<PAGE>
As filed with the Securities and Exchange Commission on
December 23, 1997.
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. 19 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 21 ( 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)
____________
<PAGE>
It is proposed that this filing will become effective (check appropriate box).
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( X ) on December 30, 1997 pursuant to paragraph (b) of Rule 485
( ) 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
( ) 75 days after filing pursuant to paragraph (a)(ii) of Rule 485 or
earlier upon acceleration of the effective date by the Commission
( ) on (date) 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.
Title of Securities Being Registered --- Units of beneficial interest.
<PAGE>
TRUST
--------
for Credit Unions
Prospectus
December 30, 1997
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 and credit union service organizations.
The Fund seeks to achieve a high level of income to the extent consistent with
the investment objectives of its investment portfolios, which include: the
Money Market Portfolio, the Government Securities Portfolio and the Mortgage
Securities Portfolio (individually, a "Portfolio" and collectively, the "Port-
folios"). The Money Market Portfolio'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 Se-
curities Portfolio's objective is to achieve a high level of current income,
consistent with low volatility of principal. The Government Securities Portfo-
lio invests primarily in obligations of the United States Government ("U.S.
Government"), its agencies, instrumentalities or sponsored enterprises autho-
rized 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 vol-
atility 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 statis-
tical rating organization ("NRSRO") and in mortgage-related securities issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or spon-
sored 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 Portfolio 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 princi-
pal.
(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, 1997, 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
Financial Services, Inc. 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...................... 19
REPORTS TO UNITHOLDERS..................................................... 23
PURCHASE OF UNITS.......................................................... 23
REDEMPTION OF UNITS........................................................ 24
EXCHANGE PRIVILEGE......................................................... 26
INCOME..................................................................... 26
NET ASSET VALUE............................................................ 27
TAXES...................................................................... 28
MANAGEMENT................................................................. 29
PERFORMANCE AND YIELD INFORMATION.......................................... 32
ADDITIONAL INFORMATION..................................................... 33
</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 and credit union service organizations. 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
and credit union service organizations. The Fund encourages each state
chartered credit union and credit union service organization 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 23 and 24
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 and accepted before 3:00
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
by 3:30 p.m., New York time, the same 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 24 through 26
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 3:00 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.
2
<PAGE>
INCOME AND CAPITAL GAINS DISTRIBUTION POLICY
Pages 26 and 27
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 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
Pages 27 and 28
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
Page 31
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), a
Delaware limited partnership in which 39 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
Pages 31 and 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 addition, certain securities held by a
Portfolio may not be readily marketable and, therefore, may be illiquid. 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 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."
4
<PAGE>
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)...................................... .06% .20% .20%
Administration Fee (after fee waivers)..... .02 .10 .05
Other Expenses (after expense limitations). .04 .04 .05
--- --- ---
Total Portfolio Operating Expenses (af-
ter fee waivers and expense limita-
tions)................................ .12% .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 the Money Market
Portfolio expects to incur during the current fiscal year. The expenses for
the Government Securities and Mortgage Securities Portfolios reflect actual
expenses incurred during the last 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 .10%, .20% and .20%; administration fees of .04%,
.10% and .05%; and other expenses of .04%, .04% and .05%, for total operating
expenses of .18%, .34% and .30%, respectively. Had there been no fee waivers
and expense limitations, the fees and expenses for the Money Market Portfolio
for the last fiscal year would have been: investment advisory fees of .18%;
administration fees of .10%; and other expenses of .05%, for total operating
expenses of .33%. There were no waivers or reimbursements made for the
Government Securities and Mortgage Securities Portfolios for the last fiscal
year.
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 .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. Effective July 1, 1997, Goldman, Sachs & Co. has
voluntarily agreed to limit its advisory fee to .06% of the Portfolio's
average daily net assets and CUFSLP has voluntarily agreed to limit its
administration fee to .02%. 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
.20% of its average daily net assets.
5
<PAGE>
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.
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.
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.................... $1 $ 4 $ 7 $15
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, 1997 (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:
8/31/97......... $1.00 $0.0530 $ -- $(0.0530) $ -- $ -- $1.00 5.43% 0.18% 5.31%
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:
8/31/97......... $441,205 0.33% 5.16%
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:
8/31/97......... $ 9.76 $0.5911 $0.0829 $(0.5911) $(0.0029) $ 9.84 7.09% 0.34% 6.02% 88.02% $ 564,642
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:
8/31/97......... 0.34% 6.02%
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:
8/31/97......... $ 9.65 $0.6399 $0.1011 $(0.6399) $(0.0011) $ -- $ -- $9.75 7.89% 0.30% 6.57% 106.10%
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:
8/31/97......... $350,315 0.30% 6.57%
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 three investment portfolios--the
Money Market Portfolio, the Government Securities Portfolio and the Mortgage
Securities Portfolio (individually, a "Portfolio" and collectively, the
"Portfolios").
The Fund is offered solely to state and federally chartered credit unions
and credit union service organizations. 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 and credit union service
organizations. The Fund encourages each state chartered credit union and
credit union service organization 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.
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 to the issuer
or, in some cases, guarantor of the securities, or if only one NRSRO has
assigned a rating, by that NRSRO. Unrated securities will be determined to be
of comparable quality by GSAM. The Money Market Portfolio may only purchase
"First Tier Securities." First Tier Securities, in general, are securities
which are rated (or that have been issued, guaranteed or otherwise supported
by a person that is rated with respect to a comparable class of short-term
debt obligations) 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 IBCA, Inc., Duff and
Phelps, 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 and 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. (In conformance with the Rules and Regulations of the NCUA, the
Mortgage Securities Portfolio will not invest in commercial mortgage-related
securities). 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
13
<PAGE>
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.
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,
14
<PAGE>
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 some cases, CMOs may have the
characteristics of a stripped mortgage-backed security. In accordance with the
Rules and Regulations of the NCUA, the Fund may invest in any fixed or
variable rate CMO class that meets the following requirements: (1) the CMO
class has an estimated average life of 10 years or less; (2) the estimated
average life of the CMO class extends by 4 years or less assuming an immediate
and sustained parallel shift in interest rates of up to and including plus 300
basis points, and shortens by 6 years or less assuming an immediate and
sustained parallel shift in interest rates of up to and including minus 300
basis points; and (3) the estimated change in the price of the CMO class is
17% or less due to an immediate and sustained parallel shift in interest rates
of up to and including 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. 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 issued or guaranteed by the United States Government,
its agencies, instrumentalities or sponsored
15
<PAGE>
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
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 equals
or exceeds the repurchase
16
<PAGE>
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 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 GSAM or its affiliates, 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
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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.
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.
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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.
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 provided settlement is regular-way. (Regular-way
settlement means delivery of a security from a seller to a buyer within the
time frame that the securities industry has established for that type of
security.) 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. 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.
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 but not identical securities
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<PAGE>
on a specified future date. Delivery for all purchases and sales of securities
will be by regular-way settlement. 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 assets in an amount equal to the forward
purchase price.
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 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. There can be no assurance that Goldman, Sachs & Co.'s estimation
of a Portfolio's duration will be accurate or that the duration of a Portfolio
will always remain within the maximum target duration described above.
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<PAGE>
OTHER PORTFOLIO MANAGEMENT POLICIES
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 and loan participations by
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 where a substantial secondary market is absent. 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 Goldman,
Sachs & Co. determines, 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. 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. 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.
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 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
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<PAGE>
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.
The Government Securities Portfolio and the Mortgage Securities Portfolio
each may, to the extent permitted by NCUA Rules and Regulations, purchase
inverse floating rate instruments and may, with respect to no more than 5% of
their total assets, engage in portfolio securities lending. The market value
of inverse floaters may be more volatile than the market value of other
instruments.
If, after purchase by a Portfolio, an investment ceases to meet the
investment criteria stated in this Prospectus, GSAM will consider whether the
Portfolio should continue to hold the investment. Investments purchased prior
to January 1, 1998 (the effective date of recent amendments to the Rules and
Regulations of the NCUA) will be governed by the Rules and Regulations in
effect when purchased, and the Portfolios may continue to hold such
investments after such date subject to compliance with such former Rules and
Regulations. See "Investment Restrictions" in the Additional Statement.
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, measured at the time of
purchase, in the securities of any one issuer other than U.S. Government
Securities, repurchase agreements collateralized by such securities and
securities subject to certain unconditional guarantees. 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 Money Market Portfolio's
compliance with the diversification requirements of SEC Rule 2a-7 will be
deemed compliance with the fundamental investment restriction below.
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, 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 AND ACCEPTED
BY GOLDMAN, SACHS & CO. DIVIDENDS BEGIN
--------------------------------- ---------------
<S> <C>
By: 3:00 p.m.--N.Y. time Same Business Day
-------------------------------------------------------------------------
After: 3:00 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 and accepted.
See "Net Asset Value."
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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 and
accepted 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
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<PAGE>
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 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
Except as provided in "Other Information" below, if a redemption request
with respect to Money Market Portfolio units is received by Goldman, Sachs &
Co. before 3:00 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.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
Except as provided in "Other Information" below, 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
On any Business Day when the Public Securities Association (PSA) recommends
that the securities market closes early, each 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 a Portfolio closes early, purchase and redemption orders received after
the PSA recommended closing time will be credited to the next Business Day. In
addition, each 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.
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 or mid-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
generally increase and as interest rates decline, dividends will generally be
reduced). Because the
26
<PAGE>
Government 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, mid-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.
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 or mid-term components, 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.
27
<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 the close of regular trading on the New York Stock
Exchange (normally, but not always 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, immediately after the
determination of income to be declared as a dividend, as of the close of
regular trading on the New York Stock Exchange (normally, but not always 4:00
p.m., New York time), 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
28
<PAGE>
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 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, under the Taxpayer Relief Act of 1997, on the sale or exchange of
obligations held for more than 18 months, net gain realized by a Portfolio
which is not attributable to original issue discount or certain market
discount, will be long-term capital gain. Net gain on the sale or exchange of
obligations held for less than 18 months but more than 12 months will be mid-
term capital gain. Such capital gain, if any, will be distributed as long-term
or mid-term capital gain dividends, as the case may be.
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 or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her 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.
29
<PAGE>
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 November 21, 1997,
Goldman, Sachs & Co. and its affiliates served as investment adviser,
administrator or distributor for approximately $133.6 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
Managing Director of Goldman, Sachs & Co. Mr. Beinner joined GSAM in 1990
after working in the trading and arbitrage group of Franklin Savings
Association. Mr. Dion is a Vice President of Goldman, Sachs & Co. 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. Effective July 1, 1997, Goldman,
Sachs & Co. has voluntarily agreed to limit its advisory fee with respect to
the Money Market Portfolio to .06% of the Portfolio's average daily net
assets. This voluntary limitation may be terminated by Goldman, Sachs & Co. at
any time. For the fiscal year ended August 31, 1997, the Money Market
Portfolio, Government Securities Portfolio and Mortgage Securities Portfolio
paid, after waivers, advisory fees to Goldman, Sachs & Co. at the annual rates
of .10%, .20% and .20%, 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 their 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
30
<PAGE>
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., P.O. Box 11, Manchester, MD 21102, a
Delaware limited partnership for which Callahan Financial Services, Inc.
serves as general partner and in which 39 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. Effective July 1, 1997, CUFSLP has
voluntarily agreed to limit its administration fee charged to the Money Market
Portfolio to .02% 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, 1997, the Money Market Portfolio, Government Securities Portfolio
and Mortgage Securities Portfolio paid, after waivers, administration fees to
CUFSLP at the annual rates of .04%, .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.
31
<PAGE>
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. From time
to time the distributors may purchase or sell units for their own account.
FUND EXPENSES
Common expenses of the Fund are generally 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 .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.
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.
Similarly, from time to time total return data for each Portfolio may be
quoted in advertisements or in unitholder communications. The total return of
a 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.
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<PAGE>
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 a Portfolio on a year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules.
In addition, 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 of
her 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 1998, 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.
33
<PAGE>
[LOGO] TRUST
--------
for Credit Unions
Investment Adviser
Goldman, Sachs & Co.
New York, New York
Transfer Agent Custodian Distributors
Goldman, Sachs & Co. State Street Bank and Callahan Financial
Chicago, Illinois Trust Company Services, Inc.
Boston, Massachusetts Washington, DC
(800) 237-5678
Administrator Auditors Goldman, Sachs & Co.
New York, New York
Callahan Credit Union Financial Arthur Andersen LLP (800) 342-5828
Services Limited Partnership Boston, Massachusetts (800-DIAL-TCU)
Washington, DC
<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, 1997, 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 Financial Services (800) 237-5678.
TABLE OF CONTENTS
Page
----
Introduction B-2
Management B-4
Advisory and Other Services B-7
Portfolio Transactions B-9
Amortized Cost Valuation B-18
Description of Units B-20
Adjustable and Fixed Rate Mortgage Loans and
Mortgage-Related Securities
Other Investment Practices B-34
Investment Restrictions B-35
Calculation of Performance B-39
Quotations
Other Information B-45
Financial Statements B-46
Description of Securities Ratings
B-47
Appendix A B-51
THE DATE OF THIS ADDITIONAL STATEMENT IS DECEMBER 30, 1997.
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.
<PAGE>
INTRODUCTION
Trust for Credit Unions (the "Fund" or "Trust") is an open-end, diversified,
management investment company (commonly known as a "mutual fund") offered only
to state and federally chartered credit unions and credit union service
organizations. The Fund seeks to achieve a high level of income to the extent
consistent with the investment objectives of its investment portfolios. This
Additional Statement relates to the offering of the units of the Fund's Money
Market Portfolio, Government Securities Portfolio and 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. 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.
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
B-2
<PAGE>
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. There can be no assurance
that Goldman, Sachs & Co.'s estimation of a Portfolio's duration will be
accurate or that the duration of a Portfolio will always remain within the
maximum target duration described above.
