,022 1,755
------------ ----------- ----------- ---------- ----------
Total assets ....................... 428,730,002 567,039,110 334,183,751 95,211,722 63,563,130
------------ ----------- ----------- ---------- ----------
LIABILITIES
Payables:
Investment securities purchased .............. -- 28,830,336 -- -- --
Dividends .................................... 1,938,770 2,334,853 1,532,816 432,916 356,120
Advisory fees ................................ 41,445 91,208 56,726 19,241 13,402
Administration fees .......................... 18,609 45,602 14,182 4,016 2,681
Accrued expenses and other liabilities ......... 21,352 34,676 33,597 28,694 21,958
------------ ----------- ----------- ---------- ----------
Total liabilities ................... 2,020,176 31,336,675 1,637,321 484,867 394,161
------------ ----------- ----------- ---------- ----------
NET ASSETS
Paid-in capital ................................ 426,709,826 557,133,070 346,096,607 98,296,211 63,532,452
Accumulated undistributed (distributions in
excess of) net investment income ............ -- (395,807) (1,273,901) 628,878 (31,341)
Accumulated net realized loss on investment
transactions ................................. -- (16,992,406) (11,158,556) (4,285,823) (474,245)
Net unrealized gain (loss) on investments ..... -- (4,042,422) (1,117,720) 87,589 142,103
------------ ----------- ----------- ---------- ----------
Net assets .......................... $426,709,826 $535,702,435 $332,546,430 $ 94,726,855 $63,168,969
============ ============ ============ ============ ===========
Net asset value per unit
(net assets/units outstanding) ............... $1.00 $9.76 $9.65 $9.66 $9.95
============ ============ ============ ============ ===========
Redemption price per unit (Note 7) ............. $1.00 $9.76 $9.65 $9.61 $9.90
============ ============ ============ ============ ===========
UNITS OUTSTANDING
Total units outstanding, $0.001 par value
(unlimited number of units authorized) ....... 426,709,826 54,874,828 34,443,586 9,809,980 6,350,000
============ ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
28
<PAGE>
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--------------
STATEMENTS OF OPERATIONS
For The Year Ended August 31, 1996
<TABLE>
<CAPTION>
Target Target
Money Government Mortgage Maturity Maturity
Market Securities Securities Portfolio Portfolio
Portfolio Portfolio Portfolio (Feb 97) (May 97)
----------- ----------- - ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest income ................................ $27,555,285 $34,733,885 $21,271,258 $6,684,077 $4,733,747
----------- ----------- ------------ ----------- ----------
Expenses:
Advisory fees .................................. 893,178 1,067,553 614,735 227,680 158,732
Administration fees ............................ 495,451 533,777 153,910 47,545 31,820
Custodian fees ................................. 63,332 80,145 53,813 37,995 34,115
Professional fees .............................. 52,398 67,684 54,023 44,815 43,178
Trustees' fees ................................. 13,676 19,300 9,829 2,795 1,855
Other expenses ................................. 46,106 99,935 41,813 9,585 1,812
----------- ----------- ------------ ----------- -----------
Total expenses ............................... 1,564,141 1,868,394 928,123 370,415 271,512
Less--Fee waivers and expense
reimbursements ................................. (602,462) (176) (59,027) -- --
----------- ----------- ------------ ----------- ----------
Net expenses ................................. 961,679 1,868,218 869,096 370,415 271,512
----------- ----------- ------------ ----------- ----------
Net investment income ............................ 26,593,606 32,865,667 20,402,162 6,313,662 4,462,235
Net realized gain (loss) on investment
transactions .................................. -- (2,540,339) (1,362,172) 209,155 194,087
Net change in unrealized gain (loss) on
investments ................................... -- 2,123,885 (2,371,245) (316,867) (512,792)
----------- ----------- ------------ ----------- ----------
Net increase in net assets resulting from
operations .................................... $26,593,606 $32,449,213 $16,668,745 $6,205,950 $4,143,530
=========== =========== ============ =========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
29
<PAGE>
TRUST FOR CREDIT UNIONS
--------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended August 31, 1996
<TABLE>
<CAPTION>
Money Government Mortgage
Market Securities Securities
Portfolio Portfolio Portfolio
<S> -------------- ------------- ------------
From Operations: <C> <C> <C>
Net investment income ........................................... $ 26,593,606 $ 32,865,667 $ 20,402,162
Net realized gain (loss) from investment transactions ........... -- (2,540,339) (1,362,172)
Net change in unrealized gain (loss) on investments ............. -- 2,123,885 (2,371,245)
-------------- ------------ -------------
Net increase in net assets resulting from operations ............ 26,593,606 32,449,213 16,668,745
-------------- ------------ -------------
Distributions to Unitholders:
From net investment income ...................................... (26,593,606) (32,575,731) (19,872,792)
-------------- ------------ -------------
Total distributions to unitholders .............................. (26,593,606) (32,575,731) (19,872,792)
-------------- ------------ -------------
From Unit Transactions:
Proceeds from sale of units ..................................... 4,407,395,102 71,305,733 84,209,886
Reinvestment of dividends and distributions ..................... 14,016,210 5,926,024 3,681,644
Cost of units repurchased ....................................... (4,376,797,402) (71,061,723) (16,550,279)
-------------- ------------ -------------
Net increase in net assets from unit transactions ............... 44,613,910 6,170,034 71,341,251
-------------- ------------ -------------
Total increase (decrease) ..................................... 44,613,910 6,043,516 68,137,204
Net Assets:
Beginning of year ............................................... 382,095,916 529,658,919 264,409,226
-------------- ------------- -------------
End of year ..................................................... $ 426,709,826 $ 535,702,435 $ 332,546,430
============== ============= =============
Accumulated undistributed (distributions in excess of) net
investment income ............................................... $ -- $ (395,807) $ (1,273,901)
============== ============= =============
Summary of Unit Transactions:
Units sold ...................................................... 4,407,395,102 7,283,062 8,597,649
Reinvestment of dividends and distributions ..................... 14,016,210 606,093 377,883
Units repurchased ............................................... (4,376,797,402) (7,267,669) (1,692,128)
-------------- ------------- -------------
Increase in units outstanding ................................... 44,613,910 621,486 7,283,404
============== ============= =============
<CAPTION>
Target Target
Maturity Maturity
Portfolio Portfolio
(Feb 97) (May 97)
----------- -------------
<S> <C> <C>
From Operations:
Net investment income ........................................... $ 6,313,662 $ 4,462,235
Net realized gain (loss) from investment transactions ........... 209,155 194,087
Net change in unrealized gain (loss) on investments ............. (316,867) (512,792)
----------- -----------
Net increase in net assets resulting from operations ............ 6,205,950 4,143,530
----------- -----------
Distributions to Unitholders:
From net investment income ...................................... (6,700,405) (4,433,542)
----------- -----------
Total distributions to unitholders .............................. (6,700,405) (4,433,542)
----------- -----------
From Unit Transactions:
Proceeds from sale of units ..................................... -- --
Reinvestment of dividends and distributions ..................... -- --
Cost of units repurchased ....................................... -- --
----------- -----------
Net increase in net assets from unit transactions ............... -- --
----------- -----------
Total increase (decrease) ..................................... (494,455) (290,012)
Net Assets:
Beginning of year ............................................... 95,221,310 63,458,981
----------- -----------
End of year ..................................................... $94,726,855 $63,168,969
=========== ===========
investment income ............................................... $ 628,878 $ (31,341)
=========== ===========
Summary of Unit Transactions:
Units sold ...................................................... -- --
Reinvestment of dividends and distributions ..................... -- --
Units repurchased ............................................... -- --
----------- -----------
Increase in units outstanding ................................... -- --
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
30
<PAGE>
TRUST FOR CREDIT UNIONS
--------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended August 31, 1995
<TABLE>
<CAPTION>
Money Government
Market Securities
Portfolio Portfolio
----------------- ---------------
<S> <C> <C>
From Operations:
Net investment income...................................................... $ 14,748,722 $ 30,466,625
Net realized loss from investment transactions ............................ -- (4,600,744)
Net change in unrealized gain (loss) on investments ....................... -- 4,293,439
----------------- ---------------
Net increase in net assets resulting from operations ...................... 14,748,722 30,159,320
----------------- ---------------
Distributions to Unitholders:
From net investment income ................................................ (14,700,440) (30,842,606)
In excess of net investment income ........................................ -- (685,743)
From paid-in capital ...................................................... -- --
----------------- ---------------
Total distributions to unitholders ........................................ (14,700,440) (31,528,349)
----------------- ---------------
From Unit Transactions:
Proceeds from sale of units ............................................... 3,043,450,086 21,279,121
Reinvestment of dividends and distributions ............................... 6,769,666 9,375,252
Cost of units repurchased ................................................. (2,885,160,983) (93,957,586)
----------------- ---------------
Net increase (decrease) in net assets from unit transactions .............. 165,058,769 (63,303,213)
----------------- ---------------
Total increase (decrease)................................................ 165,107,051 (64,672,242)
Net Assets:
Beginning of year ......................................................... 216,988,865 594,331,161
----------------- ---------------
End of year ............................................................... $ 382,095,916 $ 529,658,919
================= ===============
Accumulated undistributed (distributions in excess of) net
investment income ......................................................... $ -- $ (685,743)
================= ===============
Summary of Unit Transactions:
Units sold ................................................................ 3,043,450,086 2,179,482
Reinvestment of dividends and distributions ............................... 6,769,666 963,379
Units repurchased ......................................................... (2,885,160,983) (9,662,680)
----------------- ---------------
Increase (decrease) in units outstanding .................................. 165,058,769 (6,519,819)
================= ===============
<CAPTION>
Target Target
Mortgage Maturity Maturity
Securities Portfolio Portfolio
Portfolio (Feb 97) (May 97)
--------------- ------------- -------------
