<PAGE>
[LOGO] TRUST
--------
for Credit Unions
Prospectus
December 30, 1996
MONEY MARKET PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
and
MORTGAGE SECURITIES PORTFOLIO
<PAGE>
TRUST FOR CREDIT UNIONS
----------------
Trust for Credit Unions (the "Fund") is an open-end, diversified, management
investment company (commonly known as a "mutual fund") offered only to state
and federally chartered credit unions 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, 1996, which sets forth con-
cisely the information about the Fund that a prospective investor ought to
know before investing, should be retained for future reference.
A Statement of Additional Information (the "Additional Statement") dated the
same date, containing further information about the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated herein by reference in its entirety,
and may be obtained without charge from Goldman, Sachs & Co. or Callahan
Credit Union Financial Services Limited Partnership by calling the applicable
telephone number listed below.
GOLDMAN, SACHS & CO. Toll Free.......................800-342-5828
Adviser and Co-Distributor (800-DIAL-TCU)
One New York Plaza
New York, New York 10005
CALLAHAN CREDIT UNION FINANCIAL Toll Free.......................800-237-5678
SERVICES LIMITED PARTNERSHIP
Administrator
c/o Callahan Financial Services, Inc.
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
CALLAHAN FINANCIAL SERVICES, INC. Toll Free.......................800-237-5678
Co-Distributor
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................. 1
FEES AND EXPENSES.......................................................... 5
FINANCIAL HIGHLIGHTS....................................................... 7
INVESTMENT OBJECTIVES AND PORTFOLIOS....................................... 10
DESCRIPTION OF INVESTMENTS................................................. 12
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS...................... 20
REPORTS TO UNITHOLDERS..................................................... 24
PURCHASE OF UNITS.......................................................... 24
REDEMPTION OF UNITS........................................................ 25
EXCHANGE PRIVILEGE......................................................... 27
INCOME..................................................................... 27
NET ASSET VALUE............................................................ 28
TAXES...................................................................... 29
MANAGEMENT................................................................. 30
PERFORMANCE AND YIELD INFORMATION.......................................... 33
ADDITIONAL INFORMATION..................................................... 34
</TABLE>
i
<PAGE>
HIGHLIGHTS
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") offered solely to state and federally
chartered credit unions 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 24 and 25
Purchases of units of any Portfolio may be made only by Federal Reserve
wire. There is no minimum for initial or subsequent investments nor are
minimum balances required.
Orders for Money Market Portfolio units received before 2:30 p.m., New York
time on a Business Day (as such term is defined under "Additional
Information") earn same day income if federal funds are received that day.
Orders for Government Securities Portfolio and Mortgage Securities Portfolio
units received before 4:00 p.m., New York time, on a Business Day earn income
commencing the next Business Day provided that federal funds have been
received by the next Business Day.
REDEMPTION OF UNITS Pages 25 through 27
Redemptions of units of the Portfolios may be made at the net asset value
next determined after the request therefor has been received by the Fund.
Redemption requests with respect to Money Market Portfolio units so received
before 2:30 p.m., New York time on a Business Day normally provide same day
federal funds at the unitholder's designated account. Redemption requests with
respect to Government Securities Portfolio and Mortgage Securities Portfolio
units so received before 4:00 p.m., New York time, normally provide federal
funds on the next Business Day at the unitholder's designated account.
INCOME AND CAPITAL GAINS DISTRIBUTION POLICY Pages 27 and 28
Dividends from net investment income are declared daily and paid monthly by
each Portfolio of the Fund. The Fund intends that net realized capital gains,
if any, after offset by any available capital
2
<PAGE>
loss carryforwards from prior years of each Portfolio will be declared at
least annually as a dividend. In the case of the Money Market Portfolio, net
short-term capital gains, if any, may be reflected in daily dividend
declarations. In the case of the Government Securities Portfolio and the
Mortgage Securities Portfolio, over the course of the fiscal year, dividends
accrued and paid will constitute all or substantially all of the Portfolio's
net investment income. In addition, from time to time in order to enhance
stability of principal and to stabilize the monthly rate of distributions to
unitholders, a portion of such dividends may constitute a return of capital.
Unitholders of each Portfolio will receive dividends in additional units of
that Portfolio or may elect to receive cash.