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 November
30, 1997, they were responsible for approximately $28.6 billion in fixed income
assets including approximately $7.5 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:
. 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
B-3
<PAGE>
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 69, Route 7, 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 62, 1600 North Oak Street, #420, Arlington, Virginia 22209.
Trustee. Managing Member of J.C.B. Enterprises, L.L.C., March 1997 to Present.
Chief Executive Officer of the National Milk Producers Federation, March 1985 to
March 1997.
Edgar F. Callahan, Age 69, 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 58, 2003 Sheridan Road, Evanston, Illinois 60208. Vice
Chairman and Trustee. Professor of Economics, Northwestern University.
John T. Collins, Age 51, 1330 Connecticut Ave. N.W., Washington, D.C. 20036.
Trustee. Partner in the law firm of Steptoe & Johnson, January 1985 to Present.
Prior to January 1985, General Counsel to the U.S. Senate Banking Committee.
Thomas S. Condit, Age 56, 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
B-4
<PAGE>
1983 to May 1993 and various positions with affiliated or subsidiary
corporations from June 1983 to January 1992.
Rudy J. Hanley, Age 54, P.O. Box 11547, 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 59, 1400 8th Avenue So., Nashville, Tennessee 37202.
Trustee. President and Chief Executive Officer of Tennessee Teachers Credit
Union for over 25 years.
*John P. McNulty, Age 45, 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 1990 to Present.
*Wendell A. Sebastian, Age 53, 1001 Connecticut Avenue, N.W., Suite 1022,
Washington, DC 20036. President and Trustee. President of Callahan Financial
Services, Inc. ("CFS"), July 1996 to Present. President of GTE Federal Credit
Union, September 1991 to July 1996. Effective January 16, 1998, Mr. Sebastian
will resign his position as President of CFS and return to his position as
President of GTE Federal Credit Union.
Charles W. Filson, Age 53, 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.
John W. Mosior, Age 59, 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 48, 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 38, 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 37, 85 Broad Street, New York, New York 10004.
Secretary. General Counsel, Goldman Sachs Asset Management Funds Group,
November 1997 to Present. Associate General Counsel, Goldman Sachs Asset
Management, February 1994 to
B-5
<PAGE>
December 1997. 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.
John Perlowski, Age 33, One New York Plaza, New York, 10004.Assistant Treasurer.
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.
James A. Fitzpatrick, Age 37, 4900 Sears Tower, Chicago, Illinois 60606-6303.
Vice President. Vice President of Goldman, Sachs & Co., April 1997 to Present.
Vice President and General Manager, First Data Corporation, May 1983 to April
1997.
Gordon Linke, Age 49, 555 California Street, San Francisco, California 94104.
Vice President. Vice President of Goldman, Sachs & Co. March 1990 to Present.
Howard B. Surloff, Age 32, 85 Broad Street, New York, New York 10004. Assistant
Secretary. Assistant General Counsel, Goldman Sachs Asset Management and
Associate General Counsel, Goldman Sachs Asset Management Funds Group, November
1997 to Present. Assistant General Counsel and Vice President, Goldman, Sachs &
Co., November 1995 to Present. Vice President, Goldman, Sachs & Co., May 1994 to
Present. 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 Uniacke, Age 36, 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 Anderson, Age 28, One New York Plaza, New York, New York 10004.
Assistant Secretary. Portfolio Manager, April 1996 to present. Junior Portfolio
Manager, 1995 to April 1996. Funds Trading Assistant, Goldman Sachs Asset
Management, 1993 to 1995. Formerly, Compliance Analyst, Prudential Insurance,
1991 through 1993.
Steven Hartstein, Age 34, 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.
Deborah Farrell, Age 26, One New York Plaza, New York, New York 10004. Assistant
Secretary. Administrative Assistant, Goldman, Sachs & Co., January 1996 to
Present. Secretary, Goldman, Sachs &
B-6
<PAGE>
Co., January 1994 to January 1996. Secretary, Cleary, Gottlieb, Steen &
Hamilton, September 1990 to January 1994.
As of November 30, 1997, the Trustees and officers of the Fund, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. (For
information about shares of the Fund owned by credit unions of which certain
Trustees are officers, see "Description of Units" below.) Certain officers hold
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, 1997:
<TABLE>
<CAPTION>
Total Compensation
Aggregate Pension or Retirement From Goldman Sachs
Compensation Benefits Accrued as Mutual Funds*
Name of Trustee From the Trust Part of Trust's Expense (Including the Trust)
- --------------- -------------- ----------------------- ---------------------
<S> <C> <C> <C>
Gene R. Artemenko $6,000 -0- $6,000
James C. Barr $6,000 -0- $6,000
Edgar F. Callahan $0- -0- -0-
Robert M. Coen $6,000 -0- $6,000
John T. Collins $6,000 -0- $6,000
Thomas S. Condit $6,000 -0- $6,000
Rudolph J. Hanley $6,000 -0- $6,000
Betty G. Hobbs $6,000 -0- $6,000
John P. McNulty $0 -0- -0-
John L. Otsby** $6,000 -0- $6,000
Wendell A. Sebastian $0 -0- -0-
</TABLE>
* The Goldman Sachs Mutual Funds consisted of 81 mutual funds,
including the three series of the Trust, on August 31, 1997.
** Mr. Ostby ceased to be a Trustee of the Trust as of December 15, 1997
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
B-7
<PAGE>
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.
The advisory agreement will remain in effect with respect to a particular
Portfolio until March 31, 1998, 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.
B-8
<PAGE>
Expenses borne by the Money Market Portfolio, Government Securities Portfolio
and Mortgage Securities Portfolio include, subject to the limitations described
in the Prospectus, 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 of the same to the Portfolios'
unitholders and regulatory authorities and compensation and expenses of the
Trustees.
For the fiscal years ended August 31, 1997, August 31, 1996 and August 31, 1995,
the advisory fees paid by each Portfolio were as follows:
1997 1996 1995
Money Market $ 439,853 $ 541,946+ $ 410,109+
Portfolio
Government $1,082,182 $1,067,553 $1,078,346
Securities
Portfolio
Mortgage $ 668,959 $555,708++ $388,187++
Securities
Portfolio
_____________________
+ Waived additional advisory fees in the amount of $356,960, $351,232 and
$109,898, respectively, for such periods. Without waivers, the Money Market
Portfolio would have paid advisory fees of $796,813, $893,178 and $520,007,
respectively, for such periods. In addition, the expenses of the Money
Market Portfolio were reduced or otherwise limited in the amounts of
$33,469, $0 and $78,198, respectively, by the Adviser for such periods.
++ Waived additional advisory fees in the amount of $59,027 and $140,912,
respectively, for such periods. Without waivers, the Mortgage Securities
Portfolio would have paid advisory fees of, $614,735 and $529,099,
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
B-9
<PAGE>
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 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 aggre gate 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, 1997, the Funds acquired and sold
securities issued by Lehman Brothers, Chase Securities, Bear Stearns Companies,
Inc., Morgan Stanley Group, Inc., Swiss Bank Corp., Deutsche Bank, Nomura
Securities International and Dresdner Kleinwort Benson, N.A. At August 31, 1997,
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 - $15,000; Goldman Sachs & Co. -
$34,736; Bear Stearns Companies, Inc. - $16,700; Deutsche Bank, - $26,386; Swiss
Bank Corp. - $29,559; and J.P. Morgan Securities, Inc. - $5,010. The Government
Securities Portfolio held the following: Dresdner Kleinwort Benson, N.A. -
$5,160; Bear Stearns Companies, Inc. - $8,385; Nomura Securities International -
$1,613; Morgan Stanley & Co. - $210; and J.P. Morgan Securities, Inc. -$3,225.
The Mortgage Securities Portfolio held the following: Dresdner Kleinwort Benson,
N.A. - $8,160; Morgan Stanley & Co. - $333; Bear Stearns Companies, Inc. -
$13,260; Nomura Securities International - $2,550; and J.P. Morgan Securities,
Inc. - $5,100.
ACTIVITIES OF GOLDMAN, SACHS & CO. AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
- --------------------------------------------------------------------------------
BY GOLDMAN 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 Portfolios or impede their investment activities.
B-10
<PAGE>
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
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 GSAM 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 GSAM 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 GSAM will not initiate or
recommend certain types of transactions in certain securities or instruments
with respect to which GSAM and/or its affiliates are performing services or when
position limits have been reached.
In connection with its management of the Portfolios, GSAM may have access to
certain fundamental analysis and proprietary technical models developed by
Goldman, Sachs & Co. and other affiliates. GSAM 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 GSAM
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 GSAM in managing the Portfolios.
The results of each Portfolio's investment activities may differ significantly
from the results achieved by Goldman, Sachs & Co. 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.
B-11
<PAGE>
An investment policy committee which may include managing directors 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 GSAM 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.
GSAM 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. At times,
these activities may cause departments of the Firm to give advice to clients
that may cause these clients to take actions adverse to the interests of the
client. To the extent affiliated transactions are permitted, the Portfolios
will deal
B-12
<PAGE>
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 invest ment 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, GSAM 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.
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 transfer agency fees accrued by each
Portfolio were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Money Market * * *
Portfolio
Government $4,032 $4,333 $4,252
Securities
Portfolio
Mortgage $1,263 $1,236 $1,407
Securities
Portfolio
</TABLE>
* The transfer agent received no fees for the periods indicated above.
B-13
<PAGE>
ADMINISTRATOR
As stated in the Prospectus, Callahan Credit Union Financial Services Limited
Partnership (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 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 administration fees earned by CUFSLP were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Money Market $190,866+ $244,221+ $102,002+
Portfolio
Government $541,091 $ 533,777 $ 539,173
Securities
Portfolio
Mortgage $167,240 $ 153,910 $ 132,275
Securities
Portfolio
</TABLE>
B-14
<PAGE>
_____________________
+ Waived additional administration fees in the amount of $240,343, $251,230
and $163,831, respectively.
The administration agreement will remain in effect until March 31, 1998, 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 "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-nine credit unions listed below are the limited partners of CUFSLP,
which created Trust for Credit Unions in conjunction with Goldman, Sachs & Co.
As of September 30, 1997, these credit unions had total assets of $25.8 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
Bellco First Federal Credit Union
Gary Oakland, President
T. Brad Canfield, Vice President
B-15
<PAGE>
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
Coastal Federal Credit Union
Tom Budd, CEO Controller
Ron Unger, President
Dearborn Federal Credit Union
Donald Hersman, President
Kendrick Smith, Portfolio Manager
Eastern Financial Credit Union
Thomas E. Sargent, President
Michael Osborne, Chief Financial Officer
First Technology Credit Union
Brian Crawford, Executive Vice President
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-16
<PAGE>
Tim Duvall, Finance Division Manager
NIH Federal Credit Union
Brad Beal, President
Paul Parrish, Sr. Vice President
Nevada Federal Credit Union
Joseph S. Coey, President
New Mexico Educators Federal Credit Union
Michael J. Maslak, President
Kim Reedy, 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
Ludelle Morrow, President
Provident Central Credit Union
Jeffrey Farver, President
San Antonio Federal Credit Union
Doug Samuels, 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
E. Burton Eubanks, President
University Federal Credit Union
Frank Berrish, President
Visions Federal Credit Union
B-17
<PAGE>
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, which 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, 1997 (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
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.
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<PAGE>
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 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 that satisfy certain regulatory
B-19
<PAGE>
requirements may be deemed to have remaining maturities as follows: (a) a
government security with a variable or floating 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 or floating 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 earlier
of the earlier 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; (c) an instrument with a variable rate of interest
the principal amount of which scheduled to be paid in more than thirteen months,
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 the principal amount
of which scheduled to be paid in more than thirteen months, 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; (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 the agreement is subject to demand, the notice period applicable
to a demand for the repurchase of the securities; and (f) investment in another
money market fund may be treated as having a maturity equal to the period of
time within which the acquired money market fund is required to make payment
upon redemption, unless the acquired money market fund has agreed in writing to
provide redemption proceeds within a shorter time period, in which case the
maturity of such investment may be deemed to be the shorter period.
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-20
<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 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
B-21
<PAGE>
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 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
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<PAGE>
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 November 30, 1997 the outstanding units of the Money Market Portfolio, the
Government Securities Portfolio and the Mortgage Securities Portfolio were
35,370,108.030, 485,578,390.70 and 56,686,417.168, 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: Orange County
Teachers Federal Credit Union, P.O. Box 11547, Santa Ana, CA 92711 (6.24%) and
Citizens Equity Federal Credit Union, 5700 N. Middle Rad Peoria, IL 61607
(10.77%). 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 (5.39%), Boeing Employees Credit Union, 12770 Gateway Drive, Tukwila,
WA 98124-9750 (7.21%), GTE Federal Credit Union, PO Box 10550, Tampa, FL 33679
(8.27%), and Patelco Credit Union, 156 Second Street, San Francisco, CA 92711
(13.56%). 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 (5.16%), Eastern Financial Federal Credit Union, 700 South Royal
Poinciana Blvd. Miami Springs, FL 33166 (5.63%), Orange County Teachers Federal
Credit Union, P.O. Box 11547, Santa Ana, CA 92711 (5.66%), First Technology
Federal Credit Union, 3855 S.W. 153rd Drive, Beaverton, OR 97006 (12.63%), and
Patelco Credit Union, 156 Second Street, San Francisco, CA 94105, (17.18%).
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
B-23
<PAGE>
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 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
B-24
<PAGE>
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. 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.
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
B-25
<PAGE>
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 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.
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<PAGE>
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 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
B-27
<PAGE>
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 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.
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
B-28
<PAGE>
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 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 that, 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 guaranteed mortgage-related securities
currently available, including guaranteed mortgage pass-through certificates and
multiple-class securities, which include guaranteed REMIC pass-through
certificates. 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
B-32
<PAGE>
in a group of mortgage loans or participation 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). 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, its agencies, instrumentalities or
sponsored enterprises, including FNMA and FHLMC or, in the case of the Mortgage
Securities Portfolio, by trusts formed by private originators of, or 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 may not 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 Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment
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<PAGE>
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 offset or deduction but the receipt of the
required payments may be delayed. FHLMC also guarantees timely payment of
principal on certain Pcs, referred to as "Gold Pcs."