<S> <C> <C> <C>
From Operations:
Net investment income...................................................... $ 16,818,748 $ 6,581,990 $ 4,514,298
Net realized loss from investment transactions ............................ (3,551,399) (1,844,120) (339,194)
Net change in unrealized gain (loss) on investments ....................... 7,151,412 1,992,445 801,748
--------------- ------------- --------------
Net increase in net assets resulting from operations ...................... 20,418,761 6,730,315 4,976,852
--------------- ------------- --------------
Distributions to Unitholders:
From net investment income ................................................ (16,818,748) (6,068,263) (4,420,145)
In excess of net investment income ........................................ (434,471) -- --
From paid-in capital ...................................................... (406,506) -- --
--------------- ------------- --------------
Total distributions to unitholders ........................................ (17,659,725) (6,068,263) (4,420,145)
--------------- ------------- --------------
From Unit Transactions:
Proceeds from sale of units ............................................... 7,814,480 -- --
Reinvestment of dividends and distributions ............................... 4,880,915 -- --
Cost of units repurchased ................................................. (34,931,625) (2,821,023) (5,964,428)
--------------- ------------- --------------
Net increase (decrease) in net assets from unit transactions .............. (22,236,230) (2,821,023) (5,964,428)
--------------- ------------- --------------
Total increase (decrease)................................................ (19,477,194) (2,158,971) (5,407,721)
Net Assets:
Beginning of year ......................................................... 283,886,420 97,380,281 68,866,702
--------------- ------------- --------------
End of year ............................................................... $ 264,409,226 $ 95,221,310 $ 63,458,981
=============== ============= ==============
Accumulated undistributed (distributions in excess of) net
investment income ......................................................... $ (1,397,205) $ 1,015,621 $ (60,034)
=============== ============= ==============
Summary of Unit Transactions:
Units sold ................................................................ 807,374 -- --
Reinvestment of dividends and distributions ............................... 508,864 -- --
Units repurchased ......................................................... (3,664,116) (300,000) (600,000)
--------------- ------------- --------------
Increase (decrease) in units outstanding .................................. (2,347,878) (300,000) (600,000)
=============== ============= ==============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
31
<PAGE>
TRUST FOR CREDIT UNIONS
--------------
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Income from investment Distributions to
operations unitholders
---------------------- -----------------------------
From
Net In net Net
asset Net From excess real- asset
value at Net realized net of net ized value
begin- invest- gain on invest- invest- gain on at
ning of ment invest- ment ment invest- end of Total
period income ments/(a)/ income income ments period return/(b)/
-------- -------- ------------ --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended: 8/31/96 ........... $ 1.00 $ 0.0539 $ -- $(0.0539) $ -- $ -- $ 1.00 5.51%
8/31/95 ........... 1.00 0.0555 -- (0.0553) -- -- 1.00 5.56
8/31/94 ........... 1.00 0.0329 0.0002 (0.0342) (0.0001) (0.0002) 1.00 3.50
8/31/93 ........... 1.00 0.0305 0.0004 (0.0305) -- (0.0005) 1.00 3.14
8/31/92 ........... 1.00 0.0416 0.0008 (0.0416) -- (0.0007) 1.00 4.39
8/31/91 ........... 1.00 0.0641 -- (0.0641) -- -- 1.00 6.93
8/31/90 ........... 1.00 0.0824 -- (0.0824) -- -- 1.00 8.58
8/31/89 ........... 1.00 0.0899 -- (0.0899) -- -- 1.00 9.28
5/17/88/(c)/to 8/31/88 ........... 1.00 0.0214 -- (0.0214) -- -- 1.00 7.40(d)
</TABLE>
<TABLE>
<CAPTION>
Ratio information
assuming no waiver
of fees or expense
reimbursements
----------------------------
Ratio of
net
invest-
ment Net Ratio of
Ratio of income assets net
net to at end Ratio of investment
expenses average of expenses to income
to average net period to average to average
net assets assets (000's) assets net assets
------------ --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Year ended: 8/31/96 ........... 0.19% 5.37% $ 426,710 0.31% 5.25%
8/31/95 ........... 0.20 5.55 382,096 0.33 5.42
8/31/94 ........... 0.25 3.29 216,989 0.34 3.20
8/31/93 ........... 0.25 3.05 616,229 0.33 2.97
8/31/92 ........... 0.25 4.16 864,924 0.29 4.12
8/31/91 ........... 0.25 6.41 654,977 0.25 6.41
8/31/90 ........... 0.25 8.24 258,304 0.25 8.24
8/31/89 ........... 0.25 8.99 167,331 0.25 8.99
5/17/88/(c)/to 8/31/88 ........... 0.25/(d)/ 7.27/(d)/ 106,739 0.25/(d)/ 7.27/(d)/
</TABLE>
/(a)/Includes the balancing effect of calculating per share amounts.
/(b)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
/(c)/Commencement of operations.
/(d)/Annualized.
The accompanying notes are an integral
part of these financial statements.
32
<PAGE>
TRUST FOR CREDIT UNIONS
--------------
GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Income from investment Distributions to
operations unitholders
---------------------- -------------------
Net
realized
Net and In Net
asset unreal- From excess asset
value at Net lized gain net of net value
begin- invest- (loss) on invest- invest- at
ning of ment invest- ment ment end of Total
period income ments(a) income income period return/(b)/
---------- --------- ------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended: 8/31/96 ............................ $ 9.76 $0.6024 $(0.0055) $(0.5969) $ -- $ 9.76 6.26%
8/31/95 ............................ 9.78 0.5515 (0.0011) (0.5582) (0.0122) 9.76 5.82
8/31/94 ............................ 9.97 0.4286 (0.1974) (0.4212) -- 9.78 2.33
8/31/93 ............................ 10.03 0.4641 (0.0599) (0.4630) (0.0012) 9.97 4.06
8/31/92 ............................ 10.00 0.5588 0.0311 (0.5594) -- 10.03 6.68
7/10/91/(d)/ to 8/31/91 ............................ 10.00 0.0873 (0.0016) (0.0857) -- 10.00 7.02/(e)/
</TABLE>
<TABLE>
<CAPTION>
Ratio information
assuming no waiver
of fees or expense
reimbursements
---------------------------
Ratio of
net
invest-
ment Net Ratio of
Ratio of income Post- assets net
net to folio at end Ratio of investment
expenses average turn- of expenses to income
to average net over period to average to average
net assets assets rate/(c)/ (000's) assets net assets
------------ ---------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended: 8/31/96 ............................ 0.35% 6.16% 149.66% $ 535,702 0.35% 6.16%
8/31/95 ............................ 0.34 5.65 70.58 529,659 0.34 5.65
8/31/94 ............................ 0.35 4.25 42.27 594,331 0.37 4.23
8/31/93 ............................ 0.34 4.58 67.38 1,122,484 0.47 4.45
8/31/92 ............................ 0.36 5.91 195.53 1,153,410 0.59 5.68
7/10/91/(d)/ to 8/31/91 ............................ 0.48(e) 7.16/(e)/ 3.56 94,139 0.73/(e)/ 6.91/(e)/
</TABLE>
/(a)/Includes balancing effect of calculating per share amounts.
/(b)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
/(c)/Includes the effect of mortgage dollar roll transactions.
/(d)/Commencement of operations.
/(e)/Annualized.
The accompanying notes are an integral
part of these financial statements.
33
<PAGE>
TRUST FOR CREDIT UNIONS
--------------
MORTGAGE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Income from Distributions to
investment operations unitholders
---------------------- ---------------------------------------------
Net In
realized excess
Net and of Net
asset unreal- From In excess real-
value at Net lized gain net of net lized
begin- invest- (loss)on invest- invest- gain on From
ning of ment invest- ment ment invest- Paid in
period income ments/(a)/ income income ment capital
---------- --------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended: 8/31/96 ........... $ 9.74 $0.6604 $(0.1195) $(0.6309) $ -- $ -- $ --
8/31/95 ........... 9.62 0.6075 0.1539 (0.6075) (0.0175) -- (0.0164)
8/31/94 ........... 10.13 0.5533 (0.4530) (0.5719) (0.0340) (0.0044) --
10/9/92/(d)/ to 8/31/93 ........... 10.00 0.4895 0.1144 (0.4702) -- -- --
</TABLE>
<TABLE>
<CAPTION>
Ratio information
assuming no waiver
of fees
-------------------------
Ratio of
net
invest-
Net ment Net Ratio of
asset Ratio of income Port- assets net
value net in folio at end Ratio of investment
at expenses average turn of expenses to income
end of Total to average net over period average net to average
period return/(b)/ net assets assets rate/(c)/ (000's) assets net assets
-------- ------------- ------------ ----------- ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended: 8/31/96 ........... $ 9.65 5.67% 0.28% 6.64% 163.42% $332,546 0.30% 6.62%
8/31/95 ........... 9.74 8.20 0.26 6.36 130.98 264,409 0.32 6.30
8/31/94 ........... 9.62 1.00 0.28 5.66 188.58 283,886 0.29 5.65
10/9/92/(d)/ to 8/31/93 ........... 10.13 6.27 0.33/(e)/ 5.64/(e)/ 146.24 213,510 0.38/(e)/ 5.59/(e)/
</TABLE>
/(a)/Includes balancing effect of calculating per share amounts.
/(b)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
/(c)/Includes the effect of mortgage dollar roll transactions.
/(d)/Commencement of operations.
/(e)/Annualized.
The accompanying notes are an integral
part of these financial statements.
34
<PAGE>
<TABLE>
<CAPTION>
TRUST FOR CREDIT UNIONS
--------------
TARGET MATURITY PORTFOLIOS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
Income from
Investment Distributions to
operations unitholders
----------------- --------------------
Net
realized
Net and In Net
asset unreal- From excess asset
value at Net ized gain net of net value
begin- invest- (loss) on invest- invest- at
ning of ment invest- ment ment end of Total
period income ments (a) income income period return(b)
---------- -------- ----------- ---------- --------- -------- -----------
TARGET MATURITY PORTFOLIO (FEB 97)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended: 8/31/96 ................................ $9.71 $0.6436 $(0.0106) $(0.6830) $ -- $9.66 6.70%
8/31/95 ................................ 9.63 0.6674 0.0261 (0.6135) -- 9.71 7.48
2/15/94(d)to8/31/94 ................................ 10.00 0.3313 (0.4189) (0.2824) -- 9.63 (0.83)
TARGET MATURITY PORTFOLIO (MAY 97)
- -----------------------------------------------------------------------------------------------------------------------------
Year ended: 8/31/96 ................................ 9.99 0.7028 (0.0446) (0.6982) -- 9.95 6.77
8/31/95 ................................ 9.91 0.6674 0.0673 (0.6547) -- 9.99 7.70
5/23/94(d)to8/31/94 ................................ 10.00 0.1594 (0.0674) (0.1594) (0.0226) 9.91 0.92
</TABLE>
<TABLE>
<CAPTION>
Ratio of
net
Invest-
ment Net
Ratio of income Port- assets
net to folio at end
expenses average turn of
to average net over period
net assets assets rate(c) (000's)
------------------- -------- -------- ----------
TARGET MATURITY PORTFOLIO (FEB 97)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended: 8/31/96 ................................ 0.39% 6.64% 211.33% $94,727
8/31/95 ................................ 0.41 6.94 171.98 95,221
2/15/94(d)to8/31/94 ................................ 0.42(e) 6.30(e) 156.03 97,380
TARGET MATURITY PORTFOLIO (MAY 97)
- ----------------------------------------------------------------------------------------------------
Year ended: 8/31/96 ................................ 0.43 7.03 190.34 63,169
8/31/95 ................................ 0.45 6.77 147.76 63,459
5/23/94(d)to8/31/94 ................................ 0.48(e) 5.80(e) 74.68 68,867
</TABLE>
(a)Includes balancing effect of calculating per share amounts.