NET ASSET VALUE Pages 28 and 29
The net asset value per unit of each Portfolio is determined by dividing the
excess of the value of all securities and other assets over liabilities by the
number of units outstanding. The Money Market Portfolio is valued on the basis
of amortized cost, and will normally maintain a net asset value per unit of
$1.00; however, there can be no assurance that the Money Market Portfolio will
be able at all times to maintain a net asset value per unit of $1.00. The net
asset value per unit of the Government Securities Portfolio and the Mortgage
Securities Portfolio will fluctuate as the value of each Portfolio's assets
changes in response to changing market rates of interest, principal
prepayments and other factors.
INVESTMENT ADVISER Pages 30 and 31
Goldman, Sachs & Co., one of the largest international investment banking
and brokerage firms in the United States, serves as the Fund's investment
adviser and also provides certain administrative services. Goldman, Sachs &
Co. provides its advisory services through Goldman Sachs Asset Management
("GSAM"), a separate operating division.
ADMINISTRATOR Page 32
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), a
Delaware limited partnership in which 38 major credit unions are limited
partners, acts as the administrator of the Fund. In this capacity, CUFSLP
periodically reviews the performance of the investment adviser, the transfer
agent, the distributors and the custodian of the Fund and provides other
administrative services to the Fund.
DISTRIBUTORS Pages 32 and 33
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. The
yields on a class of stripped mortgage-backed securities that receives all or
most of the interest (i.e., IO's) are generally higher than the prevailing
market yields on other mortgage-related securities because they are extremely
sensitive to the rate of principal payments, including prepayments.
Prepayments can result in a Portfolio's failure to recoup its initial
investment even though the stripped mortgage-backed securities are issued or
guaranteed by the U.S. Government. Each Portfolio may engage in various
investment practices that involve special risks, such as repurchase agreements
and (with respect to the Government Securities Portfolio and the Mortgage
Securities Portfolio) mortgage dollar rolls. As indicated, one or more of the
Fund's Portfolio's may, to the extent consistent with the Rules and
Regulations of the National Credit Union Administration, invest in stripped
mortgage-backed securities, zero coupon bonds, collateralized
4
<PAGE>
mortgage obligations and other multi-class mortgage-related securities which
present certain risks. See "Description of Investments" and "Other Investment
Practices, Policies and Restrictions" for further information.
The involvement of Goldman, Sachs & Co., and its affiliates, partners and
officers, in the investment activities and business operations of the Fund may
present certain potential conflicts-of-interest, as described under
"Management--Investment Adviser and Transfer Agent."
FEES AND EXPENSES
The following table illustrates all expenses and fees that unitholders of
the Fund incur.
UNITHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases...................................... None
Sales Load Imposed on Reinvested Dividends........................... None
Redemption Fees...................................................... None
Exchange Fees........................................................ None
</TABLE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets after fee waivers and expense
limitations)
<TABLE>
<CAPTION>
GOVERNMENT MORTGAGE
MONEY MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ----------
<S> <C> <C> <C>
Investment Advisory Fee (after fee waiv-
ers)...................................... .11% .20% .20%
Administration Fee (after fee waivers)..... .05 .10 .05
Other Expenses (after expense limitations). .04 .04 .05
--- --- ---
Total Portfolio Operating Expenses (af-
ter fee waivers and expense limita-
tions)................................ .20% .34% .30%
=== === ===
</TABLE>
The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Fund will bear directly or
indirectly. The information is based on estimated expenses that the Portfolios
expect to incur during the current fiscal year. During the last fiscal year,
the Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio incurred the following expenses (expressed as a
percentage of average net assets after fee waivers and expense limitations):
investment advisory fees of .11%, .20% and .18%; administration fees of .05%,
.10% and .05%; and other expenses of .03%, .05% and .05%, for total operating
expenses of .19%, .35% and .28%, respectively. Had there been no fee waivers
and expense limitations, the fees and expenses for the Money Market Portfolio
and Mortgage Securities Portfolio for the last fiscal year would have been
(expressed as a percentage of average net assets): investment advisory fees of
.18% and .20%; administration fees of .10% and .05%; and other expenses of
.03% and .05%, for total operating expenses of .31% and .30%, respectively.