OTHER INVESTMENT PRACTICES
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<PAGE>
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 (with a perfected first priority) 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 expected that
during the current fiscal year such loans will not exceed 5% of a Portfolio's
total assets.
INVERSE FLOATING RATE SECURITIES
The Government Securities Portfolio and the Mortgage Securities Portfolio may,
to the extent permitted by the National Credit Union Administration ("NCUA"),
invest in leveraged inverse floating rate debt instruments ("inverse floaters").
The interest rate on an inverse floater resets in the opposite direction from
the market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of a
Portfolio's 15% limitation on investments in such securities.
INVESTMENT RESTRICTIONS
As the Prospectus states, the Fund may only invest in obligations authorized
under the Federal Credit Union Act. This restriction 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, the Fund has adopted the
following enumerated fundamental investment restrictions, none of which may
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<PAGE>
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 instumentalities, repurchase agreements by
such Portfolio of securities collateralized by such obligations 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 banks (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. Note: 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. 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.
(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 the Mortgage Securities
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<PAGE>
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
investment 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).
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<PAGE>
(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.
Investment Restriction No. (2) above is intended to incorporate the
diversification requirements of the 1940 Act and the rules thereunder. Pursuant
to SEC Rule 2a-7, which establishes separate diversification requirements for
money market funds, the Money Market Portfolio currently may not invest more
than 5% of its total assets in the securities of any one issuer other than U.S.
Government securities, repurchase agreements collateralized by such obligations
and securities subject to unconditional guarantees (as defined by SEC
regulations) which are issued by persons that, directly or indirectly, do not
control, and are not controlled by or under common control with, the issuers of
the securities (Unconditional Guarantees). 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 up to three business days after the purchase thereof, although
the Portfolio may not make more than one such investment at any time. Investment
by the Money Market Portfolio in Unconditional Guarantees is subject to further
diversification requirements. Immediately after the acquisition of a security,
the Money Market Portfolio may not have invested more than 10% of its total
assets in securities issued by or subject to Unconditional Guarantees from the
same person, except that the Portfolio may invest up to 25% of its total assets
in securities subject to Unconditional Guarantees issued by non-controlled
persons (as defined) that are rated in the highest rating category as determined
by two NRSROs (or one NSRO if the security is rated by only one NRSRO). In
addition to the foregoing, the Money Market Portfolio is subject to additional
diversification requirements imposed by SEC regulations on the acquisition of
securities subject to other types of demand features whereunder the Portfolio
has the right to sell the securities to the third parties. Adherence by the
Money Market Portfolio to the requirements of SEC Rule 2a-7, which are not
fundamental and may be changed in the future without shareholder vote, is
considered to be adherence to the requirements of Investment Restriction No. 2
above.
"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,
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<PAGE>
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.
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 a change
in investment objective or fundamental investment restrictions, the approval of
an investment advisory agreement or the approval of a distribution agreement,
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.
As stated in the Prospectus, investments purchased by the Portfolios before
January 1, 1998 (the effective date of recent amendments to the Rules and
Regulations of the NCUA) will be governed by the Rules and Regulations in effect
when purchased, and the Portfolios may continue to hold such investments after
such date subject to compliance with such former Rules and Regulations. Among
other things, prior to January 1, 1998 a Portfolio could invest in a
CMO class that did not meet the tests stated in the Prospectus when the
purchase was made solely to reduce interest rate risk. In addition, a Portfolio
could invest in a floating or adjustable rate CMO/REMIC class, irrespective of
whether it has been purchased to reduce interest rate risk, if:
1. The estimated change in the price of the CMO/REMIC was not more
than 17% due to an immediate and sustained parallel shift in the
yield curve of plus or minus 300 basis points;
2. the interest rate was reset at least annually;
3. the interest rate was below the contractual cap of the CMO/REMIC
class at the time of purchase or a subsequent testing date;
4. the index upon which the interest rate was based was a
conventional widely-used market interest rate index such as the
London Interbank Offered Rate; and
5. the interest rate of the instrument varied directly (not
inversely) with the index upon which it was based and was not
reset as a multiple of the change in the index.
Prior to January 1, 1998 a Portfolio could also purchase a stripped mortgage-
backed security to reduce the interest rate risk of its holdings.
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 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.
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<PAGE>
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, 1997, the yield and the effective
yield for the Money Market Portfolio were:
<TABLE>
<CAPTION>
7-Day Period
Ended August 31, 1997
---------------------------------------------------
With Fee Waivers
and Expense Without Fee Waivers and
Reimbursements Expense Reimbursements
------------------- ------------------------------
<S> <C> <C>
Yield 5.52% 5.32%
Effective Yield 5.67% 5.47%
</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 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) to the sixth power - 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
B-40
<PAGE>
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.
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
T = [(-----) to the first power divided by n - 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
B-41
<PAGE>
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-42
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE FIGURES
Value of $1,000 Investment
--------------------------
Year Ending 8/31/97 Five Year ending 8/31/97
------------------- ------------------------
Without Fee Without Fee
With Fee Waiver Waiver and/or With Fee Waiver Waiver and/or
30-Day Period and/or expense expense and/or expense expense
Ending 8/31/97 remimbursement remimbursement remimburse-ment remimbursement
<S> <C> <C> <C> <C> <C>
Government
Securities
Portfolio
Yield 6.10% N/A N/A N/A N/A N/A
Ending N/A $1,070.90 $1,070.90 $1,282.60 $1,280.69
Redeemable
Value at
8/31/97
Average N/A 7.09% 7.09% 5.10% 5.07%
Annual
Total Return
Cumulative N/A 7.09% 7.09% 28.26% 28.07%
Total Return
MORTGAGE
SECURITIES
PORTFOLIO
Yield 6.59% N/A N/A N/A N/A N/A
Ending N/A $1,078.90 $1,078.90 N/A N/A
Redeemable
Value at
8/31/97
Average N/A 7.89% 7.89% N/A N/A
Annual
Total Return
Cumulative N/A 7.89% 7.89% N/A N/A
Total Return
<CAPTION>
PERFORMANCE FIGURES
Value of $1,000 Investment
--------------------------
Commencement of
---------------
operations through
------------------
8/31/97
-------
Without Fee
With Fee Waiver Waiver and/or
and/or expense expense
remimbursement remimbursement
<S> <C> <C>
Government
Securities
Portfolio
Yield N/A N/A
Ending $1,382.50 $1,373.16
Redeemable
Value at
8/31/97
Average 5.41% 5.29%
Annual
Total Return
Cumulative 38.25% 37.32%
Total Return
MORTGAGE
SECURITIES
PORTFOLIO
Yield N/A N/A
Ending $1,324.10 $1,322.27
Redeemable
Value at
8/31/97
Average 5.90% 5.87%
Annual
Total Return
Cumulative 32.41% 32.23%
Total Return
</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, 1997.
B-43
<PAGE>
In addition, the Money Market Portfolio may quote from time to time its total
return in accordance with SEC regulations.
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, 1997, the distribution rate of each
of the following Portfolios was:
<TABLE>
<CAPTION>
30-Day Period
30-Day Period Ended August 31,
Ended August 31, 1997, 1997 Without
With Expense Expense
Portfolio Reimbursement Reimbursment
- --------- ------------- ------------
<S> <C> <C>
Government Securities 6.13% 6.13%
Mortgage Securities 6.51% 6.51%
</TABLE>
From time to time the Portfolios' 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 Portfolios' 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.
B-44
<PAGE>
From time to time advertisements or communications to unitholders may summarize
the substance of information contained in share holder 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, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic market views to suggest
periodic tactical modifications to current asset allocation strategies. Such
advertisements and information may include other material which highlight or
summarize the services provided in support of an asset allocation program.
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.
B-45
<PAGE>
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 Portfolios' 1997 Annual Report are hereby
incorporated by reference. No other parts of the 1997 Annual Report are
incorporated by reference herein. A copy of the Annual Report accompanies or has
preceded his 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-46
<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 represent the highest grade debt obligations. This rating
indicates the obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: The obligor's capacity to meet its financial commitment on the obligation
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.
__________________________
. The ratings systems 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 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.
B-47
<PAGE>
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.
DUFF & PHELPS, INC.
AAA: Long-term debt securities which are rated AAA are considered 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 debt securities which are rated AA are considered 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 debt 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 IBCA, 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 IBCA 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-.
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.
B-48
<PAGE>
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 senior debt obligations not having an original maturity in excess of
one year, unless explicitly noted.
Prime-1: Issuers (or supporting institutions) are considered to have a superior
ability for repayment of senior short-term promissory obligations. Many of
Prime-1 repayment ability will often be evidenced by the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2: Issuers (or supporting institutions) are considered to have a strong
ability for repayment of senior short-term debt 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, may 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 having an original maturity of no more than
365 days.
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: Investment grade commercial paper and short term debt rated Duff 1 are
considered to have a very high certainty of
B-49
<PAGE>
timely payment. Liquidity factors are considered excellent and supported by
good fundamental protection factors. Risk factors are minor.
Duff 2: Investment grade commercial paper and short term debt 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. Risk factors are small.
Duff & Phelps applies a plus and minus rating scale, Duff 1+, Duff 1 and Duff
1-, in the Duff 1 top grade category for commercial paper and short term debt.
The rating Duff 1+ indicates that the security has the highest certainty of
timely payment; short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is outstanding and safety is just
below risk-free U.S. Treasury short-term obligations. The rating Duff 1-
indicates a high certainty of timely payment; liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
FITCH IBCA, INC.
Fitch IBCA'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.
THOMSON BANKWATCH, INC.
The TBW short-term ratings assess the likelihood of an untimely payment of
principal and interest of debt instruments with original maturities of one year
or less.
TBW-1: The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2: The second highest category; indicates that 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-50
<PAGE>
-------------------------------------
TRUST
for Credit Unions
-------------------------------------
ANNUAL REPORT
-------------------------
AUGUST 31, 1997
<PAGE>
Dear TCU Investor,
Thank you for your continued support of the Trust for Credit Unions (TCU). We
would like to extend a special thank you to those credit unions that opened new
accounts with TCU this year.
We are pleased to report that the TCU portfolios performed well during the
12-month period under review, with each portfolio outperforming its respective
benchmark. In addition, look for continued advances in the following areas
during the upcoming year:
. CUSTOMER SERVICE: In September 1997, Goldman, Sachs & Co. introduced its
SMARTPlus system. An Internet-based program, SMARTPlus gives TCU investors
the ability to check their account status and enter trades. To sign up,
please call 1-800-621-2553. There is no charge for the service.
. LOWER TCU MONEY MARKET PORTFOLIO EXPENSES: In July 1997, the fund's
administrator and investment advisor each waived a portion of its fee in
order to provide investors with a higher yield. We hope to continue this
effort through 1998.
We appreciate your choice of TCU for your credit union's investments and look
forward to continuing to work with you for many years to come.
Sincerely,
/s/ Wendell A. Sebastian /s/ Gordon F. Linke
Wendell A. Sebastian Gordon F. Linke
President Vice President
Callahan Financial Services, Inc. Goldman Sachs Asset Management
and Trust for Credit Unions
September 30, 1997
<PAGE>
Dear TCU Investor,
We welcome the opportunity to review the performance of the Trust for Credit
Unions portfolios for the 12-month period ending August 31, 1997. To help put
the portfolios' performance in perspective, we are also providing a brief
overview of the economy and bond market during the period.
ECONOMIC REVIEW: ECONOMIC ACTIVITY ACCELERATED, LED BY INCREASED CONSUMER
SPENDING
When the Trust's fiscal year began in September 1996, lackluster consumer
spending and a widening U.S. trade deficit restrained economic growth. However,
during the fourth quarter of 1996 and first quarter of 1997, the pace of
economic activity picked up significantly, led by a sharp increase in retail
sales, rising factory orders and buoyant construction outlays. As a result,
real Gross Domestic Product (GDP) rose 3.8% and 4.9% (annualized) during the
fourth quarter of 1996 and the first quarter of 1997, respectively. In March,
the stronger-than-expected economic data prompted Federal Reserve policy makers
to raise the Federal funds rate to 5.50% from 5.25%, its first increase since
February 1995. During the second quarter of 1997, real GDP eased to a somewhat
more moderate 3.6% growth rate (annualized), partly because a cool spring
impacted weather-sensitive areas such as retail sales and construction. As the
period came to a close, growth reaccelerated, as indicated by a tightening
labor market, a rebound in consumer purchases and an increase in home sales.
THE BOND MARKET FELL DUE TO RISING INFLATION FEARS, THEN REBOUNDED
The U.S. fixed income market rallied sharply when the period began, as
interest rates retreated during October and November 1996 in anticipation of a
continued slowdown in U.S. economic growth. In December, however, the market
experienced a reversal when strong economic data raised concerns that Federal
Reserve policy makers would increase short-term interest rates to dampen
potential inflationary pressures. As expected, the Fed raised the Federal funds
rate in March; the move was broadly perceived as the first in a series of rate
hikes.
In early May, prospects for the bond market brightened. Economic activity
moderated from its robust first-quarter pace, which made further rate hikes
appear less necessary and helped investors regain confidence in the bond
market. As a result, bond yields fell to their lowest point (on July 31) in 16
months. In August, however, strengthening growth caused bonds to again come
under pressure.
HISTORICAL TREASURY YIELD CURVE
Years
to
Maturity 8/31/96 8/31/97
--------------------------------------------
3-Month 5.2800% 5.2100%
6-Month 5.4800% 5.3700%
1 5.8900% 5.5600%
2 6.3400% 5.9600%
3 6.5200% 6.0800%
5 6.7300% 6.2200%
10 6.9400% 6.3400%
30 7.1200% 6.6100%
Source: Bloomberg, L.P.
The yield curve shifted downward across all maturities.