(b)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period and no
redemption fee. For Target Maturity Portfolio (Feb 97) and Target Maturity
Portfolio (May 97), total return would be reduced if a redemption fee were
taken into account.
(c)Includes the effect of mortgage dollar roll transactions.
(d)Commencement of operations.
(e)Annualized.
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
1. Organization
Trust for Credit Unions (the "Fund") is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company consisting of five diversified portfolios: the
Money Market Portfolio, Government Securities Portfolio, Mortgage Securities
Portfolio, Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97). Units of the Fund are offered for sale solely to state and federally
chartered credit unions. Unless extended by appropriate action of the Fund's
Board of Trustees and by the unitholders, Target Maturity Portfolio (Feb 97) and
Target Maturity Portfolio (May 97) (the "Target Maturity Portfolios") will be
liquidated on or about February 18, 1997 and May 15, 1997, respectively, (the
"Termination Date") at which time all units of these portfolios that are
outstanding as of the close of business on the respective Termination Date will
be redeemed by the Fund at their net asset value.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund which are in conformity with those generally accepted in the investment
company industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may affect the reported amounts.
A. Investment Valuation
-------------------------
For the Government Securities Portfolio, Mortgage Securities Portfolio and
Target Maturity Portfolios, investments in mortgage backed and asset backed
obligations are valued based on yield equivalents, a pricing matrix or other
sources, under valuation procedures established under the direction of the
Fund's Board of Trustees. Other portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations furnished
by a pricing service or provided by dealers in such securities. Portfolio
securities for which accurate market quotations are not readily available are
valued in accordance with the Fund's valuation procedures. Securities of the
Money Market Portfolio and short-term debt obligations maturing in sixty days or
less for the Government Securities Portfolio, Mortgage Securities Portfolio and
Target Maturity Portfolios are valued at amortized cost, which approximates
market value. Under this method, all investments purchased at a discount or
premium are valued by amortizing the difference between the original purchase
price and maturity value of the issue over the period to maturity.
36
<PAGE>
TRUST FOR CREDIT UNIONS
----------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
B. Security Transactions and Investment Income
------------------------------------------------
Security transactions are recorded on the trade date. Realized gains and
losses on sales of portfolio securities are calculated on the identified cost
basis. For the Money Market Portfolio, interest income is determined on the
basis of interest accrued, premium amortized and discount earned. The Mortgage
Securities Portfolio and the Target Maturity Portfolios amortize market
discounts and premiums on certain mortgage backed securities and treasury
obligations.
For the Government Securities Portfolio, Mortgage Securities Portfolio and
Target Maturity Portfolios, premiums on interest-only securities and on
collateralized mortgage obligations with nominal principal amounts are amortized
on an effective yield basis over the expected life of the respective securities,
taking into account actual principal prepayment experience and estimates of
future principal prepayments. Certain mortgage security paydown gains and losses
are taxable as ordinary income. Such paydown gains and losses increase or
decrease taxable ordinary income available for distribution and are classified
in interest income in the accompanying Statements of Operations. Original issue
discounts on debt securities are amortized to interest income over the life of
the security with a corresponding increase in the cost basis of that security.
C. Mortgage Dollar Rolls
--------------------------
The Government Securities, Mortgage Securities and Target Maturity
Portfolios may enter into mortgage "dollar rolls" in which the portfolios sell
securities in the current month for delivery and simultaneously contract with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The portfolios will hold
and maintain in a segregated account until the settlement date, cash or liquid
debt securities in an amount equal to the forward purchase price. For financial
reporting and tax reporting purposes, the portfolios treat mortgage dollar rolls
as two separate transactions: one involving the purchase of a security and a
separate transaction involving a sale.
37
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
August 31, 1996
2. Summary of Significant Accounting Policies -- (Continued)
D. Federal Taxes
------------------
It is each portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute each year substantially all investment company taxable income to its
unitholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to unitholders for financial reporting
purposes is determined in accordance with income tax rules and is based upon the
best available information. Therefore, in the accompanying financial statements,
the source of a portfolio's distributions may be shown as (i) from net
investment income, (ii) in excess of net investment income, (iii) from net
realized gains on investment transactions, (iv) in excess of net realized gains
on investment transactions, and/or (v) from capital.
As of each portfolio's most recent tax year-end, the following portfolios
had approximately the following amounts of capital loss carryforward for U.S.
federal tax purposes:
<TABLE>
<CAPTION>
Portfolio Amount Years of Expiration
---------------------------------------- ---------------------------------------- -----------------------
<S> <C> <C>
Government Securities.................. $17,941,000 1999 - 2004
Mortgage Securities.................... 10,753,000 2001 - 2004
Target Maturity (Feb 97)............... 4,182,000 1997*
Target Maturity (May 97)............... 398,000 1997*
</TABLE>
* Represents earlier of Termination Date of portfolio or actual
expiration date of capital loss carry forward.
These amounts are available to be carried forward to offset future capital
gains of the corresponding portfolios to the extent permitted by applicable laws
or regulations.
E. Deferred Organization Expenses
-----------------------------------
Organization-related costs are being amortized on a straight-line basis
over a period of five years for the Government Securities and Mortgage
Securities Portfolios, and over three years for the Target Maturity Portfolios.
38
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
August 31, 1996
2. Summary of Significant Accounting Policies -- (Continued)
F. Expenses
-------------
Expenses incurred by the Fund that do not specifically relate to an
individual portfolio of the Fund are allocated to the portfolios based on each
portfolio's relative average net assets for the period.
3. Agreements
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser pursuant to
an Advisory Agreement with the Fund. Under the Advisory Agreement, Goldman
Sachs, subject to the general supervision of the Fund's Trustees, manages the
Fund's portfolios and provides certain administrative services for the Fund. As
compensation for services rendered under the Advisory Agreement and the
assumption of the expenses related thereto, Goldman Sachs is entitled to a fee,
computed daily and payable monthly, at the following annual rates as a
percentage of each respective portfolio's average daily net assets:
<TABLE>
<CAPTION>
Portfolio Asset levels Fee
------------------------------------------------------- ----------------------------------- -------------
<S> <C> <C>
Money Market......................................... up to $300 million 0.20%
in excess of $300 million 0.15%
Government Securities................................ all 0.20%
Mortgage Securities.................................. all 0.20%
Target Maturity Portfolios........................... up to $75 million 0.25%
in excess of $75 million 0.20%
</TABLE>
Effective July 1, 1995, Goldman Sachs voluntarily agreed to limit its
advisory fee with respect to the Money Market Portfolio to .12% of the first
$250 million, .10% of the next $250 million, .09% of the next $250 million and
.08% over $750 million of the portfolio's average daily net assets. For the
fiscal year ended August 31, 1996, Goldman Sachs waived advisory fees amounting
to $351,232.
During the period from August 1, 1995 to January 31, 1996, Goldman Sachs
voluntarily agreed to limit its advisory fee with respect to the Mortgage
Securities Portfolio to .15% of the portfolio's average daily net assets. For
the fiscal year ended August 31, 1996, Goldman Sachs waived advisory fees
amounting to $59,027.
39
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
August 31, 1996
3. Agreements -- (Continued)
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP")
serves as the Fund's administrator pursuant to an Administration Agreement.
Callahan Financial Services, Inc. serves as a general partner to CUFSLP, and 38
major credit unions are limited partners. Under the Administration Agreement,
CUFSLP, subject to general supervision of the Fund's Trustees, provides certain
administrative services to the Fund. As compensation for services rendered under
the Administration Agreement, CUFSLP is entitled to the following fees, computed
daily and payable monthly, at the following annual rates as a percentage of each
respective portfolio's average daily net assets:
<TABLE>
<CAPTION>
Portfolio Fee
---------------------------------------------------------- -----------
<S> <C>
Money Market.............................................. 0.10%
Government Securities..................................... 0.10%
Mortgage Securities....................................... 0.05%
Target Maturity Portfolios................................ 0.05%
</TABLE>
For the fiscal year ended August 31, 1996, CUFSLP voluntarily agreed to
limit its administration fee with respect to the Money Market Portfolio to .05%
of the first $500 million, .04% of the next $250 million and .03% over $750
million of the portfolio's average net assets. For the fiscal year ended August
31, 1996, CUFSLP waived administration fees amounting to $251,230.
Effective July 1, 1995, CUFSLP has agreed that to the extent the total
annualized expenses (excluding interest, taxes, brokerage and extraordinary
expenses) (the "Expenses") of the Money Market Portfolio exceed 0.20% of the
average daily net assets of the Money Market Portfolio, CUFSLP will either
reduce the administration fees otherwise payable or pay such Expenses of the
Money Market Portfolio. For the fiscal year ended August 31, 1996, no expenses
were required to be reimbursed by CUFSLP under this agreement.
The Government Securities Portfolio bears the fees payable under the
Administration Agreement and the Advisory Agreement as well as other expenses
incurred in its operations. CUFSLP and Goldman Sachs have each voluntarily
agreed to limit the other annualized ordinary expenses (excluding advisory and
administration fees) of the Government Securities Portfolio such that CUFSLP
will reimburse expenses that exceed .05% up to .10% of the Government Securities
Portfolio's average daily net assets, and Goldman Sachs will reimburse expenses
that exceed .10% up to .15% of the Government Securities Portfolio's average
daily net assets. For the fiscal year ended August 31, 1996, $176 was reimbursed
by CUFSLP and no expenses were reimbursed by Goldman Sachs under this agreement.
40
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
August 31, 1996
3. Agreements -- (Continued)
Callahan Financial Services, Inc. and Goldman Sachs serve as exclusive
distributors of units of the Fund. For the fiscal year ended August 31, 1996,
neither received any compensation for this service. Goldman Sachs also serves as
Transfer Agent of the Fund for a fee.