Management fees for the Money Market Portfolio currently consist of an
investment advisory fee to Goldman, Sachs & Co. payable monthly at annual
rates equal to .20% of the first $300 million and
5
<PAGE>
.15% over $300 million of the average daily net assets of such Portfolio and
an administration fee to CUFSLP payable monthly at an annual rate equal to
.10% of the average daily net assets of such Portfolio. Goldman, Sachs & Co.
has voluntarily agreed to limit its advisory fee to .12% of the first $250
million, .10% of the next $250 million, .09% of the next $250 million and .08%
over $750 million of the average daily net assets of such Portfolio and CUFSLP
has voluntarily agreed to limit its administration fee to .05% of the first
$500 million, .04% of the next $250 million and .03% over $750 million of the
average daily net assets of such Portfolio. Goldman, Sachs & Co. and CUFSLP
have no current intention to, but may in the future, discontinue or modify any
of such limitations at their discretion. In addition, CUFSLP will limit all
expenses (excluding interest, taxes, brokerage and extraordinary expenses) of
the Money Market Portfolio to the extent the total annualized operating
expenses exceed 0.20% of its average daily net assets.
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. For the period August 1,
1995 through January 31, 1996, Goldman, Sachs & Co. voluntarily agreed to
limit its advisory fee to .15% of the Portfolio's average daily net assets.
The following example illustrates the expenses that an investor would pay on
a $1,000 investment over various time periods based on the information
presented above and assuming (a) a 5% annual rate of return and (b) redemption
at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio.................... $2 $ 6 $11 $26
Government Securities Portfolio........... $3 $11 $19 $43
Mortgage Securities Portfolio............. $3 $10 $17 $38
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than those
shown in the Table.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information with respect to a unit of the Money Market
Portfolio, Government Securities Portfolio and the Mortgage Securities
Portfolio outstanding during the periods indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report,
incorporated by reference into the Additional Statement, from the Fund's
annual report to unitholders for the fiscal year ended August 31, 1996 (the
"Annual Report"), and should be read in conjunction with the financial
statements and related notes appearing in the Annual Report. This Annual
Report also contains other performance information and is available upon
request and without charge by writing to either of the addresses on the inside
cover of this Prospectus.
TRUST FOR CREDIT UNIONS
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS UNITHOLDERS
------------------------- ---------------------------------
RATIO OF
NET NET RATIO OF NET
ASSET NET IN EXCESS FROM NET ASSET NET INVESTMENT
VALUE AT NET REALIZED FROM NET OF NET REALIZED VALUE EXPENSES INCOME TO
BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT GAIN ON AT END OF TOTAL TO AVERAGE AVERAGE
OF PERIOD INCOME INVESTMENTS(a) INCOME INCOME INVESTMENTS PERIOD RETURN(b) NET ASSETS NET ASSETS
--------- ---------- -------------- ---------- ---------- ----------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... $1.00 $0.0539 $ -- $(0.0539) $ -- $ -- $1.00 5.51% 0.19% 5.37%
8/31/95......... 1.00 0.0555 -- (0.0553) -- -- 1.00 5.56 0.20 5.55
8/31/94......... 1.00 0.0329 0.0002 (0.0342) (0.0001) (0.0002) 1.00 3.50 0.25 3.29
8/31/93......... 1.00 0.0305 0.0004 (0.0305) -- (0.0005) 1.00 3.14 0.25 3.05
8/31/92......... 1.00 0.0416 0.0008 (0.0416) -- (0.0007) 1.00 4.39 0.25 4.16
8/31/91......... 1.00 0.0641 -- (0.0641) -- -- 1.00 6.93 0.25 6.41
8/31/90......... 1.00 0.0824 -- (0.0824) -- -- 1.00 8.58 0.25 8.24
8/31/89......... 1.00 0.0899 -- (0.0899) -- -- 1.00 9.28 0.25 8.99
5/17/88(c) to
8/31/88......... 1.00 0.0214 -- (0.0214) -- -- 1.00 7.40(d) 0.25(d) 7.27(d)
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
RATIO OF
NET NET
ASSETS RATIO OF INVESTMENT
AT END OF EXPENSES TO INCOME
PERIOD AVERAGE NET TO AVERAGE
(000'S) ASSETS NET ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
Year ended:
8/31/96......... $426,710 0.31% 5.25%
8/31/95......... 382,096 0.33 5.42
8/31/94......... 216,989 0.34 3.20
8/31/93......... 616,229 0.33 2.97
8/31/92......... 864,924 0.29 4.12
8/31/91......... 654,977 0.25 6.41
8/31/90......... 258,304 0.25 8.24
8/31/89......... 167,331 0.25 8.99
5/17/88(c) to
8/31/88......... 106,739 0.25(d) 7.27(d)
</TABLE>
- ----
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Commencement of operations.