2
<PAGE>
During the period, the yield curve shifted downward. The yield on six-month
Treasury bills fell slightly from 5.28% on August 31, 1996 to approximately
5.22% on August 31, 1997. Over the same time period, the yield on the 30-year
U.S. Treasury bond declined from 7.12% to 6.61%.
ARM MARKET PERFORMED WELL, BUOYED BY LOW VOLATILITY AND STRONG INVESTOR DEMAND
Adjustable rate mortgage securities (ARMs), which account for a significant
percentage of the non-money market TCU portfolios, performed well during the
period under review, supported by low volatility and a stable pace of mortgage
prepayments. The ARM market's gains came primarily at the end of 1996 and early
1997, when interest rates rose sharply and prepayment activity slowed. As a
result, yield spreads between ARMs and similar-duration Treasuries narrowed and
have remained tight through the summer of 1997.
ECONOMIC OUTLOOK: GROWTH IS EXPECTED TO ACCELERATE DURING THE REMAINDER OF THE
YEAR
Despite slowing economic activity during the second quarter, Goldman Sachs'
economists expect above-average growth to resume later in the year. Though we
do not expect inflation to pick up measurably near term, accelerating growth
could induce further Fed tightening sooner than the market is currently
anticipating.
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 by investing in high-quality money market instruments
authorized under the Federal Credit Union Act.
PERFORMANCE REVIEW
For the 12-month period ended August 31, 1997, the TCU Money Market Portfolio
had a total return of 5.43%, outperforming Donoghue's All-Taxable Money Market
Index total return of 5.02%. As of August 31, 1997, the portfolio had a seven-
day current yield of 5.52% and an effective yield of 5.67%./1/
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
During the period, we shifted the portfolio's asset allocation among the
different sectors to add incremental yield. These changes included a
significant reduction of the portfolio's allocation in lower yielding
securities such as repurchase agreements (to 39.8% of the portfolio) and an
increase in relatively higher yielding sectors such as bankers' acceptances/CDs
(39.4%) and bank notes (10.6%). The remainder of the portfolio was a 6.8%
position in Federal funds and a 3.4% position in variable rate obligations.
PORTFOLIO COMPOSITION AS OF AUGUST 31, 1997*
Repurchase Agreements............... 39.8%
Bankers' Acceptances and CDs........ 39.4%
Bank Notes.......................... 10.6%
Federal Funds....................... 6.8%
Variable Rate Obligations........... 3.4%
* 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 currently expect the Fed to tighten during the fourth quarter of 1997 or
the early first quarter of 1998. We believe the portfolio is well positioned to
take advantage of the expected backup in rates, and expect to maintain a
neutral average maturity of 20 to 35 days. We intend to adhere to our
disciplined approach while we wait for the market to become attractive enough
for us to extend the portfolio's average maturity beyond this range.
- ---------------------
/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>
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. The portfolio
invests primarily in adjustable rate mortgage securities (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 six-month U.S. Treasury security
and no longer than that of a one-year U.S. Treasury security. As of August 31,
1997, its actual duration was 0.73 years, nearly the same as the duration of a
nine-month Treasury security at 0.75 years.
PERFORMANCE REVIEW
For the 12-month period ended August 31, 1997, the total return of the TCU
GSP was 7.09% (6.25% in dividend income and 0.84% in price appreciation),
compared with 6.02% for the nine-month Treasury average. (The nine-month
Treasury return is calculated by averaging the returns of the six-month
Treasury bill and the one-year Treasury bill.)
The portfolio outperformed the benchmark primarily due to its substantial
exposure to ARMs. These securities contributed significantly to the portfolio's
favorable results as low volatility, stable mortgage prepayments and strong
investor demand all caused yield spreads between ARMs and similar-duration
Treasuries to tighten.
The portfolio's net asset value (NAV) rose during the period, closing at
$9.84 on August 31, 1997, up $0.08 from its level a year earlier. As of August
31, the portfolio's distribution rate was 6.13% and its SEC 30-day yield was
6.10%.
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
During the period, we initiated small positions in several sectors as we
identified attractive relative-value trading opportunities. These new
investments included sequential-pay collateralized mortgage obligations (CMOs)
(1.9% of the portfolio as of August 31, 1997), fixed rate mortgage pass-
throughs (1.6%), CMO floaters (1.4%) and an agency debenture (1.8%). In other
sectors, we trimmed the portfolio's positions in ARMs and U.S. Treasuries to
71.1% and 21.2%, respectively. We focused on seasoned ARM issues, which,
relative to nonseasoned securities, offer greater prepayment stability in
falling rate environments and lower cap risk in rising rate environments.
5
<PAGE>
PORTFOLIO COMPOSITION AS OF AUGUST 31, 1997*
ARMs................................ 71.1%
U.S. Treasuries..................... 21.2%
Sequentials......................... 1.9%
Agency Debenture.................... 1.8%
Fixed Rate Mortgage
Pass-Throughs...................... 1.6%
Floaters............................ 1.4%
Super Floaters...................... 0.5%
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
Near term, our outlook for the ARM market is neutral. Assuming mortgage
prepayments remain stable, we believe ARM spreads are currently trading at fair
value. CMOs are also generally trading at fair spreads relative to equal-
duration Treasuries; however, specific structures within the CMO market
continue to present attractive investment opportunities.
6
<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. The portfolio
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 TCU MSP
invests in obligations authorized under the Federal Credit Union Act with a
maximum duration not to exceed that of a three-year U.S. Treasury security and
a target duration equal to that of its benchmark, the two-year U.S. Treasury
security. As of August 31, 1997, the portfolio's actual duration was 1.85
years, in line with its benchmark.
PERFORMANCE REVIEW
The portfolio's total return for the 12 months ended August 31, 1997 was
7.89% (6.82% from dividend income and 1.07% from price appreciation),
outperforming the 6.95% return for the two-year U.S. Treasury note. The
portfolio's favorable results were primarily due to its investments in
adjustable rate mortgage securities (ARMs) and collateralized mortgage
obligations (CMOs), which offered incremental yield advantage over similar-
duration Treasuries.
The portfolio also fared very well compared with its peers. For the 12 months
ended August 31, 1997, the portfolio ranked third out of 63 short-term U.S.
government funds based on total rate of 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.)
As of August 31, 1997, the portfolio's net asset value (NAV) was $9.75, up
$0.10 from a year earlier. The portfolio's distribution rate and 30-day SEC
yield were 6.51% and 6.59%, respectively, as of the end of the period.
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
As the mortgage market richened during the period, we increased the
portfolio's emphasis on securities having good cash flow stability. This
strategy enabled us to adopt a somewhat defensive posture while continuing to
capture incremental yield over Treasuries. The primary changes in the
portfolio's structure were increased allocations to planned amortization class
(PAC) and sequential-pay CMO securities (to 32.6% and 22.5% of the portfolio,
respectively) and decreased allocations to ARMs, U.S. Treasuries and fixed rate
mortgage pass-throughs (to 21.0%, 13.3% and 5.1%, respectively). The remainder
of the portfolio was invested in repurchase agreements/cash equivalents (5.5%).
7
<PAGE>
PORTFOLIO COMPOSITION AS OF AUGUST 31, 1997*
PACs................................. 32.6%
Sequentials.......................... 22.5%
ARMs................................. 21.0%
U.S. Treasuries...................... 13.3%
Repos/Cash Equivalents............... 5.5%
Fixed Rate Mortgage Pass-Throughs.... 5.1%
* 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 are currently cautious regarding the CMO market, which is generally
trading at fair spreads relative to equal-duration Treasuries but does not
offer significant tightening potential. However, specific structures within
the CMO market continue to present attractive investment opportunities. We
have a neutral outlook for the ARM market for the near term. Assuming mortgage
prepayments remain stable, we believe ARM spreads are currently trading at
fair value.
TCU PORTFOLIO DISTRIBUTION POLICY
As required by tax law, all mutual funds, including the three 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 at
calendar year-end.
. For the TCU Government Securities Portfolio and the TCU 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 at calendar year-end.
8
<PAGE>
We appreciate your confidence in the TCU portfolios and we look forward to
continuing to serve your investment needs in the future.
Sincerely,
/s/ David A. Fishman
David A. Fishman
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
Goldman Sachs Asset Management
September 30, 1997
9
<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, 1997. Each of
the two 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 $100,000 Lehman Brothers Mutual Fund Adjustable Rate
("GSP"): 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 $500,000 Lehman ARM Index; Lehman Brothers Mutual Fund
("MSP"): Short (1-3) Government Index ("Lehman 1-3 Gov't
Index"); 2-Year U.S. Treasury Note ("2-year T-
Note").
</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
<TABLE>
<CAPTION>
GSP Lehman ARM Index(c) Lehman 1-2 Gov't Index 1-year T-Bill(g) 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 $100,565 N/A* $101,250 $100,832 $100,603
January 1, 1992* $103,133
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
August 31, 1997 $137,627 $144,108 $142,980 $137,120 $134,240
</TABLE>
----------------------------------------------
Average Annual Total Return
----------------------------------------------
One Year Five Year Since Inception(a)
----------------------------------------------
7.09% 5.10% 5.41%
----------------------------------------------
Mortgage Securities Portfolio
<TABLE>
<CAPTION>
MSP Lehman ARM Index Lehman 1-3 Gov't Index 2-year T-Bill
--- ---------------- ---------------------- -------------
<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
August 31, 1997 $663,590 $667,950 $647,250 $644,250
</TABLE>
----------------------------------------------
Average Annual Total Return
----------------------------------------------
One Year Since Inception(a)
----------------------------------------------
7.89% 5.90%
----------------------------------------------
* This date should not appear on the graph. The Lehman ARM index for this fund
should begin on 1/1/92 at the point that the GSP is at that date. For further
explanation, see note (c).
(a) The Government Securities and Mortgage Securities Portfolios commenced
operations July 10, 1991 and October 9, 1992, 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.
10
<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, and the Mortgage
Securities Portfolio), including the statements of investments as of August 31,
1997, 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, 1997, 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, 1997, 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, 1997
11
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MONEY MARKET PORTFOLIO
STATEMENT OF INVESTMENTS
AUGUST 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
--------- -------- -------- ---------
<S> <C> <C> <C>
BANK NOTES (10.6%)
BankBoston, N.A.
$ 10,000 5.65% 10/03/97 $ 10,000
7,000 5.60 11/17/97 7,000
Chase Manhattan Bank U.S.A.
15,000 5.68 09/02/97 15,000
First Chicago NBD Corp.
15,000 5.68 09/08/97 15,000
--------
Total Bank Notes................................ $ 47,000
--------
BANKERS' ACCEPTANCES(a) (8.9%)
Corestates Bank, N.A.
$ 9,400 5.48% 11/18/97 $ 9,289
Mellon Bank, N.A. Pittsburgh
20,000 5.50 09/16/97 19,954
Republic National Bank of New York
5,000 5.57 09/19/97 4,986
Union Bank of California
5,000 5.50 09/23/97 4,983
--------
Total Bankers' Acceptances...................... $ 39,212
--------
CERTIFICATES OF DEPOSIT (30.6%)
Bank One Columbus, N.A.
$ 15,000 5.52% 09/24/97 $ 15,000
Bankers Trust Co., New York
15,000 5.59 09/30/97 15,000
Crestar Bank
10,000 5.63 11/25/97 10,001
First Tennessee Bank
15,000 5.53 10/10/97 15,000
Morgan Guaranty Trust Co.
10,000 5.56 11/06/97 10,000
Northern Trust Co., Chicago
15,000 5.55 11/04/97 15,000
Old Kent Bank & Trust Co.
15,000 5.54 11/18/97 15,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
--------- -------- -------- ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT--(CONTINUED)
Regions Bank
$ 15,000 5.66% 11/17/97 $ 15,000
U.S. National Bank of Oregon
10,000 5.61 09/22/97 10,000
Union Bank of California
5,000 5.56 10/28/97 5,000
10,000 5.60 12/01/97 10,000
--------
Total Certificates of Deposit................. $135,001
--------
FEDERAL FUNDS (6.8%)
American Express Centurion Bank
$ 15,000 5.55% 09/10/97 $ 15,000
Bank of Hawaii
15,000 5.53 09/25/97 15,000
--------
Total Federal Funds........................... $ 30,000
--------
VARIABLE RATE DEMAND NOTES(C) (3.4%)
Corestates Bank, N.A.
$ 5,000 5.59% 09/02/97 $ 5,000
PNC Bank, N.A.
10,000 5.52 09/02/97 9,994
--------
Total Variable Rate Demand Notes.............. $ 14,994
--------
REPURCHASE AGREEMENT (39.9%)
Joint Repurchase Agreement Account
$175,900 5.55% 09/02/97 $175,900
--------
Total Repurchase Agreement.................... $175,900
--------
Total Investments............................. $442,107(b)
========
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
(a) The rate disclosed for these securities represents the yield to maturity.
(b) The amount stated also represents aggregate cost for federal income tax
purposes.