4. Investment Transactions
Purchases and proceeds of sales or maturities of long-term securities for
the Government Securities Portfolio, Mortgage Securities Portfolio, Target
Maturity Portfolio (Feb 97) and Target Maturity Portfolio (May 97) for the
fiscal year ended August 31, 1996 were as follows ($ in thousands):
<TABLE>
<CAPTION>
Target Target
Government Mortgage Maturity Maturity
Securities Securities Portfolio Portfolio
Portfolio Portfolio (Feb 97) (May 97)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Purchases of U.S. Government and agency
obligations..................................... $831,733 $481,469 $137,303 $97,577
Purchases (excluding U.S. Government and agency
obligations).................................... -- 76,620 50,004 14,342
Sales or maturities of U.S. Government and agency
obligations..................................... 782,015 411,879 156,579 97,535
Sales or maturities (excluding U.S. Government and
agency obligations)............................. -- 79,056 50,228 20,853
</TABLE>
5. Repurchase Agreements
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping in the customer-only account of State Street
Bank and Trust Company, the Fund's custodian, or at subcustodians. GSAM monitors
the market value of the underlying securities by pricing them daily.
41
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
August 31, 1996
6. Joint Repurchase Agreement Accounts
The portfolios, together with other registered investment companies having
advisory agreements with GSAM, transfer uninvested cash balances into joint
accounts, the daily aggregate balances of which are invested in repurchase
agreements. The underlying securities for the repurchase agreements include U.S.
Treasury obligations and mortgage-related securities issued by the U.S.
Government, its agencies or instrumentalities.
As of August 31, 1996, the Money Market Portfolio had a 3.97% undivided
interest in the repurchase agreements in the following joint account which
equaled $152,800,000 in principal amount. As of August 31, 1996, the repurchase
agreements in this joint account, along with the corresponding underlying
securities (including the type of security, market value, interest rate and
maturity date), were as follows ($ in thousands):
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Bankers Trust Securities Corp., dated 08/30/96, repurchase price
$1,000,583 (U.S. Treasury Notes: $570,482, 5.13%-9.13%,
06/30/97-08/15/01) (U.S. Treasury Bills: $448,347,
10/17/96-11/07/96)............................................ $1,000,000 5.25% 09/03/96 $1,000,000
Bear Stearns Companies, Inc., dated 08/30/96, repurchase price
$500,292 (U.S. Treasury Interest-Only Strips: $507,966,
02/15/98-08/15/03)............................................ 500,000 5.25 09/03/96 500,000
Chase Securities, Inc., dated 08/30/96, repurchase price
$1,020,596 (U.S. Treasury Bills: $99,805, 06/26/97-08/21/97)
(U.S. Treasury Notes: $940,600, 4.38%-8.88%,
11/15/96-02/15/03)............................................ 1,020,000 5.26 09/03/96 1,020,000
Daiwa Securities, dated 08/30/96, repurchase price $125,073
(U.S. Treasury Bill: $112,089, 11/14/96) (U.S. Treasury
Notes: $15,412, 6.13%, 09/30/00).............................. 125,000 5.25 09/03/96 125,000
Goldman, Sachs & Co., dated 08/30/96, repurchase price $1,000,587
(U.S. Treasury Note: $65,652, 6.13%, 05/31/97) (U.S. Treasury
Interest-Only Strips: $652,161, 11/15/96-08/15/03) (U.S.
Treasury Principal-Only Strips: $297,596, 11/15/96-08/15/03)
(U.S. Treasury Interest-Only Strips: $4,830,
02/15/97-05/15/03)............................................ 1,000,000 5.28 09/03/96 1,000,000
UBS Securities, Inc., dated 08/30/96, repurchase price $100,058,
(U.S. Treasury Note: $102,496, 6.63%, 07/31/01) .............. 100,000 5.18 09/03/96 100,000
UBS Securities, Inc., dated 08/30/96, repurchase price $100,057,
(U.S. Treasury Note: $102,496, 6.63%, 07/31/01) .............. 100,000 5.16 09/03/96 100,000
----------
Total Joint Repurchase Agreement Account.............................................................. $3,845,000
==========
</TABLE>
42
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
August 31, 1996
6. Joint Repurchase Agreement Accounts -- (Continued)
As of August 31, 1996, the Money Market, Government Securities, Mortgage
Securities, Target Maturity (Feb 97) and Target Maturity (May 97) Portfolios had
a 1.08%, 1.11%, 0.22%, 0.60% and 0.20% undivided interest, respectively, in the
repurchase agreements in the following joint account, which equaled $25,000,000,
$25,600,000, $5,100,000, $13,800,000 and $4,700,000 in principal amount,
respectively. As of August 31, 1996, the repurchase agreements in this joint
account, along with the corresponding underlying securities (including the type
of security, market value, interest rate and maturity date), were as follows ($
in thousands):
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Chase Securities, dated 08/30/96, repurchase price $150,088 (U.S.
Treasury Notes: $153,001, 5.50-7.75%, 11/15/98-11/30/99)...... $150,000 5.29% 09/03/96 $150,000
Bear Stearns Companies, Inc., dated 08/30/96, repurchase price
$200,117 (FHLMC: $53,321, 7.00%-8.00%, 10/01/10-08/01/26)
(FNMA: $152,695, 8.00%-9.00%, 07/01/22-09/01/26).............. 200,000 5.28 09/03/96 200,000
Nomura Securities, Inc., dated 08/30/96, repurchase price
$475,278 (FHLMC: $365,152, 5.50%-9.50%, 05/01/99-08/01/26)
(FNMA: $121,873, 6.00%-7.50%, 08/01/08-06/01/26).............. 475,000 5.26 09/03/96 475,000
Nomura Securities, Inc., dated 08/30/96, repurchase price
$500,293 (U.S. Treasury Note: $688, 6.25%, 05/31/00) (FHLB:
$71,881, 4.61%-7.61%, 12/20/96-06/13/05) (FHLMC: $153,763,
5.04%-8.13%, 09/30/96-08/18/05) (FNMA: $256,148, 5.39%-8.35%,
11/15/96-08/23/06) (FFCB: $19,345, 5.35%-5.88%,
09/03/96-05/12/97) (TVA: $8,180, 6.00%-6.50%, 01/15/97-
-08/20/01).................................................... 500,000 5.27 09/03/96 500,000
Smith Barney, Inc., dated 08/30/96, repurchase price $200,117
(U.S. Treasury Notes: $85,124, 5.38%-8.25%, 03/31/97-11/30/00)
(U.S. Treasury Principal-Only Strips: $47,555, 11/15/96-
08/15/05) (U.S. Treasury Interest-Only Strips: $70,822,
02/15/97-02/15/04)............................................ 200,000 5.25 09/03/96 200,000
SBC Securities, Inc., dated 08/30/96, repurchase price $786,058
(U.S. Treasury Bills: $132,184, 09/19/96-02/27/97) (U.S.
Treasury Notes: $672,191, 4.75%-9.13%, 09/30/96-05/15/99)..... 785,600 5.25 09/03/96 785,600
----------
Total Joint Repurchase Agreement Account............................................................. $2,310,600
==========
</TABLE>
7. Redemption Fees
Unitholders of the Target Maturity Portfolios who redeem their units prior
to the respective Termination Date will be charged a redemption fee equal to
.50% of the net asset value of the redeemed units at the time of the redemption.
The redemption fee is not a sales charge, but is kept by the respective
portfolio for the benefit of continuing unitholders.
43
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
August 31, 1996
8. Certain Reclassifications
In accordance with Statement of Position 93-2, the Mortgage Securities
Portfolio has reclassified $406,066, which represents an increase to paid-in
capital and a decrease to accumulated undistributed net investment income. This
reclassification has no impact on the net asset value of the portfolio and is
designed to present the portfolio's capital accounts on a tax basis.
9. Other Matters
Pursuant to an SEC exemptive order, the Money Market Portfolio may enter
into certain principal transactions, including repurchase agreements with
Goldman Sachs or its affiliate, Goldman Sachs Money Markets L.P., subject to
certain limitations as follows: 25% of eligible security transactions, as
defined, and 10% of repurchase agreement transactions on an annual basis.
44
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
UNAUDITED SUPPLEMENTAL INFORMATION
August 31, 1996
Shareholder Meeting
At a special shareholder meeting held on September 30, 1996, three
Trustees of the Trust for Credit Unions (the "Trust") were elected (Proposal 1).
These Trustees were Rudolf J. Hanley, Chief Executive Officer of Orange County
Federal Credit Union; Betty G. Hobbs, President and Chief Executive Officer of
Tennessee Teachers Credit Union; and John P. McNulty, General Partner of
Goldman, Sachs & Co. and Co-Head of Goldman Sachs Asset Management. The
following Trustees of the Trust will continue in office: Gene R. Artemenko,
James C. Barr, Edgar F. Callahan, Robert M. Coen, John T. Collins, Thomas S.
Condit, John L. Ostby and Wendell A. Sebastian.
Other actions taken were the ratification of Arthur Andersen LLP as the
Trust's independent accountants (Proposal 2) and the approval of an amendment to
the TCU Money Market Portfolio's fundamental investment restrictions regarding
the concentration of investments in bank obligations (Proposal 3).
At the shareholder meeting, the following were the number of units voted,
either in person or by proxy:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Money Government Mortgage Target Maturity Target Maturity
Market Securities Securities Portfolio Portfolio
Portfolio Portfolio Portfolio (Feb 97) (May 97) Total
--------- --------- --------- -------- -------- -----
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
# of Units 450,997,400 55,078,085 34,462,321 9,809,980 6,350,000 556,697,786
Outstanding
- ----------------------------------------------------------------------------------------------------------------------
# of Units Voted 278,654,025 31,487,621 20,162,442 4,159,970 4,650,000 339,114,058
- ----------------------------------------------------------------------------------------------------------------------
% of Outstanding
Units Voted 62% 57% 59% 42% 73% 61%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is the vote tabulation for each of the Proposals:
<TABLE>
<CAPTION>
Proposal 1:
<S> <C> <C> <C> <C>
Rudolf J. Hanley For: 338,649,692 Withholding Authority: 464,366
Betty G. Hobbs For: 333,369,405 Withholding Authority: 5,744,653
John P. McNulty For: 338,270,605 Withholding Authority: 843,453
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Proposal 2: For: 338,091,539 Against: 1,022,519 Abstain: 0
Proposal 3: For: 265,011,768 Against: 3,642,257 Abstain: 10,000,000
</TABLE>
45
<PAGE>
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by the Trust for Credit Unions Prospectus which
contains facts concerning the Fund's objectives and policies, management,
expenses and other information.