(d) Annualized.
7
<PAGE>
TRUST FOR CREDIT UNIONS
GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT DISTRIBUTIONS TO
OPERATIONS UNITHOLDERS
----------------- ------------------
RATIO OF
NET NET
REALIZED INVEST-
NET AND IN NET MENT
ASSET UNREAL- FROM EXCESS ASSET RATIO OF INCOME NET
VALUE AT NET IZED GAIN NET OF NET VALUE NET TO ASSETS
BEGIN- INVEST- (LOSS) ON INVEST- INVEST- AT EXPENSES AVERAGE PORTFOLIO AT END OF
NING OF MENT INVEST- MENT MENT END OF TOTAL TO AVERAGE NET TURN OVER PERIOD
PERIOD INCOME MENTS(a) INCOME INCOME PERIOD RETURN(b) NET ASSETS ASSETS RATE(C) (000'S)
-------- ------- --------- -------- -------- ------ --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... $ 9.76 $0.6024 $(0.0055) $(0.5969) $ -- $ 9.76 6.26% 0.35% 6.16% 149.66% $ 535,702
8/31/95......... 9.78 0.5515 (0.0011) (0.5582) (0.0122) 9.76 5.82 0.34 5.65 70.58 529,659
8/31/94......... 9.97 0.4286 (0.1974) (0.4212) -- 9.78 2.33 0.35 4.25 42.27 594,331
8/31/93......... 10.03 0.4641 (0.0599) (0.4630) (0.0012) 9.97 4.06 0.34 4.58 67.38 1,122,484
8/31/92......... 10.00 0.5588 0.0311 (0.5594) -- 10.03 6.68 0.36 5.91 195.53 1,153,410
7/10/91(d) to
8/31/91......... 10.00 0.0873 (0.0016) (0.0857) -- 10.00 7.02(e) 0.48(e) 7.16(e) 3.56 94,139
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES TO INCOME
AVERAGE NET TO AVERAGE
ASSETS NET ASSETS
----------- ----------
<S> <C> <C>
Year ended:
8/31/96......... 0.35% 6.16%
8/31/95......... 0.34 5.65
8/31/94......... 0.37 4.23
8/31/93......... 0.47 4.45
8/31/92......... 0.59 5.68
7/10/91(d) to
8/31/91......... 0.73(e) 6.91(e)
</TABLE>
- ----
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
8
<PAGE>
TRUST FOR CREDIT UNIONS
MORTGAGE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT
OPERATIONS DISTRIBUTIONS TO UNITHOLDERS
----------------- -------------------------------------
RATIO OF
NET NET
REALIZED IN EXCESS INVEST-
NET AND IN OF NET NET MENT
ASSET UNREAL- FROM EXCESS REAL- ASSET RATIO OF INCOME PORT-
VALUE AT NET IZED GAIN NET OF NET IZED VALUE NET TO FOLIO
BEGIN- INVEST- (LOSS) ON INVEST- INVEST- GAIN ON FROM AT EXPENSES AVERAGE TURN-
NING OF MENT INVEST- MENT MENT INVEST- PAID-IN END OF TOTAL TO AVERAGE NET OVER
PERIOD INCOME MENTS(a) INCOME INCOME MENTS CAPITAL PERIOD RETURN(b) NET ASSETS ASSETS RATE(c)
-------- ------- --------- -------- ------- --------- ------- ------ --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... $ 9.74 $0.6604 $(0.1195) $(0.6309) $ -- $ -- $ -- $9.65 5.67% 0.28% 6.64% 163.42%
8/31/95......... 9.62 0.6075 0.1539 (0.6075) (0.0175) -- (0.0164) 9.74 8.20 0.26 6.36 130.98
8/31/94......... 10.13 0.5533 (0.4530) (0.5719) (0.0340) (0.0044) -- 9.62 1.00 0.28 5.66 188.58
10/9/92(d)
to 8/31/93...... 10.00 0.4895 0.1144 (0.4702) -- -- -- 10.13 6.27 0.33(e) 5.64(e) 146.24
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
NET RATIO OF
ASSETS NET
AT END RATIO OF INVESTMENT
OF EXPENSES TO INCOME
PERIOD AVERAGE NET TO AVERAGE
(000'S) ASSETS NET ASSETS
-------- ----------- ----------
<S> <C> <C> <C>
Year ended:
8/31/96......... $332,546 0.30% 6.62%
8/31/95......... 264,409 0.32 6.30
8/31/94......... 283,886 0.29 5.65
10/9/92(d)
to 8/31/93...... 213,510 0.38(e) 5.59(e)
</TABLE>
- ----
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
9
<PAGE>
INVESTMENT OBJECTIVES AND PORTFOLIOS
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") organized on September 24, 1987 as a
Massachusetts business trust. The Fund seeks to achieve a high level of income
to the extent consistent with the investment objectives of its investment
portfolios. The Fund presently maintains five investment portfolios--the Money
Market Portfolio, the Government Securities Portfolio, the Mortgage Securities
Portfolio, the Target Maturity Portfolio (Feb 97) and the Target Maturity
Portfolio (May 97). This Prospectus relates to the offering of units of the
Fund's Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio (individually, a "Portfolio" and collectively, the
"Portfolios").