(c) Variable rate security. Coupon rate disclosed is that which is in effect at
August 31, 1997.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS
AUGUST 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (76.5%)
Adjustable Rate Federal Home Loan Mortgage Corp. (FHLMC)(a) (25.0%)
$ 1,753 7.62% 08/01/17 $ 1,818
1,195 8.04 04/01/18 1,251
7,365 7.72 05/01/18 7,701
2,458 7.62 07/01/18 2,564
17,695 7.82 11/01/19 18,621
7,829 7.65 11/01/21 8,165
4,612 7.61 02/01/22 4,808
25,144 7.90 02/01/22 26,468
22,022 7.93 04/01/22 23,058
1,885 7.16 11/01/22 1,909
4,220 7.29 11/01/22 4,233
12,067 7.82 11/01/22 12,663
9,578 7.81 06/01/24 10,072
2,904 7.38 02/01/28 3,004
5,201 7.42 04/01/28 5,352
2,225 7.63 07/01/29 2,276
6,876 7.66 05/01/31 7,129
--------
Total Adjustable Rate FHLMC....................... $141,092
--------
Adjustable Rate Federal National Mortgage Association (FNMA)(a) (38.1%)
$ 3,497 6.89% 03/01/17 $ 3,575
2,040 7.48 11/01/17 2,129
14,501 7.48 12/01/17 15,082
4,520 7.48 08/01/18 4,708
4,200 7.74 09/01/18 4,416
1,395 7.60 11/01/18 1,450
2,426 7.46 05/01/19 2,511
22,535 7.45 06/01/19 23,432
2,309 7.52 07/01/19 2,403
5,769 7.00 12/01/19 5,674
4,048 7.86 03/01/20 4,271
1,775 7.59 05/01/20 1,853
15,438 7.43 04/01/21 16,031
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Adjustable Rate Federal National Mortgage Association (FNMA)--(Continued)
$32,527 7.72% 09/01/21 $ 34,138
1,966 7.51 10/01/21 2,036
2,278 7.73 02/01/22 2,394
36,257 7.80 09/01/22 38,030
19,402 7.71 09/01/25 20,378
7,831 6.07 11/01/26 7,838
4,937 7.56 07/01/27 5,140
3,409 7.47 10/01/27 3,550
14,180 6.07 02/01/31 14,033
--------
Total Adjustable Rate FNMA........................ $215,072
--------
Adjustable Rate Government National Mortgage Association (GNMA)(a) (5.7%)
$ 4,969 7.37% 04/20/22 $ 5,124
6,399 7.00 02/20/23 6,572
7,018 7.37 06/20/23 7,196
13,142 5.50 06/20/27 13,141
--------
Total Adjustable Rate GNMA........................ $ 32,033
--------
Fixed Rate FHLMC (1.6%)
$ 9,000 6.50% TBA(b) $ 8,885
--------
Collateralized Mortgage Obligations (CMOs) (6.1%)
Adjustable Rate CMOs(a) (2.4%)
FNMA REMIC Trust 1990-145, Class A
$13,218 6.75% 12/25/20 $ 13,356
--------
Planned Amortization Class (PAC) CMOs (0.6%)
FNMA REMIC Trust 1990-24, Class E
$ 3,100 9.00% 03/25/20 $ 3,261
--------
Regular Floater CMOs(a) (1.4%)
FHLMC REMIC Trust 1698, Class FA
$ 2,966 6.49% 03/15/09 $ 2,984
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
GOVERNMENT SECURITIES PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Regular Floater CMOs(a)--(Continued)
FNMA REMIC Trust 225C, Class FG
$ 5,000 6.77% 12/25/23 $ 5,063
--------
Total Regular Floater CMOs........................ $ 8,047
--------
Sequential Fixed Rate CMOs (1.3%)
FNMA REMIC Trust 1989-10, Class D
$ 3,146 9.50% 07/25/09 $ 3,246
FNMA REMIC Trust 1989-80, Class E
3,942 9.00 09/25/18 4,076
--------
Total Sequential Fixed Rate CMOs.................. $ 7,322
--------
Super Floater CMOs(a) (0.4%)
FNMA REMIC Trust 1992-157, Class FA
$ 2,614 1.87% 03/25/04 $ 2,569
--------
Total CMOs........................................ $ 34,555
--------
Total Mortgage Backed Obligations (cost
$429,888)........................................ $431,637
--------
AGENCY DEBENTURES (1.8%)
Sri Lanka Aid(a)
$10,000 6.12% 11/01/24 $ 10,000
--------
Total Agency Debentures
(cost $10,000)................................... $ 10,000
--------
U.S. TREASURY OBLIGATIONS (20.8%)
U.S. Treasury Notes
$89,500 5.88% 04/30/98 $ 89,640
7,000 6.00 08/15/99 7,001
10,050 6.88 08/31/99 10,216
11,000 5.63 11/30/00 10,838
--------
Total U.S. Treasury Obligations (cost $117,708)... $117,695
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
REPURCHASE AGREEMENT (3.3%)
Joint Repurchase Agreement Account(c)
$18,600 5.60% 09/02/97 $ 18,600
--------
Total Repurchase Agreement (cost $18,600)......... $ 18,600
--------
Total Investments
(cost $576,196(d))............................... $577,932
========
- -------------------------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost....................................... $ 3,355
Gross unrealized loss for investments in which cost
exceeds value...................................... (1,623)
--------
Net unrealized gain................................. $ 1,732
========
- -------------------------------------------------------------------------------------------------------
</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, 1997.
(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 $576,200.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MORTGAGE SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS
AUGUST 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (81.1%)
Fixed Rate Federal Home Loan Mortgage Corp.
(FHLMC) (2.8%)
$10,000 6.70% 09/25/22 $ 9,635
--------
Fixed Rate Federal National Mortgage Association (FNMA) (2.0%)
$ 2,848 6.00% 09/01/07 $ 2,808
1,370 6.00 10/01/08 1,341
2,966 6.00 06/01/09 2,905
--------
Total Fixed Rate FNMA............................. $ 7,054
--------
Collateralized Mortgage Obligations (CMOs) (76.3%)
Adjustable Rate CMOs(a) (21.1%)
Citicorp Mortgage Securities, Inc. 1992-17,
Class A
$ 6,363 7.65% 10/25/22 $ 6,521
CMC Securities Corp. II 1993-I, Class A2
3,301 7.21 09/25/23 3,353
Imperial Savings Association 1988-3, Class A
1,761 7.54 01/25/18 1,767
Independent National Mortgage Corp.
1994-W, Class A1
2,399 8.30 12/25/24 2,452
Merrill Lynch Mortgage Investors, Inc.
1994-I, Class A1
5,456 8.07 01/25/05 5,578
Prudential Home Mortgage 1992-8, Class A1
1,051 8.15 04/25/22 1,063
Resolution Trust Corp. 1992-04, Class B2
4,500 7.58 07/25/28 4,584
Resolution Trust Corp. 1992-11, Class B2
10,201 7.59 10/25/24 10,298
Resolution Trust Corp. 1994-1, Class M3
6,281 7.97 09/25/29 6,494
Resolution Trust Corp. 1995-1, Class A3
9,134 7.26 10/25/28 9,334
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Adjustable Rate CMOs--(Continued)
Resolution Trust Corp. 1995-1, Class M3
$ 2,706 7.26% 10/25/28 $ 2,752
Ryland Mortgage Securities Corp.
1989-FN1, Class A
1,098 7.59 11/01/18 1,109
Ryland Mortgage Securities Corp. 1991-4,
Class A1
1,634 7.42 02/25/20 1,632
Ryland Mortgage Securities Corp. 1991-B1,
Class 1
1,400 7.53 03/25/20 1,422
Ryland Mortgage Securities Corp. 1992-3,
Class A2
310 7.58 06/25/20 310
Salomon Brothers Mortgage Securities
1990-3A, Class 1
1,624 6.85 11/25/20 1,633
Salomon Brothers Mortgage Securities
1994-20, Class A
4,955 8.08 12/25/24 5,117
Saxon Mortgage Securities Corp. 1992-1,
Class B1
6,800 7.78 09/25/22 6,827
Saxon Mortgage Securities Corp. 1994-11,
Class A
1,481 7.97 12/25/24 1,526
--------
Total Adjustable Rate CMOs........................ $ 73,772
--------
Planned Amortization Class (PAC) CMOs (31.8%)
Chemical Mortgage Securities, Inc.
Series 1994-1, Class A1
$ 4,465 6.25% 01/25/09 $ 4,308
CMC Securities Corp. 1993-F, Class A2
5,000 6.75 11/25/23 4,991
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MORTGAGE SECURITIES PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Planned Amortization Class (PAC) CMOs--(Continued)
Countrywide Mortgage Backed Securities,
Inc. Series 1994-I, Class A4
$ 7,280 6.25% 07/25/09 $ 7,260
FHLMC Series 1293, Class Z
2,499 7.50 07/15/99 2,539
FHLMC Series 1526, Class E
6,500 5.75 03/15/16 6,439
FHLMC Series 1584, Class E
9,550 5.75 10/15/16 9,428
FHLMC Series 1632, Class PE
3,500 5.50 09/15/21 3,408
FHLMC Series 1985, Class PC
18,000 6.35 05/17/18 17,781
FNMA Series 93-174, Class Z
12,642 6.00 07/25/06 12,456
GE Capital Mortgage Services, Inc.
13,565 6.50 03/25/27 13,762
GE Capital Mortgage Services, Inc. 1994-15,
Class A8
5,362 6.00 04/25/09 5,299
GE Capital Mortgage Services, Inc. 1994-07,
Class A6
1,877 5.50 02/25/09 1,838
GE Capital Mortgage Services, Inc. 1994-13,
Class A1
2,590 6.50 04/25/24 2,582
Housing Securities, Inc. 1993-E, Class E8
7,587 10.00 02/25/08 7,936
Paine Webber Mortgage Acceptance Corp.
1993-6, Class A3
6,800 6.90 08/25/08 6,836
Prudential Home Mortgage 1993-54, Class A4
4,721 6.50 01/25/24 4,703
--------
Total PAC CMOs.................................... $111,566
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Sequential Fixed Rate CMOs (23.4%)
Bear Stearns Secured Investors Trust
1987-2, Class D
$ 2,119 9.95% 10/20/18 $ 2,305
CMC Securities Corp. 1993-C, Class C3
3,328 9.55 04/25/08 3,546
Collateralized Mortgage Obligation Trust
Series 12, Class D
4,481 9.50 02/01/17 4,606
Collateralized Mortgage Obligation Trust
Series 64, Class Y
12,918 9.00 05/20/06 13,249
FNMA REMIC Trust 1988-12, Class A
3,398 10.00 02/25/18 3,585
FNMA REMIC Trust 1989-12, Class X
4,669 10.00 12/25/14 4,813
FNMA REMIC Trust 1989-59, Class H
9,328 7.75 10/25/18 9,439
Housing Securities, Inc. 1994-2, Class A1
10,963 6.50 07/25/09 10,769
Prudential Home Mortgage 1992-A,
Class 1B1
3,142 7.20 4/28/22 3,137
Prudential Home Mortgage 1993-38,
Class A4
18,017 9.55 09/25/23 19,182
Salomon Brothers Mortgage Securities
1984-2, Class Z
7,145 10.00 12/01/14 7,452
--------
Total Sequential Fixed Rate CMOs.................. $ 82,083
--------
Total CMOs........................................ $267,421
--------
Total Mortgage Backed Obligations (cost
$282,852)........................................ $284,110
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MORTGAGE SECURITIES PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (13.1%)
U.S. Treasury Notes
$ 3,000 6.00% 08/15/99 $ 3,001
6,700 6.13 07/31/00 6,706
12,000 5.63 11/30/00 11,824
6,570 7.88 11/15/04 7,140
U.S. Treasury Principal-Only Stripped
Securities(b)
12,400 6.44% 11/15/04 7,861
15,500 6.47 05/15/05 9,499
--------
Total U.S. Treasury Obligations (cost $45,966).... $ 46,031
--------
REPURCHASE AGREEMENT (8.4%)
Joint Repurchase Agreement Account(c)
$29,400 5.60% 09/02/97 $ 29,400
--------
Total Repurchase Agreement (cost $29,400)......... $ 29,400
--------
Total Investments
(cost $358,218(d))............................... $359,541
========
</TABLE>
<TABLE>
- -----------------------
<S> <C> <C> <C>
FEDERAL INCOME
TAX
INFORMATION:
Gross
unrealized
gain for
investments
in which
value
exceeds
cost........ $ 2,863
Gross
unrealized
loss for
investments
in which
cost exceeds
value....... (1,549)
-------
Net
unrealized
gain........ $ 1,314
=======
- -----------------------
</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 securities. Coupon rates disclosed are that which are in
effect at August 31, 1997.
(b) The interest rate disclosed for these securities represents effective
yields to maturity.
(c) A portion of this security is being segregated for open purchases.
(d) The aggregate cost for federal income tax purposes is $358,227.