<PAGE>
[LOGO OF GOLDMAN SACHS APPEARS HERE]
- ---------------------------------
TRUST
for Credit Unions
- ---------------------------------
Trustees
Rudolf J. Hanley, Chairman
Robert M. Coen, Vice-Chairman
Gene R. Artemenko
James C. Barr
Edgar F. Callahan
John T. Collins
Thomas S. Condit
Betty G. Hobbs
John P. McNulty
John L. Ostby
Wendell A. Sebastian
Officers
Wendell A. Sebastian
President
Robert F. Deutsch
Vice President
Charles W. Filson
Vice President
John W. Mosior
Vice President
Nancy L. Mucker
Vice President
Pauline Taylor
Vice President
Scott M. Gilman
Treasurer
John M. Perlowski
Assistant Treasurer
Michael J. Richman
Secretary
Howard B. Surloff
Assistant Secretary
Administrator
Callahan Credit Union Financial Services
Limited Partnership
Investment Advisor
Goldman Sachs Asset Management,
a separate operating division
of Goldman, Sachs & Co.
Transfer Agent
Goldman, Sachs & Co.
Distributors
Callahan Financial Services, Inc.
Goldman, Sachs & Co.
<PAGE>
PART C
------
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements
Included in the Money Market Portfolio, Government Securities Portfolio and
Mortgage Securities Portfolio Prospectus:
Financial Highlights for Trust for Credit Unions Portfolios comprising (1)
the Money Market Portfolio for the eight Years Ended August 31, 1989, 1990,
1991, 1992, 1993, 1994, 1995 and 1996 and For the Period May 17, 1988
(Commencement of Operations) to August 31, 1988; (2) for the Government
Securities Portfolio for the five Years Ended August 31, 1992, 1993, 1994,
1995 and 1996 and For the Period July 10, 1991 (Commencement of Operations)
to August 31, 1991; (3) for the Mortgage Securities Portfolio For the three
Years Ended August 31, 1994, 1995 and 1996 and For the Period October 9,
1992 (Commencement of Operations) to August 31, 1993;
(4) for the Target Maturity Portfolio (Feb 97) for the two Years Ended
August 31, 1996 and August 31, 1995 and (5) for the Target Maturity
Portfolio (May 97) For the two Years Ended August 31, 1996 and August 31,
1995.
Included or incorporated by reference into the Additional Statements for the
Money Market Portfolio, Government Securities Portfolio, Mortgage Securities
Portfolio, Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio (May
97).
Report of Independent Public Accountants on the Registrant's Annual Report
to Unitholders for Year Ended August 31, 1996
Statement of Investments for the Money Market Portfolio, August 31,
1996.
Statement of Investments for the Government Securities Portfolio, August
31, 1996.
Statement of Investments for the Mortgage Securities Portfolio, August
31, 1996.
Statement of Investments for the Target Maturity Portfolio (1996)
August 31, 1996.
C-1
<PAGE>
Statement of Investments for the Target Maturity Portfolio (Feb 97)
August 31, 1996.
Statement of Investments for the Target Maturity Portfolio (May 97)
August 31, 1996.
Statements of Assets and Liabilities for the Money Market Portfolio, the
Government Securities Portfolio, the Mortgage Securities Portfolio, the
Target Maturity Portfolio (Feb '97) and Target Maturity Portfolio (May '97)
August 31, 1996.
Statements of Operations for the Money Market Portfolio, the Government
Securities Portfolio, the Mortgage Securities Portfolio, the Target
Maturity Portfolio (Feb '97) and Target Maturity Portfolio (May 97) For the
Year Ended August 31, 1996.
Statement of Changes in Net Assets for the Money Market Portfolio For the
Years Ended August 31, 1996 and 1995.
Statement of Changes in Net Assets for the Government Securities Portfolio
For the Years Ended August 31, 1996 and 1995.
Statement of Changes in Net Assets for the Mortgage Securities Portfolio,
For the Years ended August 31, 1996 and August 31, 1995.
Statement of Changes in Net Assets for the Target Maturity Portfolio (Feb
'97) For the Years ended August 31, 1996 and August 31, 1995.
Statement of Changes in Net Assets for the Target Maturity Portfolio (May
'97) For the Years ended August 31, 1996 and August 31, 1995.
Financial Highlights for the Money Market Portfolio For the Years Ended
August 31, 1996, 1995, 1994, 1993, 1992, 1991, 1990, 1989 and For the
Period May 17, 1988 (Commencement of Operations) to August 31, 1988.
Financial Highlights for the Government Securities Portfolio For the Years
Ended August 31, 1996, 1995, 1994, 1993, 1992 and For the Period July 10,
1991 (Commencement of Operations) to August 31, 1991.
Financial Highlights for the Mortgage Securities Portfolio For the Years
Ended August 31, 1996, 1995 and 1994 and for the Period October 9, 1992
(Commencement of Operations) to August 31, 1993.
C-2
<PAGE>
Financial Highlights for the Target Maturity Portfolio (Feb '97) For the
Years Ended August 31, 1996, 1995 and for the period February 15, 1994
(Commencement of Operations) to August 31, 1994.
Financial Highlights for the Target Maturity Portfolio (May '97) For the
Years Ended August 31, 1996, 1995 and for the period May 23, 1994
(Commencement of Operations) to August 31, 1994.
Notes to Financial Statement.
None.
All other financial statements, schedules and historical financial
information have been omitted as the subject matter is not required, not
present, or not present in amounts sufficient to require submission.
(b) Exhibits
The following exhibits are herein incorporated by reference to the Registrant's
Registration Statement on Form N-1A to Post-Effective Amendment No. 16, if so
noted; otherwise, they are included herein:
1 Agreement and Declaration of Trust, dated September 24, 1987, as amended
and restated through December 1, 1987, of the Registrant. (Accession No.
0000950130-95-002603)
1(a) Amendment No. 1 to the Amended and Restated Agreement and Declaration of
Trust dated April 20, 1988. (Accession No. 0000950130-95-002603)
1(b) Amendment No. 2 to Amended and Restated Agreement and Declaration of
Trust dated September 21, 1992. (Accession No. 0000950130-95-002603)
1(c) Amendment No. 3 to Registrant's Amended and Restated Agreement and
Declaration of Trust to Establish and Designate Units of the Target
Maturity Portfolio (1996). (Accession No. 0000950130-95-002603).
1(d) Amendment No. 4 to Registrant's Amended and Restated Agreement and
Declaration of Trust to Establish and Designate Units of the Target
Maturity Portfolio (Feb 97), Target Maturity Portfolio (May 97), Target
Maturity Portfolio (Aug 97) and Target Maturity Portfolio (Nov 97).
(Accession No. 0000950130-95-002603).
C-3
<PAGE>
1(e) Amendment No. 5 to the Registrant's Amended and Restated Agreement and
Declaration of Trust to abolish or liquidate a Series of Units (Target
Maturity Portfolio 1996).
2 By-laws of the Registrant. (Accession No. 0000950130-95-002603).
2(a) Amendment No. 1 to the By-laws of the Registrant
3 Not applicable.
4 Not applicable.
5 Advisory Agreement between Registrant and Goldman, Sachs & Co. dated June
20, 1991. (Accession No. 0000950130-95-002603).
5(a) Addendum No. 1 to the Investment Advisory Agreement between the
Registrant and Goldman Sachs & Co. dated October 6, 1992. (Accession No.
0000950130-95-002603).
5(b) Addendum No. 2 to the Advisory Agreement between Registrant and Goldman,
Sachs & Co. (Accession No. 0000950130-95-002603).
5(c) Addendum No. 3 to the Advisory agreement between Registrant and Goldman,
Sachs & Co. dated December 23, 1993. (Accession No. 0000950130-95-
002603).
5(d) Addendum No. 4 to the Advisory Agreement between the Registrant and
Goldman, Sachs & Co. dated January 1, 1994. (Accession No. 0000950130-
95-002603).
6 Distribution Agreement between Registrant and Callahan Financial
Services, Inc. dated May 10, 1988. (Accession No. 0000950130-95-002603).
6(a) Amendment No. 1 to Distribution Agreement between Registrant and Callahan
Financial Services, Inc. dated February 28, 1989. (Accession No.
0000950130-95-002603).
6(b) Distribution Agreement between Registrant and Goldman, Sachs & Co. dated
February 28, 1989. (Accession No. 0000950130-95-002603).
7 Not applicable.
8 Custodian Agreement between Registrant and State Street Bank and Trust
Company dated May 10, 1988. (Accession No. 0000950130-95-002603).
8(a) Amendment to the Custodian Agreement between Registrant
C-4
<PAGE>
and State Street Bank and Trust Company dated September 18, 1989.
(Accession No. 0000950130-95-002603).
8(b) Transfer Agency Agreement between Registrant and Goldman, Sachs & Co.
dated May 10, 1988. (Accession No. 0000950130-95-002603).
8(c) Amendment No. 1 to Transfer Agency Agreement dated February 28, 1989.
(Accession No. 0000950130-95-002603)
9 Revised and Restated Administration Agreement between Registrant and
Callahan Credit Union Financial Services Limited Partnership dated March
31, 1993. (Accession No. 0000950130-95-002603)
9(a) Addendum No. 1 to the Revised and Restated Administration Agreement
between Registrant and Callahan Credit Union Financial Services Limited
Partnership. (Accession No. 0000950130-95-002603)
9(b) Addendum No. 2 to the Revised and Restated Administration Agreement
between Registrant and Callahan Credit Union Financial Services Limited
Partnership dated January 1, 1994. (Accession No. 0000950130-95-002603)
9(c) Addendum No. 3 to the Administration Agreement dated July 1, 1995.
(Accession No. 0000950130-95-002603)
10 Opinion and consent of counsel of Hale and Dorr filed with 24f-2 Notice
on October 30, 1996.
11 Consent of Independent Accountants.
12 Not applicable.
13 Subscription Agreement dated April 28, 1988. (Accession No. 0000950130-
95-002603)
14 Not applicable.
15 Not applicable.
16 Not applicable.
17 Powers of Attorney from Messrs. Artemenko, Barr, Callahan, Coen, Collins,
Condit, Hanley, Hobbs, McNulty, Ostby, Sebastian, Deutsch, Gilman,
Filson, Mosior, Mucker, Perlowski, Richman, Surloff, Taylor, Hartstein,
Robinson, Uniacke, Alexander
27 Financial Data Schedules
C-5
<PAGE>
Item 25. Persons controlled by or Under Common Control with Registrant.
See Items 28 and 29(a) below.