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 1997
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investment in securities, at value
(cost $442,106,662, $576,196,037,
and $358,218,395, respectively)... $442,106,662 $577,931,871 $359,541,137
Cash............................... 71,921 74,361 74,603
Receivables:
Investment securities sold........ -- 11,277,486 16,428,895
Interest.......................... 1,298,149 5,798,489 2,395,544
Deferred organization expenses,
net............................... -- -- 967
Other assets....................... 3,337 68,469 --
------------ ------------ ------------
Total assets................... 443,480,069 595,150,676 378,441,146
------------ ------------ ------------
LIABILITIES
Payables:
Investment securities purchased... -- 27,923,611 26,562,229
Fund shares repurchased........... -- 125,000 --
Dividends......................... 2,198,445 2,269,189 1,458,779
Advisory Fees..................... 23,784 95,932 59,181
Administration Fees............... 7,923 47,964 14,795
Accrued expenses and other
liabilities....................... 45,241 47,219 30,943
------------ ------------ ------------
Total liabilities.............. 2,275,393 30,508,915 28,125,927
------------ ------------ ------------
NET ASSETS
Paid-in capital.................... 441,204,676 581,950,036 360,550,064
Distributions in excess of net
investment income................. -- (580,622) (1,300,680)
Accumulated net realized loss on
investment transactions........... -- (18,463,487) (10,256,907)
Net unrealized gain on investments. -- 1,735,834 1,322,742
------------ ------------ ------------
Net assets..................... $441,204,676 $564,641,761 $350,315,219
============ ============ ============
Net asset value & public offering
price per unit (net assets/units
outstanding)...................... $1.00 $9.84 $9.75
============ ============ ============
UNITS OUTSTANDING
Total units outstanding, $0.001 par
value (unlimited number of
units authorized)................. 441,204,676 57,397,464 35,925,213
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income..................... $23,683,433 $34,420,952 $22,996,886
----------- ----------- -----------
EXPENSES:
Advisory fees....................... 796,813 1,082,182 668,959
Administration fees................. 431,209 541,091 167,240
Custodian fees...................... 72,694 75,334 58,253
Professional fees................... 62,176 81,001 64,211
Trustees' fees...................... 21,894 22,661 10,979
Amortization of deferred
organization expense............... -- -- 9,037
Other expenses...................... 39,484 47,452 29,299
----------- ----------- -----------
Total expenses...................... 1,424,270 1,849,721 1,007,978
Less--Fee waivers and expense
reimbursements...................... (630,772) -- --
----------- ----------- -----------
Net expenses........................ 793,498 1,849,721 1,007,978
----------- ----------- -----------
NET INVESTMENT INCOME................ 22,889,935 32,571,231 21,988,908
NET REALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS............. -- (1,471,081) 901,649
NET CHANGE IN UNREALIZED GAIN ON
INVESTMENTS......................... -- 5,778,256 2,440,462
----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... $22,889,935 $36,878,406 $25,331,019
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income........... $ 22,889,935 $ 32,571,231 $ 21,988,908
Net realized gain (loss) on
investment transactions........ -- (1,471,081) 901,649
Net change in unrealized gain on
investments.................... -- 5,778,256 2,440,462
--------------- ------------ ------------
Net increase in net assets
resulting from operations...... 22,889,935 36,878,406 25,331,019
--------------- ------------ ------------
DISTRIBUTION TO UNITHOLDERS:
From net investment income...... (22,889,935) (32,571,231) (21,988,908)
In excess of net investment
income......................... -- (184,815) (35,416)
--------------- ------------ ------------
Total distributions to
unitholders.................... (22,889,935) (32,756,046) (22,024,324)
--------------- ------------ ------------
FROM UNIT TRANSACTIONS:
Proceeds from sales of shares... 4,961,231,607 107,339,190 39,341,948
Reinvestment of dividends and
distributions.................. 11,661,004 6,072,657 4,572,906
Cost of units repurchased....... (4,958,397,761) (88,594,881) (29,452,760)
--------------- ------------ ------------
Net increase in net assets
resulting from unit
transactions................... 14,494,850 24,816,966 14,462,094
--------------- ------------ ------------
Total Increase.................. 14,494,850 28,939,326 17,768,789
NET ASSETS:
Beginning of year............... 426,709,826 535,702,435 332,546,430
--------------- ------------ ------------
End of year..................... $ 441,204,676 $564,641,761 $350,315,219
=============== ============ ============
ACCUMULATED UNDISTRIBUTED
(DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME............... $ -- $ (580,622) $ (1,300,680)
=============== ============ ============
SUMMARY OF UNIT TRANSACTIONS:
Units sold...................... 4,961,231,607 10,921,160 4,039,134
Reinvestment of dividends and
distributions.................. 11,661,004 618,333 469,421
Units repurchased............... (4,958,397,761) (9,016,857) (3,026,928)
--------------- ------------ ------------
Increase in units outstanding... 14,494,850 2,522,636 1,481,627
=============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS:
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 re-
sulting 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.................. 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 (DIS-
TRIBUTIONS IN EXCESS OF) NET IN-
VESTMENT 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
=============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
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
FROM RATIO OF INVEST-
NET IN NET NET NET MENT NET
ASSET NET FROM EXCESS REAL- ASSET EXPENSES INCOME ASSETS
VALUE AT NET REALIZED NET OF NET IZED VALUE TO TO AT END
BEGIN- INVEST- GAIN ON INVEST- INVEST- GAIN ON AT AVERAGE AVERAGE OF
NING OF MENT INVEST- MENT MENT INVEST- END OF TOTAL NET NET PERIOD
PERIOD INCOME MENTS(a) INCOME INCOME MENTS PERIOD RETURN(b) ASSETS ASSETS (000'S)
-------- ---------- ----------- -------- -------- -------- ------ --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:8/31/97.. $1.00 $ 0.0530 $ -- $(0.0530) $ -- $ -- $1.00 5.43% 0.18% 5.31% $441,205
8/31/96......... 1.00 0.0539 -- (0.0539) -- -- 1.00 5.51 0.19 5.37 426,710
8/31/95......... 1.00 0.0555 -- (0.0553) -- -- 1.00 5.56 0.20 5.55 382,096
8/31/94......... 1.00 0.0329 0.0002 (0.0342) (0.0001) (0.0002) 1.00 3.50 0.25 3.29 216,989
8/31/93......... 1.00 0.0305 0.0004 (0.0305) -- (0.0005) 1.00 3.14 0.25 3.05 616,229
8/31/92......... 1.00 0.0416 0.0008 (0.0416) -- (0.0007) 1.00 4.39 0.25 4.16 864,924
8/31/91......... 1.00 0.0641 -- (0.0641) -- -- 1.00 6.93 0.25 6.41 654,977
8/31/90......... 1.00 0.0824 -- (0.0824) -- -- 1.00 8.58 0.25 8.24 258,304
8/31/89......... 1.00 0.0899 -- (0.0899) -- -- 1.00 9.28 0.25 8.99 167,331
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) 106,739
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
--------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME
TO TO
AVERAGE AVERAGE
NET NET
ASSETS ASSETS
--------- ----------
<S> <C> <C>
Year ended:8/31/97.. 0.33% 5.16%
8/31/96......... 0.31 5.25
8/31/95......... 0.33 5.42
8/31/94......... 0.34 3.20
8/31/93......... 0.33 2.97
8/31/92......... 0.29 4.12
8/31/91......... 0.25 6.41
8/31/90......... 0.25 8.24
8/31/89......... 0.25 8.99
5/17/88(c) to
8/31/88............. 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 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.
22
<PAGE>
TRUST FOR CREDIT UNIONS
---------
GOVERNMENT SECURITIES 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 INVEST-
NET REALIZED IN NET NET MENT
ASSET AND FROM EXCESS ASSET EXPENSES INCOME PORT-
VALUE AT NET UNREALIZED NET OF NET VALUE TO TO FOLIO
BEGIN- INVEST- GAIN (LOSS) INVEST- INVEST- AT AVERAGE AVERAGE TURN-
NING OF MENT ON INVEST- MENT MENT END OF TOTAL NET NET OVER
PERIOD INCOME MENTS(a) INCOME INCOME PERIOD RETURN(b) ASSETS ASSETS RATE(c)
-------- ---------- ------------ -------- -------- ------ --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:8/31/97.. $ 9.76 $ 0.5911 $ 0.0829 $(0.5911) $(0.0029) $ 9.84 7.09% 0.34% 6.02% 88.02%
8/31/96 ........ 9.76 0.6024 (0.0055) (0.5969) -- 9.76 6.26 0.35 6.16 149.66
8/31/95......... 9.78 0.5515 (0.0011) (0.5582) (0.0122) 9.76 5.82 0.34 5.65 70.58
8/31/94......... 9.97 0.4286 (0.1974) (0.4212) -- 9.78 2.33 0.35 4.25 42.27
8/31/93......... 10.03 0.4641 (0.0599) (0.4630) (0.0012) 9.97 4.06 0.34 4.58 67.38
8/31/92......... 10.00 0.5588 0.0311 (0.5594) -- 10.03 6.68 0.36 5.91 195.53
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
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
--------------------
RATIO OF
NET
NET RATIO OF INVESTMENT
ASSETS EXPENSES INCOME
AT END TO TO
OF AVERAGE AVERAGE
PERIOD NET NET
(000'S) ASSETS ASSETS
---------- --------- ----------
<S> <C> <C> <C>
Year ended:8/31/97.. $ 564,642 0.34% 6.02%
8/31/96 ........ 535,702 0.35 6.16
8/31/95......... 529,659 0.34 5.65
8/31/94......... 594,331 0.37 4.23
8/31/93......... 1,122,484 0.47 4.45
8/31/92......... 1,153,410 0.59 5.68
7/10/91(d) to
8/31/91............. 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 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.
23
<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 RATIO OF
NET REALIZED IN EXCESS NET NET
ASSET AND FROM EXCESS OF NET ASSET EXPENSES
VALUE AT NET UNREALIZED NET OF NET REALIZED VALUE TO
BEGIN- INVEST- GAIN (LOSS) INVEST- INVEST- GAIN ON FROM AT AVERAGE
NING OF MENT ON INVEST- MENT MENT INVEST- PAID-IN END OF TOTAL NET
PERIOD INCOME MENTS(a) INCOME INCOME MENTS CAPITAL PERIOD RETURN(b) ASSETS
-------- ---------- ------------ -------- -------- -------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:8/31/97.. $ 9.65 $ 0.6399 $ 0.1011 $(0.6399) $(0.0011) $ -- $ -- $ 9.75 7.89% 0.30%
8/31/96......... 9.74 0.6604 (0.1195) (0.6309) -- -- -- 9.65 5.67 0.28
8/31/95......... 9.62 0.6075 0.1539 (0.6075) (0.0175) -- (0.0164) 9.74 8.20 0.26
8/31/94......... 10.13 0.5533 (0.4530) (0.5719) (0.0340) (0.0044) -- 9.62 1.00 0.28
10/9/92(d) to
8/31/93............. 10.00 0.4895 0.1144 (0.4702) -- -- -- 10.13 6.27 0.33(e)
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES
--------------------
RATIO OF
NET RATIO OF
INVEST- NET
MENT NET RATIO OF INVESTMENT
INCOME PORT- ASSETS EXPENSES INCOME
TO FOLIO AT END TO TO
AVERAGE TURN- OF AVERAGE AVERAGE
NET OVER PERIOD NET NET
ASSETS RATE(c) (000'S) ASSETS ASSETS
--------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended:8/31/97.. 6.57% 106.10% $350,315 0.30% 6.57%
8/31/96......... 6.64 163.42 332,546 0.30 6.62
8/31/95......... 6.36 130.98 264,409 0.32 6.30
8/31/94......... 5.66 188.58 283,886 0.29 5.65
10/9/92(d) to
8/31/93............. 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 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.
24
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
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 three diversified portfolios: the
Money Market Portfolio, Government Securities Portfolio and Mortgage Securities
Portfolio. Units of the Fund are offered for sale solely to state and federally
chartered credit unions.
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 and Mortgage Securities Portfolio,
investments in mortgage backed, asset backed, and U.S. Treasury obligations 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. Other securities are value based on yield equivalents, a pricing
matrix or other sources, under valuation procedures established by the Fund's
Board of Trustees. Portfolio securities for which accurate market quotations
are not readily available are value based on yield equivalents, pricing matrix
or other sources, under valuation procedures established by the Fund's Board of
Trustees. Securities of the Money Market Portfolio and short-term debt
obligations maturing in sixty days or less for the Government Securities
Portfolio and Mortgage Securities Portfolio 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.
25
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1997
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 amortizes market discounts and premiums on certain
mortgage backed securities and treasury obligations.
For the Government Securities Portfolio and Mortgage Securities Portfolio,
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 as 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 and Mortgage Securities 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
cash or liquid debt securities in an amount equal to the forward purchase price
in a segregated account until the settlement date. 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.
26
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1997
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... $18,980,000 1999 - 2005
Mortgage Securities..... 10,116,000 2002 - 2005
</TABLE>
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 Mortgage Securities Portfolio.
27
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1997
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 advisor 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%
</TABLE>
Effective July 1, 1997, Goldman Sachs voluntarily agreed to limit its
advisory fee with respect to the Money Market Portfolio to .06% of all assets;
prior thereto, Goldman Sachs 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 portfolio's average daily net
assets. For the year ended August 31, 1997, Goldman Sachs waived advisory fees
amounting to $356,960.
28
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1997
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 39
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%
</TABLE>
Effective July 1, 1997, CUFSLP voluntarily agreed to limit its administration
fee with respect to the Money Market Portfolio to .02% of all assets; prior
thereto, CUFSLP 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 portfolio's average net assets. For the year ended August 31,
1997, CUFSLP waived administration fees amounting to $240,343.
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. Effective July 1, 1997-August 31, 1997, the expense
limitation of the fund remained at 0.20% on a daily basis. For the fiscal year
ended August 31, 1997, CUFSLP reimbursed the Money Market Portfolio $33,469
under this agreement.
CUFSLP and Goldman Sachs have each voluntarily agreed to limit the other
annualized ordinary expenses (excluding advisory, administration fees,
interest, taxes, brokerage and extraordinary expenses) of the Government
Securities Portfolio such that CUFSLP will reimburse expenses that exceed .05%
up to .10% of the Government Securities Portfolio's average daily net assets,
and Goldman Sachs will reimburse expenses that exceed .10% up to .15% of the
Government Securities Portfolio's average daily net assets. For the year ended
August 31, 1997, no expenses were required to be reimbursed by CUFSLP or
Goldman Sachs under this agreement.
29
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1997
3.AGREEMENTS--(CONTINUED)
Callahan Financial Services, Inc. and Goldman Sachs serve as exclusive
distributors of units of the Fund. For the year ended August 31, 1997, neither
received any compensation for this service. Goldman Sachs also serves as
transfer agent of the Fund for a fee.
4.INVESTMENT TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
Government Securities Portfolio and Mortgage Securities Portfolio for the year
ended August 31, 1997 were as follows ($ in thousands):
<TABLE>
<CAPTION>
GOVERNMENT MORTGAGE
SECURITIES SECURITIES
PORTFOLIO PORTFOLIO
---------- ----------
<S> <C> <C>
Purchases of U.S. Government and agency obligations...... $452,003 $217,179
Purchases (excluding U.S. Government and agency obliga-
tions).................................................. -- 129,627
Sales or maturities of U.S. Government and agency obliga-
tions................................................... 427,890 262,261
Sales or maturities (excluding U.S. Government and agency
obligations)............................................ -- 83,601
</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.
30
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1997
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, 1997, the Money Market Portfolio had a 3.34% undivided
interest in the repurchase agreements in the following joint account which
equaled $5,273,300,000 in principal amount. As of August 31, 1997, the
repurchase agreements in this joint account, along with the corresponding
underlying securities (including the type of security, market value, interest
rate and maturity date), were as follows ($ in thousands):
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
Bear Stearns Companies, Inc., dated
08/29/97, repurchase price $500,309
(U.S. Treasury Stripped Securities:
$509,404, 11/15/97-02/15/97........... $ 500,000 5.57% 09/02/97 $ 500,000
Deutsche Bank, dated 08/29/97,
repurchase price $790,490 (U.S.