C-6
<PAGE>
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- -------------- --------------
<S> <C>
Money Market Portfolio Units 223
Government Securities Portfolio Units 244
Mortgage Securities Portfolio Units 77
Target Maturity Portfolio (Feb '97) Units 33
Target Maturity Portfolio (May '97) Units 25
(Information supplied as of October 18, 1996)
</TABLE>
Item 27. Indemnification.
---------------
Article VI of the Registrant's Agreement and Declaration of Trust provides for
indemnification of the Registrant's trustees and officers under certain
circumstances.
Paragraph 7 of the Advisory Agreement between the Registrant and Goldman, Sachs
& Co. provides for indemnification of Goldman, Sachs & Co. or, in lieu thereof,
contribution by the Registrant under certain circumstances.
Paragraph 7 of the Revised and Restated Administration Agreement between the
Registrant and Callahan Credit Union Financial Services Limited Partnership
provides for indemnification of Callahan Credit Union Services Limited
Partnership or, in lieu thereof, contribution by the Registrant under certain
circumstances.
Paragraph 6 of the Distribution Agreements between the Registrant and Callahan
Financial Services, Inc. and the Registrant and Goldman, Sachs & Co. provide for
indemnification of Callahan Financial Services, Inc. and Goldman, Sachs & Co.
or, in lieu thereof, contribution by the Registrant under certain circumstances.
Insofar as indemnification by the Registrant for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such trustee, officer or
controlling person in connection
C-7
<PAGE>
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
final adjudication of such issue.
Mutual fund and directors and officers liability policies purchased by the
Registrant insure Registrant and its trustees, partners, officers and employees,
subject to the policies' coverage limit and exclusions and varying deductibles,
against loss resulting from claims by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty to the extend
permitted by Section 17(i) of the Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser.
----------------------------------------------------
Goldman, Sachs & Co., a New York Limited Partnership and Registrant's investment
adviser, is in the investment banking business and is a registered broker-dealer
and futures commission merchant. The business and other connections of the
officers and general partners who have direct responsibility for the asset
management division of Goldman, Sachs & Co. are listed on the Uniform
Application for Investment Adviser Registration ("Form ADV") of Goldman, Sachs &
Co. (File No. 801-16048), The Goldman Sachs Funds Management, L.P. (No. 801-
37591) and Goldman Sachs Asset Management International (No. 801-38157) as
applicable. These Form ADV's are currently on file with the Commission, the
texts of which are hereby incorporated by reference.
C-8
<PAGE>
Item 29. Principal Underwriters.
----------------------
Callahan Financial Services, Inc.
(a) Callahan Financial Services, Inc., a Delaware Corporation, does not act as
principal underwriter, depositor or investment adviser for any other
investment company.
(b) Set forth below is certain information pertaining to the directors and
officers of Callahan Financial Services, Inc.
<TABLE>
<CAPTION>
Positions and
Offices with Positions and
Name and Principal Callahan Financial Offices With
Business Address Services, Inc. Registrant
- ------------------------------- ------------------------ ---------------------
<S> <C> <C>
Charles W. Filson Director and Vice Presi- Vice President
Callahan Financial dent
Services, Inc
1001 Connecticut Avenue, N.W.
Suite 1022
Washington, D.C. 20036-5504
Wendell A. Sebastian President President and Trustee
Callahan Financial
Services, Inc
1001 Connecticut Avenue, N.W.
Suite 1022
Washington, D.C. 20036-5504
</TABLE>
C-9
<PAGE>
Goldman, Sachs & Co.
(a) Goldman, Sachs & Co., or an affiliate thereof, also serves as investment
adviser and distributor of the units of Goldman Sachs Money Market Trust,
Goldman Sachs Trust, Goldman Sachs Equity Portfolios, Inc. and Trust for Credit
Unions. Goldman, Sachs & Co. or an affiliate or division thereof, currently
serves as administrator and distributor to the units of The Benchmark Funds.
(b) Set forth below is certain information pertaining to the general partners of
Goldman, Sachs & Co., Registrant's principal underwriter. Each of the following
persons is a general partner of Goldman, Sachs & Co.
<TABLE>
<CAPTION>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
<S> <C>
Jon Corzine, Chairman (1)(2) Hideo Ishihara (10)
Roy J. Zuckerberg (2) Oki Matsumoto Inc. (2)
David M. Silfen (2) Richard M. Hayden (2)
Eugene V. Fife (7) Armen A. Avanessians (2)
Robert J. Hurst (2) Howard C. Katz (2)
Paul M. Achleitner (7) Peter K. Barker (9)
Joel S. Beckman (2) David W. Blood (7)
Eric S. Dobkin (2) Henry M. Paulson, Jr.(8)
Willard J. Overlock, Jr. (2) Zachariah Cobrinik (7)
Jonathan L. Cohen (2) Kevin W. Kennedy (2)
Frederic B. Garonzik(7) Daniel M. Neidich (2)
William C. Landreth (11) Edward Spiegel (2)
Gary D. Cohn (7) Christopher A. Cole (2)
Fischer Black (5) Henry Cornell (13)
Robert F. Cummings, Jr. (2) Robert V. Delaney (2)
Angelo De Caro (7) Joseph DellaRosa (2)
Steven G. Einhorn (2) David B. Ford (2)
J. Michael Evans (7) Lawton W. Fitt (2)
David M. Leuschen (2) Michael D. McCarthy (2)
Michael R. Lynch (2) Joseph D. Gatto (2)
Donald C. Opatrny, Jr. (7) Thomas E. Tuft (2)
Peter C. Gerhard (2) Michael P. Mortara (2)
Robert J. Katz (1) (2) Lloyd C. Blankfein (2)
Nomi P. Ghez (2) John P. Curtin, Jr. (2)
David T. Hamamoto (2) Dexter D. Earle (2)
Gavyn Davies (7) Christopher Flowers (2)
John Ehara (10) Walter H. Haydock (15)
Gary Gensler (2) Thomas J. Healey (2)
Charles T. Harris, III (2) Robert E. Higgins (2)
Stephen Hendel (2) David L. Henle (2)
Ernest S. Liu (2) Charles B. Mayer, Jr. (2)
Eff W. Martin (11) Mark Schwartz (2)
Michael J. O'Brien (7) Robert K. Steel (7)
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
<S> <C>
Stephen M. Semlitz (2) John A. Thain (2)
Francis J. Ingrassia (2) Scott B. Kapnick (7)
John L. Thornton (7) Joseph R. Zimmel (2)
Bracebridge H. Young, Jr. (10) Gary L. Zwerling (2)
Barry L. Zubrow (2) Andrew M. Alper (2)
Jon R. Aisbitt (7) Frank L. Coulson, Jr. (2)
William J. Buckley (2) Richard A. Friedman (2)
Connie Duckworth (8) John H. Gleberman (2)
Alan R. Gillespie (7) Steven M. Heller (2)
Jacob D. Goldfield (2) Robert S. Kaplan (10)
Ann F. Kaplan (2) Kevin M. Kelly (2)
Peter D. Kiernan, III (2) Gaetano J. Muzio (2)
T. Willem Mesdag (7) Timothy J. O'Neill (2)
Robin Neustein (2) John J. Powers (2)
Scott M. Pinkus (2) Arthur J. Reimers,III (7)
Stephen D. Quinn (2) Richard A. Sapp (7)
James P. Riley, Jr. (2) Donald F. Textor (2)
John C. Keinert (2) Patrick J. Ward (10)
Thomas B. Walker, III (2) Jon Winkelried (2)
Jeffrey M. Weingarten (7) Gregory K. Palm (7)
Richard E. Witten (2) John O. Downing (7)
Carlos A. Cordeiro (7) Michael D. Fascitelli (2)
W. Mark Evans (7) Reuben Jeffrey, III (2)
Sylvain M. Hefes (7) Jun Makihara (9)
Lawrence H. Linden (2) Robert B. Morris,III (11)
Masanori Mochida (10) Suzanne M. Johnson (9)
Philip D. Murphy (14) Carl G.E. Palmstierna (7)
Terence M. O'Toole (2) J. David Rogers (10)
Michael G. Rantz (2) Peter Savitz (10)
Joseph Sassoon (7) Ralph F. Severson (11)
Charles B. Seelig, Jr. (2) Gary A. Syman (10)
Gene T. Sykes (9) John L. Townsend, III (2)
Leslie C. Tortora (2) David A. Viniar (2)
Lee G. Vance (7) Peter A. Weinberg (2)
John S. Weinberg (2) George W. Wellde, Jr. (2)
Laurence M. Weiss (2) Sharmin Mossavar-
Jaime E. Yordan (2) Rahmani (5)
Jonathan L. Kolatch (2) Robert Litterman (2)
Peter S. Kraus (2) Thomas J. Macirowski (2)
Jonathan M. Lopatin (2) Oki Matsumoto (10)
Peter G. Mallinson (13) Eric M. Mindich (2)
E. Scott Mead (7) Thomas K. Montag (2)
Steven T. Mnuchin (2) Kipp M. Nelson (7)
Edward A. Mule (2) Robert J. O'Shea (2)
Christopher K. Norton (14) Jack L. Salzman (2)
Wiet H. Pot (7) Michael F. Schwerin (2)
Eric S. Schwartz (2) Richard G. Sherlund (2)
Richard S. Sharp (7) Cody J. Smith (2)
Michael S. Sherwood (7) Esta E. Stecher (2)
Daniel W. Stanton (2) Byron D. Trott (8)
</TABLE>
C-11
<PAGE>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Christopher K. Norton (14) Jack L. Salzman (2)
Wiet H. Pot (7) Michael F. Schwerin (2)
Eric S. Schwartz (2) Richard G. Sherlund (2)
Richard S. Sharp (7) Cody J. Smith (2)
Michael S. Sherwood (7) Esta E. Stecher (2)
Daniel W. Stanton (2) Byron D. Trott (8)
Frederic E. Steck (11) Peter S. Wheeler (13)
Barry S. Volpert (2) Gary W. Williams (2)
Anthony G. Williams (7) Danny O. Yee (13)
Tracy R. Wolstencroft (4) Mark A. Zurack (2)
Michael J. Zamkow (2)
- ------------
<TABLE>
<C> <S>
(1) Management Committee
(2) 85 Broad Street, New York, NY 10004
(3) Mellon Bank Center, 1735 Market Street, 26th Floor, Philadelphia, PA 19103
(4) 100 Crescent Court, Suite 1000, Dallas, TX 75201
(5) One New York Plaza, New York, NY 10004
(6) 1000 Louisiana Street, Suite 550, Houston, TX 77002
(7) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England
(8) 4900 Sears Tower, Chicago, IL 60606
(9) 333 South Grand Avenue, Suite 1900, Los Angeles, CA 90071
(10) ARK Mori Bldg.,10th Floor, 12-32 Akasaka, 1-chome, Minatoku, Tokyo 107, Japan
(11) 555 California Street, 31st Floor, San Francisco, CA 94104
(12) Exchange Place, 53 State Street, 13th Floor, Boston, MA 02109
(13) Asia Pacific Finance Tower, 35th Floor, Citibank Plaza, 3 Garden Road, Hong Kong
(14) Finanz GmbH, MesseTurm, 60308 Frankfurt am Main 1, Germany
(15) Munsterhof 4, 8022, Zurich, Switzerland
(c) Not applicable.
</TABLE>
Item 30. Location of Accounts and Records.
--------------------------------
The Agreement and Declaration of Trust, By-laws and minute book of the
Registrant are in the physical possession of Goldman, Sachs & Co., 4900 Sears
Tower, Chicago, Illinois 60606. All other accounts, books and other documents
required to be maintained under Section 31(a) of the Investment Company Act of
1940 and the Rules promulgated thereunder are in the physical possession of
State Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts 02105.
C-12
<PAGE>
Item 31. Management Services.
-------------------
Not Applicable.
Item 32. Undertakings.
------------
(a) The Annual Report also contains performance information and is available to
any recipient of the Prospectus upon request and without charge by writing to
either Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606-6303 or
Callahan Credit Union Financial Services Limited Partnership c/o Callahan
Financial Services, Inc., 1001 Connecticut Ave., N.W., Suite 1022, Washington,
D.C. 20036-5504.
C-13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Post-Effective Amendment
No. 17 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and State of New York on the
31st day of October 1996.
TRUST FOR CREDIT UNIONS
By: Michael J. Richman
- --------------------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1993, this Post-Effective
Amendment No. 17 to the Registration Statement has been signed below by the
following persons in the capacities indicated on October 31, 1996.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ Wendell A. Sebastian President and Trustee
-----------------------------
Wendell A. Sebastian
/s/ Scott M. Gilman Treasurer and Chief Financial Officer
-----------------------------
Scott M. Gilman
* Chairman and Trustee
-----------------------------
Rudy J. Hanley
* Vice Chairman and Trustee
-----------------------------
Robert M. Coen
* Trustee
-----------------------------
Edgar F. Callahan
* Trustee
-----------------------------
Gene R. Artemenko
* Trustee
-----------------------------
James C. Barr
* Trustee
-----------------------------
Betty G. Hobbs
* Trustee
-----------------------------
John T. Collins
* Trustee
-----------------------------
Thomas S. Condit
* Trustee
-----------------------------
John T. Ostby
* Trustee
-----------------------------
John P. McNulty
*By /s/ Michael J. Richman
---------------------------
Michael J. Richman
Attorney-In-Fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
1(e) Amendment No. 5 to the Registrant's Amended and Restated Agreement and
Declaration of Trust to abolish or liquidate a Series of Units (Target
Maturity Portfolio 1996).
2(a) Amendment No. 1 to By-laws of the Registrant
11 Consent of Independent Accountants.
17 Powers of Attorney from Messrs. Artemenko, Barr, Callahan, Coen,
Collins, Condit, Hanley, Hobbs, McNulty, Ostby, Sebastian, Deutsch,
Gilman, Filson, Mosior, Mucker, Perlowski, Richman, Surloff, Taylor,
Hartstein, Robinson, Uniacke, Alexander
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRUST FOR
CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> TRUST FOR CREDIT UNIONS MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 427,693,870
<INVESTMENTS-AT-VALUE> 427,693,870
<RECEIVABLES> 993,161
<ASSETS-OTHER> 42,971
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 428,730,002
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,020,176
<TOTAL-LIABILITIES> 2,020,176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 426,709,826
<SHARES-COMMON-STOCK> 426,709,826
<SHARES-COMMON-PRIOR> 382,095,916
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 426,709,826
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,555,285
<OTHER-INCOME> 0
<EXPENSES-NET> (961,679)
<NET-INVESTMENT-INCOME> 26,593,606
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 26,593,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,593,606)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,407,395,102
<NUMBER-OF-SHARES-REDEEMED> (4,376,797,402)
<SHARES-REINVESTED> 14,016,210
<NET-CHANGE-IN-ASSETS> 44,613,910
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 893,178
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,564,141
<AVERAGE-NET-ASSETS> 495,451,833
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .054
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.054)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRUST FOR
CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> TRUST FOR CREDIT UNIONS GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 562,573,997
<INVESTMENTS-AT-VALUE> 558,531,575
<RECEIVABLES> 8,402,054
<ASSETS-OTHER> 105,481
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 567,039,110
<PAYABLE-FOR-SECURITIES> 28,830,336
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,506,339
<TOTAL-LIABILITIES> 31,336,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 557,133,070
<SHARES-COMMON-STOCK> 54,874,828
<SHARES-COMMON-PRIOR> 54,253,342
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (395,807)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (16,992,406)
<ACCUM-APPREC-OR-DEPREC> (4,042,422)
<NET-ASSETS> 535,702,435
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 34,733,885
<OTHER-INCOME> 0
<EXPENSES-NET> (1,868,218)
<NET-INVESTMENT-INCOME> 32,865,667
<REALIZED-GAINS-CURRENT> (2,540,339)
<APPREC-INCREASE-CURRENT> 2,123,885
<NET-CHANGE-FROM-OPS> 32,449,213
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,575,731)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,283,062
<NUMBER-OF-SHARES-REDEEMED> (7,267,669)
<SHARES-REINVESTED> 606,093
<NET-CHANGE-IN-ASSETS> 6,043,516
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (685,743)
<OVERDIST-NET-GAINS-PRIOR> (14,452,067)
<GROSS-ADVISORY-FEES> 1,067,553
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,868,394
<AVERAGE-NET-ASSETS> 533,799,588
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> .602
<PER-SHARE-GAIN-APPREC> (.006)
<PER-SHARE-DIVIDEND> (.597)
<PER-SHARE-DISTRIBUTIONS> (.012)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRUST FOR
CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> TRUST FOR CREDIT UNIONS MORTGAGE SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 332,240,860
<INVESTMENTS-AT-VALUE> 331,123,140
<RECEIVABLES> 2,951,881
<ASSETS-OTHER> 108,730
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 334,183,751
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,637,321
<TOTAL-LIABILITIES> 1,637,321
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 346,096,607
<SHARES-COMMON-STOCK> 34,443,586
<SHARES-COMMON-PRIOR> 27,160,182
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,273,901)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (11,158,556)
<ACCUM-APPREC-OR-DEPREC> (1,117,720)
<NET-ASSETS> 332,546,430
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,271,258
<OTHER-INCOME> 0
<EXPENSES-NET> (869,096)
<NET-INVESTMENT-INCOME> 20,402,162
<REALIZED-GAINS-CURRENT> (1,362,172)
<APPREC-INCREASE-CURRENT> (2,371,245)
<NET-CHANGE-FROM-OPS> 16,668,745
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,872,792)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,597,649
<NUMBER-OF-SHARES-REDEEMED> (1,692,128)
<SHARES-REINVESTED> 377,883
<NET-CHANGE-IN-ASSETS> 68,137,204
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,397,205)
<OVERDIST-NET-GAINS-PRIOR> (9,796,384)
<GROSS-ADVISORY-FEES> 614,735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 928,123
<AVERAGE-NET-ASSETS> 307,346,557
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> .660
<PER-SHARE-GAIN-APPREC> (.120)
<PER-SHARE-DIVIDEND> (.631)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.65
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRUST FOR
CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> TRUST FOR CREDIT UNIONS TARGET MATURITY PORTFOLIO (1996)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> JUN-28-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 56,030
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,030
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,030
<TOTAL-LIABILITIES> 56,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 13,300,010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,860,691
<OTHER-INCOME> 0
<EXPENSES-NET> (394,179)
<NET-INVESTMENT-INCOME> 6,466,512
<REALIZED-GAINS-CURRENT> 616,055
<APPREC-INCREASE-CURRENT> (356,123)
<NET-CHANGE-FROM-OPS> 6,726,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,373,116)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (13,300,010)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (127,528,767)
<ACCUMULATED-NII-PRIOR> 1,163,149
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,067,300)
<GROSS-ADVISORY-FEES> 239,979
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 394,179
<AVERAGE-NET-ASSETS> 127,149,857
<PER-SHARE-NAV-BEGIN> 9.59
<PER-SHARE-NII> .66
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .71
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.54
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRUST FOR
CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> TRUST FOR CREDIT UNIONS TARGET MATURITY PORTFOLIO (FEB 1997)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 88,583,110
<INVESTMENTS-AT-VALUE> 88,670,699
<RECEIVABLES> 6,456,628
<ASSETS-OTHER> 84,395
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,211,722
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 484,867
<TOTAL-LIABILITIES> 484,867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,296,211
<SHARES-COMMON-STOCK> 9,809,980
<SHARES-COMMON-PRIOR> 9,809,980
<ACCUMULATED-NII-CURRENT> 628,878
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,285,823)
<ACCUM-APPREC-OR-DEPREC> 87,589
<NET-ASSETS> 94,726,855
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,684,077
<OTHER-INCOME> 0
<EXPENSES-NET> (370,415)
<NET-INVESTMENT-INCOME> 6,313,662
<REALIZED-GAINS-CURRENT> 209,155
<APPREC-INCREASE-CURRENT> (316,867)
<NET-CHANGE-FROM-OPS> 6,205,950
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,700,405)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (494,455)
<ACCUMULATED-NII-PRIOR> 1,015,621
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4,494,978)
<GROSS-ADVISORY-FEES> 227,680
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 370,415
<AVERAGE-NET-ASSETS> 95,090,066
<PER-SHARE-NAV-BEGIN> 9.71
<PER-SHARE-NII> .644
<PER-SHARE-GAIN-APPREC> (.011)
<PER-SHARE-DIVIDEND> (.683)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> .39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRUST FOR
CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> TRUST FOR CREDIT UNIONS TARGET MATURITY PORTFOLIO (MAY 1997)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 59,880,881
<INVESTMENTS-AT-VALUE> 60,022,984
<RECEIVABLES> 3,465,196
<ASSETS-OTHER> 74,950
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,563,130
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 394,161
<TOTAL-LIABILITIES> 394,161
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,532,452
<SHARES-COMMON-STOCK> 6,350,000
<SHARES-COMMON-PRIOR> 6,350,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (31,341)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (474,245)
<ACCUM-APPREC-OR-DEPREC> 142,103
<NET-ASSETS> 63,168,969
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,733,747
<OTHER-INCOME> 0
<EXPENSES-NET> (271,512)
<NET-INVESTMENT-INCOME> 4,462,235
<REALIZED-GAINS-CURRENT> 194,087
<APPREC-INCREASE-CURRENT> (512,792)
<NET-CHANGE-FROM-OPS> 4,143,530
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,433,542)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (290,012)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (60,034)
<OVERDIST-NET-GAINS-PRIOR> (668,332)
<GROSS-ADVISORY-FEES> 158,732
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 271,512
<AVERAGE-NET-ASSETS> 63,492,713
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .703
<PER-SHARE-GAIN-APPREC> (.045)
<PER-SHARE-DIVIDEND> (.698)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1(e)
TRUST FOR CREDIT UNIONS
AMENDMENT NO. 5 TO
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
-------------------------------------------------------
WHEREAS, Sections 4.1 and 7.3 of the Agreement and Declaration of Trust
dated September 24, 1987, as amended and restated through the date hereof (the
"Declaration"), of Trust for Credit Unions (the "Trust") provide that the
Declaration may be amended to abolish or liquidate a Series of Units or the Sub-
Trust applicable to a Series, by an instrument in writing executed by a majority
of the Trustees of the Trust;
NOW THEREFORE, the undersigned, being a majority of the Trustees of the
Trust, hereby amend the Declaration by abolishing and liquidating the "TCU
Target Maturity Portfolio (1996), "as of June 28th, 1996.