Treasury Notes: $777,890, 5.00-7.25%,
01/31/98-04/15/04) (U.S. Treasury
Bill: $27,911, 02/18/98).............. 790,000 5.58 09/02/97 790,000
Donaldson Lufkin & Jenrette, Inc.,
dated 08/29/97, repurchase price
$500,309
(U.S. Treasury Stripped Securities:
$507,826, 06/25/98-11/15/06) (U.S.
Treasury Note: $2,174, 4.75%,
8/31/98).............................. 500,000 5.56 09/02/97 500,000
Goldman, Sachs & Co., dated 08/29/97,
repurchase price $1,040,641 (U.S.
Treasury Bond: $44,048, 9.375%,
02/15/06) (U.S. Treasury Notes:
$828,972, 4.75-7.50%, 10/31/97-
08/15/07) (U.S. Treasury Bills:
$188,434, 09/11/97-01/29/98).......... 1,040,000 5.55 09/02/97 1,040,000
Morgan Stanley & Co., dated 08/29/97,
repurchase price $783,786 (U.S.
Treasury Infl. In. Notes: $541,249,
3.375-3.625%, 07/15/02-01/15/02) (U.S.
Treasury Note: $661, 7.75%, 12/31/99)
(U.S. Treasury Bill: $257,105,
04/30/98)............................. 783,300 5.58 09/02/97 783,300
J.P. Morgan Securities, dated 08/29/97,
repurchase price $150,090 (U.S.
Treasury Note: $153,419, 6.50%,
04/30/99)............................. 150,000 5.40 09/02/97 150,000
UBS Securities Corp., dated 08/29/97,
repurchase price $350,212 (U.S.
Treasury Notes: $359,144, 5.875-
13.75%, 07/31/98-08/15/04)............ 350,000 5.45 09/02/97 350,000
UBS Securities Corp., dated 08/29/97,
repurchase price $275,165 (U.S.
Treasury Notes: $282,189, 5.00-8.75%,
01/31/99-08/15/00).................... 275,000 5.40 09/02/97 275,000
Swiss Bank Corp., dated 08/29/97,
repurchase price $885,548 (U.S.
Treasury Bonds: $147,765, 10.75-
13.75%, 02/15/01-05/15/05) (U.S.
Treasury Notes: $756,654,
4.75-8.125%, 08/31/97-11/15/05)....... 885,000 5.57 09/02/97 885,000
----------
Total Joint Repurchase Agreement Account........................... $5,273,300
==========
</TABLE>
31
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1997
6.JOINT REPURCHASE AGREEMENT ACCOUNTS--(CONTINUED)
As of August 31, 1997, the Government Securities Portfolio and the Mortgage
Securities Portfolio had a 1.29% and 2.04% undivided interest, respectively, in
the repurchase agreements in the following joint account, which equaled
$1,441,300,000 in principal amount. As of August 31, 1997, the repurchase
agreements in this joint account, along with the corresponding underlying
securities (including the type of security, market value, interest rate and
maturity date), were as follows ($ in thousands):
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Bear Stearns Companies, Inc., dated
08/29/97, repurchase price $650,405
(FHLMC: $385,794, 6.50-9.50%, 01/01/17-
08/01/27) (FNMA: $183,648,
7.00-7.50%, 04/01/09-09/01/27) (GNMA:
$97,747, 7.00%, 08/15/27).............. $650,000 5.61% 09/02/97 $ 650,000
Dresdner Kleinwort Benson, NA., dated
08/29/97, repurchase price $400,249
(FFCB: $29,927, 5.53-5.69%, 10/01//97-
02/02/98) (FHDN: $4,415, 09/17/97-
10/22/97) (FHLB: $39,790, 5.63-6.29%,
11/06/97-03/24/99) (FHLMC: $254, 6.70%,
01/05/07) (FNMA: $31,318, 5.50%, 2/98)
(FNMA: $305, 6.25%, 11/10/99) (FHLMC:
$148,995, 09/16/97-11/12/97) (GNMA:
$131,230, 6.50-7.50%) (U.S. Treasury
Note: $8,407, 5.50%, 09/30/97) (U.S.
Treasury Bills: $13,365, 02/26/98)..... 400,000 5.60 09/02/97 400,000
Nomura Securities Inc., dated 08/29/97,
repurchase price $125,078 (FHLMC:
$14,210, 6.00-8.50%, 04/01/09-08/01/27)
(FHLB: $62,629, 6.58-7.00%, 09/02/97-
05/28/02) (FHLMC: $2,287, 7.44%,
09/20/06) (FNMA: $26,590, 6.00-8.89%,
11/01/03-09/01/27) (FNMA: $21,784,
6.82-7.56%, 08/23/05-04/30/07)......... 125,000 5.60 09/02/97 125,000
Morgan Stanley & Co., dated 08/29/97,
repurchase price $16,310 (U.S. Treasury
Bill: $16,630, 08/20/98)............... 16,300 5.58 09/02/97 16,300
J.P. Morgan Securities, Inc., dated
08/29/97, repurchase price $250,156
(FFCB: $54,619, 5.53-5.60%, 11/03/97-
02/02/98) (FHLB: $95,920, 5.71-6.315%,
01/21/98-12/18/98) (FNMA: $41,996,
5.85%, 10/01/97) (U.S. Treasury Note:
$62,829, 9.55%, 11/10/97).............. 250,000 5.60 09/02/97 250,000
----------
Total Joint Repurchase Agreement Account........................... $1,441,300
==========
</TABLE>
7.CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Mortgage Securities
Portfolio has reclassified $8,637, which represents a decrease to paid-in
capital and an increase 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.
8.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 certain of its affiliates, subject to certain limitations as follows:
25% of eligible security transactions, as defined, and 10% of repurchase
agreement transactions on an annual basis.
32
<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>
Goldman
Sachs
TCUANN97
- -----------------------------
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
Charles W. Filson
Vice President
John W. Mosior
Vice President
James A. Fitzpatrick
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>
APPENDIX A
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
The performance of various types of securities (taxable money market
funds, U.S. Treasury securities, adjustable rate mortgage securities,
government securities) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
Volatility of total return of various market indices (i.e. Lehman
Government Bond Index, S&P 500, IBC/Donoghue's Money Fund Average/All
Taxable Index) over varying periods of time.
Credit Ratings of domestic government bonds in various countries.
Price volatility comparisons of types of securities over different
periods of time.
Price and yield comparisons of a particular security over different
periods of time.
In addition, the Trust may from time to time include rankings of Goldman, Sachs
& Co.'s research department by publications such as the Institutional Investor
and the Wall Street Journal in advertisements.
B-51
<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 nine Years Ended August 31, 1989, 1990,
1991, 1992, 1993, 1994, 1995, 1996 and 1997 and For the Period May 17, 1988
(Commencement of Operations) to August 31, 1988; (2) for the Government
Securities Portfolio For the six Years Ended August 31, 1992, 1993, 1994,
1995, 1996 and 1997 and For the Period July 10, 1991 (Commencement of
Operations) to August 31, 1991; (3) for the Mortgage Securities Portfolio
For the four Years Ended August 31, 1994, 1995, 1996 and 1997 and For the
Period October 9, 1992 (Commencement of Operations) to August 31, 1993;
Included or incorporated by reference into the Additional Statement for the
Money Market Portfolio, Government Securities Portfolio and Mortgage Securities
Portfolio.
Report of Independent Public Accountants on the Registrant's Annual Report
to Unitholders for Year Ended August 31, 1997
Statement of Investments for the Money Market Portfolio, August 31, 1997.
Statement of Investments for the Government Securities Portfolio, August
31, 1997.
Statement of Investments for the Mortgage Securities
Portfolio, August 31, 1997.
Statements of Assets and Liabilities for the Money Market Portfolio, the
Government Securities Portfolio and the Mortgage Securities Portfolio,
August 31, 1997.
Statements of Operations for the Money Market Portfolio, the Government
Securities Portfolio and the Mortgage Securities Portfolio, For the Year
Ended August 31, 1997.
C-1
<PAGE>
Statement of Changes in Net Assets for the Money Market
Portfolio For the Years Ended August 31, 1997 and 1996.
Statement of Changes in Net Assets for the Government Securities Portfolio
For the Years Ended August 31, 1997 and 1996.
Statement of Changes in Net Assets for the Mortgage Securities Portfolio,
For the Years ended August 31, 1997 and August 31, 1996.
Financial Highlights for the Money Market Portfolio For the Years Ended
August 31, 1997, 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, 1997, 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, 1997, 1996, 1995 and 1994 and For the Period October 9,
1992 (Commencement of Operations) to August 31, 1993.
Notes to Financial Statements.
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. 19, 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)
C-2
<PAGE>
1(b) Amendment No. 2 to the Amended and Restated Agreement and
Declaration of Trust dated September 21, 1992.
(Accession No. 0000950130-95-002603)
1(c) Amendment No. 3 to the 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 the 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).
1(e) Amendment No. 5 to the Amended and Restated Agreement and
Declaration of Trust to abolish or liquidate a Series of Units (Target
Maturity Portfolio 1996).
1(f) Amendment No. 6 to the Amended and Restated Agreement and
Declaration of Trust to abolish or liquidate a Series of Units (Target
Maturity Portfolio (Feb 97)).
1(g) Amendment No. 7 to the Amended and Restated Agreement and
Declaration of Trust to abolish or liquidate a Series of Units (Target
Maturity Portfolio (May 97)).
2 By-laws of the Registrant. (Accession No. 0000950130-95-002603).
2(a) Amendment No. 1 to the By-laws of the Registrant
(Accession No. 0000950130-96-004149).
2(b) Amendment No. 2 dated January 13, 1997 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 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. dated June 30, 1993. (Accession No.
0000950130-95-002603).
C-3
<PAGE>
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
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 between Registrant and
Goldman, Sachs & Co. 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 dated June 30, 1993.
(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)
C-4
<PAGE>
9(c) Addendum No. 3 to the Revised and Restated Administration Agreement
between Registrant and Callahan Credit Union Financial Services Limited
Partnership dated July 1, 1995.
(Accession No. 0000950130-95-002603)
10 Opinion of Hale and Dorr dated December 18, 1997.
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, Sebastian, Gilman, Filson,
Fitzpatrick, Linke, Mosior, Mucker, Perlowski, Richman, Surloff,
Hartstein, Farrell, Uniacke, Anderson
27 Financial Data Schedules
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See Items 28 and 29(a) below.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- --------------
<S> <C>
Money Market Portfolio Units 91
Government Securities Portfolio Units 43
Mortgage Securities Portfolio Units 130
</TABLE>
(INFORMATION SUPPLIED AS OF NOVEMBER 30, 1997)
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.
C-5
<PAGE>
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 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.
----------------------------------------------------
The business and other connections of the officers and Managing
C-6
<PAGE>
Directors of Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and
Goldman Sachs Asset Management International are listed on their respective
Forms ADV as currently filed with the Commission (File Nos. 801-16048, 801-37591
and 801-38157, respectively) the texts of which are hereby incorporated by
reference.
C-7
<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.
POSITIONS AND
OFFICES WITH POSITIONS AND
NAME AND PRINCIPAL CALLAHAN FINANCIAL OFFICES WITH
BUSINESS ADDRESS SERVICES, INC. REGISTRANT
- ---------------- -------------- ----------
Charles W. Filson Director and Vice Vice President
Callahan Financial President
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
(c) Not applicable
C-8
<PAGE>
GOLDMAN, SACHS & CO.
(a) Goldman, Sachs & Co., or an affiliate thereof, also serves as investment
adviser and distributor of the units of Trust for Credit Unions and for shares
of Goldman Sachs Trust. Goldman, Sachs & Co. or an affiliate or division
thereof, currently serves as administrator and distributor to the units or
shares of The Benchmark Funds and the Commerce Funds.
(b) Set forth below is certain information pertaining to the Managing Directors
of Goldman, Sachs & Co., Registrant's principal underwriter, who are members of
Goldman, Sachs & Co=s Executive Committee. None of the members of the executive
committee holds a position or office with the registrant.
GOLDMAN SACHS EXECUTIVE COMMITTEE
Name and Principal
Business Address Position
- ---------------- --------
Jon Corzine (1) Chief Executive Officer
Robert J. Hurst (1) Managing Director
Henry M. Paulson Jr. (1) Chief Operating Officer
John A. Thain (1)(3) Chief Financial Officer
John L. Thornton (3) Managing Director
Roy J. Zuckerberg (2) Managing Director
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Agreement and Declaration of Trust, By-laws and minute books of the
Registrant and certain investment adviser records 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.
ITEM 31. MANAGEMENT SERVICES.
-------------------
Not Applicable.
C-9
<PAGE>
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-10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Post-Effective Amendment No.
19 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 23rd day of
December 1997 .
TRUST FOR CREDIT UNIONS
By:/s/ Michael J. Richman
----------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1993, this Post-Effective
Amendment No. 19 to the Registration Statement has been signed below by the
following persons in the capacities indicated on December 23, 1997.
NAME TITLE
---- -----
/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 P. McNulty
*By /s/ Michael J. Richman
_______________________
Michael J. Richman
Attorney-In-Fact
C-11
<PAGE>
INDEX TO EXHIBITS
1(f) Amendment No. 6 dated February 28, 1997 to the Amended and Restated
Agreement and Declaration of Trust.
1(g) Amendment No. 7 dated May 15, 1997 to the Amended and Restated Agreement
and Declaration of Trust.
2(b) Amendment No. 2 dated January 13, 1997 to the By-laws.