---- ----
WITNESS our hands this 28th day of June, 1996.
---- ----
Gene R. Artemenko Thomas S. Conduit
- ----------------- -----------------
Gene R. Artemenko Thomas S. Conduit
James C. Barr Rudolf J. Hanley
- ------------- ----------------
James C. Barr Rudolf J. Hanley
Edgar F. Callahan John P. McNulty
- ----------------- ---------------
Edgar F. Callahan John P. McNulty
Robert M. Coen John W. Ostby
- -------------- -------------
Robert M. Coen John W. Ostby
John T. Collins Wendell A. Sebastian
- --------------- --------------------
John T. Collins Wendell A. Sebastian
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
Then personally appeared the above mentioned Trustees and acknowledged this
instrument to be their free act and deed this 28th day of June, 1996.
---- ----
Deborah A. Robinson
-------------------
Notary Public
My Commission Expires: 6/20/98
<PAGE>
EXHIBIT 99.2(a)
TRUST FOR CREDIT UNIONS
AMENDMENT NO. 1 TO BYLAWS
-------------------------
MARCH 18, 1991
RESOLVED, that the Heading and Sections 3.1 and 3.2 of the By-laws of the
Trust shall be amended and restated in their entirety as follows:
ARTICLE III
Chair, Vice-Chair and Officers
3.1 Enumeration; Qualification. The Trustees shall elect from among their
number a person who shall serve as Chair of the Board and a person who shall
serve as Vice-Chair of the Board. Such persons shall not be deemed officers of
the Trust by reason of performing or executing their duties in such capacities.
The officers of the Trust shall be a President, a Treasurer, a Secretary and
such other officers, including Vice Presidents, if any, as the Trustees from
time to time may in their discretion elect. The Trust may also have such agents
as the Trustees from time to time may in their discretion appoint. The Chair and
Vice-Chair of the Trustees shall each be a Trustee and may but need not be a
unitholder; and any officer may be but none need be a Trustee or unitholder. The
Chair and Vice-Chair may be elected to any office of the Trust, and any two or
more offices may be held by the same person. A Trustee who has served as Chair
for two full successive terms shall not be eligible for election as Chair for
the next immediately succeeding term.
3.2 Election. The Chair of the Trustees, Vice Chair of the Trustees,
President, Treasurer, and Secretary shall be elected annually by the Trustees at
a meeting held within the first four months of the Trust's fiscal year. The
meeting at which such persons are elected shall be known as the annual meeting
of Trustees. Other officers, if any, may be elected by the Trustees at the
annual meeting of Trustees or at any other time. Vacancies in any position may
be filed at any time. If the Chair, Vice-Chair or any officer is not elected
within the period set forth above, the Trustees may elect such person at any
meeting held after such period.
<PAGE>
EXHIBIT 99.11
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 3, 1996 for
Trust for Credit Unions and to all references to our firm included in or made a
part of Post-Effective Amendment No. 17 and Amendment No. 20 to registration
statement File Nos. 33-18781 and 811-5407, respectively.
/s/ Arthur Andersen LLP
Boston, Massachusetts
October 29, 1996
<PAGE>
EXHIBIT 99.17
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Gene R. Artemenko, hereby
constitutes and appoints Elizabeth Alexander, Robert Deutsch, Charles Filson,
Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Deborah Robinson, Wendell A. Sebastian, Howard B.
Surloff, Pauline Taylor and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 30, 1996
Gene R. Artemenko
--------------------------
Gene R. Artemenko
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, James C. Barr, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline
Taylor and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
James C. Barr
---------------------------
James C. Barr
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Edgar F. Callahan, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline
Taylor and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
Edgar F. Callahan
---------------------------
Edgar F. Callahan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Robert M. Coen, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline
Taylor and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
Robert M. Coen
---------------------------
Robert M. Coen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John T. Collins, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline
Taylor and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
John T. Collins
---------------------------
John T. Collins
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Thomas S. Condit, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline
Taylor and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
Thomas S. Condit
---------------------------
Thomas S. Condit
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Rudolf J. Hanley, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline
Taylor and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
Rudolf J. Hanley
---------------------------
Rudolf J. Hanley
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John L. Ostby, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline
Taylor and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
John L. Ostby
---------------------------
John L. Ostby
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Wendell A. Sebastian,
hereby appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M.
Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski,
Michael J. Richman, Deborah A. Robinson, Howard B. Surloff, Pauline Taylor and
Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Wendell A. Sebastian
---------------------------
Wendell A. Sebastian
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Elizabeth Alexander, hereby
appoints Robert Deutsch, Charles Filson, Scott M. Gilman, Steven E. Hartstein,
John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Deborah A.
Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and Kaysie
Uniacke, jointly and severally, her attorneys-in-fact, each with power of
substitution, for her in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Elizabeth Alexander
---------------------------
Elizabeth Alexander
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Robert Deutsch, hereby
appoints Elizabeth Alexander, Charles Filson, Scott M. Gilman, Steven E.
Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and
Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for his in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Robert Deutsch
---------------------------
Robert Deutsch
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Deborah A. Robinson, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and Kaysie
Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Deborah A. Robinson
---------------------------
Deborah A. Robinson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Charles Filson, hereby
appoints Elizabeth Alexander, Robert Deutsch, Scott M. Gilman, Steven E.
Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and
Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Charles Filson
---------------------------
Charles Filson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Scott M. Gilman, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Steven E.
Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and
Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Scott M. Gilman
---------------------------
Scott M. Gilman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Steven E. Hartstein, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Deborah A.
Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and Kaysie
Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Steven E. Hartstein
---------------------------
Steven E. Hartstein
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John W. Mosior, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and
Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
John W. Mosior
---------------------------
John W. Mosior
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Nancy L. Mucker, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, John Perlowski, Michael J. Richman, Deborah
A. Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and Kaysie
Uniacke, jointly and severally, her attorneys-in-fact, each with power of
substitution, for her in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Nancy L. Mucker
---------------------------
Nancy L. Mucker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Michael J. Richman, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Deborah A.
Robinson, Wendell A. Sebastian, Howard B. Surloff, Pauline Taylor and Kaysie
Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Michael J. Richman
---------------------------
Michael J. Richman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Howard B. Surloff, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Pauline Taylor and Kaysie
Uniacke, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Howard B. Surloff
---------------------------
Howard B. Surloff
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Pauline Taylor, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff and Kaysie
Uniacke, jointly and severally, her attorneys-in-fact, each with power of
substitution, for her in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Pauline Taylor
---------------------------
Pauline Taylor
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Kaysie Uniacke, hereby
appoints Elizabeth Alexander, Robert Deutsch, Charles Filson, Scott M. Gilman,
Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff and
Pauline Taylor, jointly and severally, her attorneys-in-fact, each with power of
substitution, for her in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
Kaysie Uniacke
---------------------------
Kaysie Uniacke
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John P. McNulty, hereby
constitutes and appoints Elizabeth Alexander, Robert Deutsch, Charles Filson,
Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard
B. Surloff and Pauline Taylor jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
John P. McNulty
---------------------------
John P. McNulty
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Betty G. Hobbs, hereby
constitutes and appoints Elizabeth Alexander, Robert Deutsch, Charles Filson,
Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard
B. Surloff and Pauline Taylor jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 30, 1996
Betty G. Hobbs
---------------------------
Betty G. Hobbs
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John Perlowski, hereby
constitutes and appoints Elizabeth Alexander, Robert Deutsch, Charles Filson,
Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, Michael
J. Richman, Deborah A. Robinson, Wendell A. Sebastian, Howard B. Surloff and
Pauline Taylor jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Trust for Credit Unions and any and all amendments to such Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: September 30, 1996
John Perlowski
---------------------------
John Perlowski
<PAGE>
EXHIBIT 99.17
TRUST FOR CREDIT UNIONS
CERTIFICATE OF ASSISTANT SECRETARY
The following resolution was duly adopted by the Board of Trustees of Trust
for Credit Unions on September 30, 1996 and remains in effect on the date
hereof.
FURTHER RESOLVED, that the directors and officers of the Company who may be
required to execute any amendments to the Registration Statement of the Company
be, and each of them hereby is, authorized to execute a Power of Attorney
appointing Michael J. Richman and Howard B. Surloff, and either of them, their
true and lawful attorney or attorneys, to execute in their name, place and
stead, in their capacity as director or officer, or both, of the Company any and
all amendments to said Registration Statement, and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities and
Exchange Commission; and either of said attorneys shall have the power to act
thereunder with or without the other said attorney and shall have full power of
substitution and resubstitution; and either of said attorneys shall have full
power and authority to do in the name and on behalf of said directors and
officers, or any or all of them, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises, as fully and to all intents
and purposes as each of said directors or officers, or any or all of them, might
or could do in person, said acts of said attorneys, or either of them, being
hereby ratified and approved.
Trust for Credit Unions
By: /s/ Howard B. Surloff
-----------------------
Howard B. Surloff
Dated: October 31, 1996