10 Opinion of Hale and Dorr dated December 18, 1997.
11 Consent of Independent Accountants.
17 Powers of Attorney from Messrs. Artemenko, Barr, Callahan, Coen,
Collins, Condit, Hanley, Hobbs, McNulty, Sebastian, Gilman,
Filson, Fitzpatrick, Linke, Mosior, Mucker, Perlowski, Richman,
Surloff, Hartstein, Farrell, Uniacke, Anderson
27 Financial Data Schedules
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TRUST
FOR CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 442,106,662
<INVESTMENTS-AT-VALUE> 442,106,662
<RECEIVABLES> 1,298,149
<ASSETS-OTHER> 75,258
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 443,480,069
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,275,393
<TOTAL-LIABILITIES> 2,275,393
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 441,204,676
<SHARES-COMMON-STOCK> 44,204,676
<SHARES-COMMON-PRIOR> 426,709,826
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 441,204,676
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,683,433
<OTHER-INCOME> 0
<EXPENSES-NET> (793,498)
<NET-INVESTMENT-INCOME> 22,889,935
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 22,889,935
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (22,889,935)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,961,231,607
<NUMBER-OF-SHARES-REDEEMED> (4,958,397,761)
<SHARES-REINVESTED> 11,661,004
<NET-CHANGE-IN-ASSETS> 14,494,850
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 796,813
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,424,270
<AVERAGE-NET-ASSETS> 430,961,731
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.053)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TRUST
FOR CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 576,196,037
<INVESTMENTS-AT-VALUE> 577,931,871
<RECEIVABLES> 17,075,975
<ASSETS-OTHER> 142,830
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 595,150,676
<PAYABLE-FOR-SECURITIES> 27,923,611
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,585,304
<TOTAL-LIABILITIES> 30,508,915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 581,950,036
<SHARES-COMMON-STOCK> 57,397,464
<SHARES-COMMON-PRIOR> 54,874,828
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (580,622)
<ACCUMULATED-NET-GAINS> (18,463,487)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,735,834
<NET-ASSETS> 564,641,761
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 34,420,952
<OTHER-INCOME> 0
<EXPENSES-NET> (1,849,721)
<NET-INVESTMENT-INCOME> 32,571,231
<REALIZED-GAINS-CURRENT> (1,471,081)
<APPREC-INCREASE-CURRENT> 5,778,256
<NET-CHANGE-FROM-OPS> 36,878,406
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,571,231)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (184,815)
<NUMBER-OF-SHARES-SOLD> 10,921,160
<NUMBER-OF-SHARES-REDEEMED> (9,016,857)
<SHARES-REINVESTED> 618,333
<NET-CHANGE-IN-ASSETS> 28,939,326
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (16,992,406)
<OVERDISTRIB-NII-PRIOR> (395,807)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,082,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,849,721
<AVERAGE-NET-ASSETS> 541,087,847
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> 0.591
<PER-SHARE-GAIN-APPREC> 0.083
<PER-SHARE-DIVIDEND> (0.594)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TRUST
FOR CREDIT UNIONS' ANNUAL REPORT DATED AUGUST 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> MORTGAGE SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 358,218,395
<INVESTMENTS-AT-VALUE> 359,541,137
<RECEIVABLES> 18,824,439
<ASSETS-OTHER> 75,570
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 378,441,146
<PAYABLE-FOR-SECURITIES> 26,562,229
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,563,698
<TOTAL-LIABILITIES> 28,125,927
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 360,550,064
<SHARES-COMMON-STOCK> 35,925,213
<SHARES-COMMON-PRIOR> 34,443,586
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,300,680)
<ACCUMULATED-NET-GAINS> (10,256,907)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,322,742
<NET-ASSETS> 350,315,219
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,996,886
<OTHER-INCOME> 0
<EXPENSES-NET> (1,007,978)
<NET-INVESTMENT-INCOME> 21,988,908
<REALIZED-GAINS-CURRENT> 901,649
<APPREC-INCREASE-CURRENT> 2,440,462
<NET-CHANGE-FROM-OPS> 25,331,019
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,988,908)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (35,416)
<NUMBER-OF-SHARES-SOLD> 4,039,134
<NUMBER-OF-SHARES-REDEEMED> (3,026,928)
<SHARES-REINVESTED> 469,421
<NET-CHANGE-IN-ASSETS> 17,768,789
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,158,556)
<OVERDISTRIB-NII-PRIOR> (1,273,901)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 668,959
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,007,978
<AVERAGE-NET-ASSETS> 334,473,549
<PER-SHARE-NAV-BEGIN> 9.65
<PER-SHARE-NII> 0.640
<PER-SHARE-GAIN-APPREC> 0.101
<PER-SHARE-DIVIDEND> (0.641)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.75
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.2(b)
TRUST FOR CREDIT UNIONS
AMENDMENT NO. 2 TO BYLAWS
-------------------------
January 13, 1997
RESOLVED, that Section 3.2 of the By-laws of Trust for Credit Unions (the
"Trust") shall be amended and restated in its entirety as follows:
ARTICLE 3
Chair, Vice-Chair and Officers
------------------------------
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 six 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 filled 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 99.6
TRUST FOR CREDIT UNIONS
AMENDMENT NO. 6 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 (Feb 97)", as of February 28, 1997.
WITNESS our hands this 28th day of February , 1997.
-------- ---------------------------
Gene R. Artemenko Thomas S. Condit
- ------------------------------- -----------------------------
Gene R. Artemenko Thomas S. Condit
James C. Barr Rudolf J. Hanley
- ---------------------------------- -------------------------------
James C. Barr Rudolf J. Hanley
Edgar F. Callahan Betty G. Hobbs
- --------------------------------- -------------------------------
Edgar F. Callahan Betty G. Hobbs
Robert M. Coen John P. McNulty
- --------------------------------- ------------------------------
Robert M. Coen John P. McNulty
John T.Collins John L. Ostby
- ---------------------------------- -------------------------------
John T. Collins John L. Ostby
Wendell E. Sebastian
- -------------------------------
Wendell E. 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 February , 1997.
---- ------------
So-Ok Kim
------------------------------------
Notary Public
My Commission Expires: January 18, 1998
------------------
<PAGE>
EXHIBIT 99.7
TRUST FOR CREDIT UNIONS
AMENDMENT NO. 7 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 (May 97)", as of May 15, 1997.
WITNESS our hands this 15th day of May, 1997.
---- ---
Gene R. Artemenko Thomas S. Condit
- ---------------------------------- ------------------------------
Gene R. Artemenko Thomas S. Condit
James C. Barr Rudolf J. Hanley
- ---------------------------------- ------------------------------
James C. Barr Rudolf J. Hanley
Edgar F. Callahan Betty G. Hobbs
- ---------------------------------- ------------------------------
Edgar F. Callahan Betty G. Hobbs
Robert M. Coen John P. McNulty
- ---------------------------------- ------------------------------
Robert M. Coen John P. McNulty
John T. Collins John L. Ostby
- ---------------------------------- ------------------------------
John T. Collins John L. Ostby
Wendell A. Sebastian
- ----------------------------------
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 15th day of May, 1997.
---- ---
Deborah A. Farrell
--------------------------------------------------
Notary Public
My Commission Expires: 6/20/98
-------
<PAGE>
EXHIBIT 99.9
HALE AND DORR LLP
COUNSELLORS AT LAW
60 State Street, Boston, Massachusetts 02109
617-526-6000 . fax 617-526-5000
December 18, 1997
Trust for Credit Unions
4900 Sears Tower
Chicago, Illinois 60606
Ladies and Gentlemen:
Trust for Credit Unions (the "Trust") is a Massachusetts business trust
created under a written Declaration of Trust dated September 24, 1987, and
executed and delivered in Boston, Massachusetts on that date, as amended and
restated on December 1, 1987, and as further amended from time to time (as so
amended and restated the "Declaration of Trust"). The beneficial interests
thereunder are represented by transferable units with $.001 par value.
The Trustees have the powers set forth in the Declaration of Trust, subject
to the terms, provisions and conditions therein provided. Under Article IV,
Section 4.1 of the Declaration of Trust, it is provided that the number of units
of beneficial interest authorized to be issued is unlimited and that the
Trustees are authorized to divide the units into one or more series. Article
IV, Section 4.1 also provides that the Trustees may issue units of any series
for such consideration and on such terms as they may determine (or for no
consideration if pursuant to a unit dividend or split-up) without action or
approval of unitholders.
Pursuant to Article IV, Section 4.2 of the Declaration of Trust, the
Trustees established five separate series of units designated the "Money Market
Portfolio", "Government Securities Portfolio", Mortgage Securities Portfolio",
"Target Maturity Portfolio (Aug 97)" and "Target Maturity Portfolio (Nov 97)".
The "TCU Target Maturity Portfolio (1996)", the "Target Maturity Portfolio (Feb
97)" and the "Target Maturity Portfolio (May 97) were terminated by the Trustees
as of June 28, 1996, February 28, 1997 and May 15, 1997, respectively.
<PAGE>
Trust for Credit Unions
December 18, 1997
Page 2
The Trustees have voted to authorize the officers of the Trust to issue and
sell to the public an unlimited number of units of beneficial interest of the
Trust.
We have examined the Declaration of Trust, the By-Laws, as amended from
time to time, of the Trust, resolutions of the Board of Trustees relating to the
authorization and issuance of units of beneficial interest of the Trust and such
other documents as we have deemed necessary or appropriate for the purposes of
this opinion. In our examination of the above documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to original documents of all documents submitted
to us as certified or photostatic copies.
For purposes of this opinion letter, we have not made an independent
review of the laws of any state or jurisdiction other than The Commonwealth of
Massachusetts and express no opinion with respect to the laws of any
jurisdiction other than the laws of The Commonwealth of Massachusetts. Further,
we express no opinion as to compliance with any state or federal securities
laws, including the securities laws of The Commonwealth of Massachusetts.
Our opinion below, as it relates to the non-assessability of the units of
the Trust, is qualified to the extent that under Massachusetts law, unitholders
of a Massachusetts business trust may be held personally liable for the
obligations of the trust. In this regard, however, please be advised that the
Declaration of Trust disclaims unitholder liability for act or obligations of
the Trust and requires that notice of such disclaimer be given in each note,
bond, contract, certificate or undertaking made or issued by the Trustees or
officers of the Trust. Also, the Declaration of Trust provides for
indemnification out of Trust property for all loss and expense of any unitholder
held personally liable for the obligations of the Trust.
We are of the opinion that all necessary Trust action precedent to the
issuance of the units of beneficial interest of the Trust has been duly taken,
and that all such units may legally and validly be issued for among other
things, cash, and when sold will be fully paid and non-assessable by the Trust
upon receipt by the Trust or its agent of consideration thereof in accordance
with terms described in the Trust's Declaration of Trust, subject to compliance
with the Securities Act of 1933, as amended, the Investment Company Act of 1940,
as amended, and the applicable state laws regulating the sale of securities.
<PAGE>
Trust for Credit Unions
December 18, 1997
Page 3
We consent to your filing this opinion with the Securities and Exchange
Commission as an exhibit to any of the Trust's filings with the Commission.
Except as provided in this paragraph, this opinion may not be relied upon by, or
filed with, any other parties or used for any other purpose.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
<PAGE>
EXHIBIT 99.11
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
for Trust for Credit Unions dated October 3, 1997 (and to all references to our
firm) included or incorporated by reference in Post-Effective Amendment No. 19
and Amendment No. 21 to Registration Statement File Nos. 33-18781 and 811-5407,
respectively.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 17, 1997
<PAGE>
EXHIBIT 99.17
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Gene R. Artemenko, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
Gene R. Artemenko
---------------------------
Gene R. Artemenko
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, James C. Barr, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
James C. Barr
-------------------------------
James C. Barr
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Edgar F. Callahan, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
Edgar F. Callahan
----------------------------
Edgar F. Callahan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Robert M. Coen, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
Robert M. Coen
------------------------
Robert M. Coen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John T. Collins, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
John T. Collins
--------------------------
John T. Collins
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Thomas S. Condit, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
Thomas S. Condit
---------------------------
Thomas S. Condit
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Rudolf J. Hanley, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
Rudolf J. Hanley
----------------------------
Rudolf J. Hanley
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John L. Ostby, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
John L. Ostby
------------------------
John L. Ostby
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Wendell A. Sebastian,
hereby constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles
Filson, James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior,
Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard B. Surloff 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, 1997
Wendell A. Sebastian
--------------------------------
Wendell A. Sebastian
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Elizabeth Anderson, hereby
constitutes and appoints Deborah Farrell, Charles Filson, James Fitzpatrick,
Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
Elizabeth Anderson
------------------------------
Elizabeth Anderson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Deborah A. Farrell, hereby
constitutes and appoints Elizabeth Anderson, Charles Filson, James Fitzpatrick,
Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
Deborah A. Farrell
---------------------------
Deborah A. Farrell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Charles Filson, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, James Fitzpatrick,
Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
Charles Filson
------------------------
Charles Filson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Scott M. Gilman, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Steven E. Hartstein, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
Scott M. Gilman
-------------------------
Scott M. Gilman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Steven E. Hartstein, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, John W. Mosior, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
Steven E. Hartstein
---------------------------
Steven E. Hartstein
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John W. Mosior, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, Nancy L. Mucker, John
Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
John W. Mosior
---------------------
John W. Mosior
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Nancy L. Mucker, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, John
Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
Nancy L. Mucker
-----------------------
Nancy L. Mucker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Michael J. Richman, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Wendell A. Sebastian, Howard B. Surloff 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, 1997
Michael J. Richman
---------------------------
Michael J. Richman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Howard B. Surloff, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian 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, 1997
Howard B. Surloff
---------------------------
Howard B. Surloff
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, James Fitzpatrick, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, 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 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, 1997
James Fitzpatrick
---------------------------
James Fitzpatrick
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Kaysie Uniacke, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian and Howard
B. Surloff, 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, 1997
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 Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
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 Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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, 1997
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 Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, Michael J. Richman, Wendell A. Sebastian, Howard B. Surloff 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, 1997
John Perlowski
-----------------------
John Perlowski
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Gordon Linke, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Scott M. Gilman, Steven E. Hartstein, John W. Mosior, Nancy
L. Mucker, John Perlowski, Michael J. Richman, Wendell A. Sebastian, Howard B.
Surloff 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: December 8, 1997
Gordon Linke
----------------------
Gordon Linke