The Fund is offered solely to state and federally chartered credit unions
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 issuer, 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" as defined herein. First Tier
Securities are securities which are rated (or that have been issued by an
issuer that is rated with respect to a class of short-term debt obligations,
or any security within that class, comparable in priority and quality with
such securities) in the highest short-term rating category by at least two
NRSROs, or if only one NRSRO has assigned a rating, by that NRSRO. Securities
which are unrated may be purchased only if they are deemed to be of comparable
quality to First Tier rated securities. NRSROs include Standard & Poor's
Ratings Group, Moody's Investors Service, Inc., Fitch Investors Services,
Inc., Duff and Phelps, Inc., IBCA Limited and its affiliate IBCA Inc. and
Thomson BankWatch, Inc. For a description of each NRSRO's rating categories,
see the Additional Statement.
GOVERNMENT SECURITIES PORTFOLIO
The Government Securities Portfolio seeks to achieve a high level of current
income, consistent with low volatility of principal, by investing in
obligations authorized under the Federal Credit Union Act.
The Government Securities Portfolio invests exclusively in:
--securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--repurchase agreements pertaining thereto; and
--short-term obligations that are permitted investments for the Money
Market Portfolio.
Under normal market and interest rate conditions, at least 65% of the total
assets of the Government Securities Portfolio will consist of adjustable rate
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises. The Government
Securities Portfolio intends to maintain a maximum duration equal to that of a
two-year U.S. Treasury security and a target duration to be no shorter than
that of a 6-month U.S. Treasury security and no longer than that of a 1-year
U.S. Treasury security (computed using the method described herein). Duration
measures the price sensitivity of the Portfolio including expected cash flows
and mortgage prepayments under a wide range of interest rate scenarios.
11
<PAGE>
MORTGAGE SECURITIES PORTFOLIO
The Mortgage Securities Portfolio seeks to achieve a high level of current
income, consistent with relatively low volatility of principal, by investing
in obligations authorized under the Federal Credit Union Act.
The Mortgage Securities Portfolio invests exclusively in:
--privately-issued mortgage-related securities, rated at the time of
purchase, in one of the two highest rating categories by an NRSRO and in
mortgage-related securities issued or guaranteed by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises;
--other securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--repurchase agreements pertaining thereto; and
--short-term obligations that are permitted investments for the Money
Market Portfolio.
Under normal circumstances, the Mortgage Securities Portfolio will invest
primarily in mortgage-related securities. The Portfolio's maximum duration
will not exceed that of a 3-year U.S. Treasury security and its target
duration will be equal to that of a 2-year U.S. Treasury security.
----------------
The investment objective of each Portfolio (which is set forth in the first
sentence under each Portfolio) may not be changed without the approval of the
holders of a majority of the outstanding units of that Portfolio, as described
under "Additional Information." There can be no assurance that the objective
of each Portfolio will be realized. In seeking its objective, a Portfolio may
not always purchase securities offering the highest yield.
DESCRIPTION OF INVESTMENTS
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are securities that directly or indirectly
represent participations in, or are collateralized by and payable from
payments on, mortgage loans secured by real property. These securities include
both adjustable rate and fixed rate mortgage pass-through securities,
collateralized mortgage obligations and other multiclass mortgage-related
securities as well as other securities that are collateralized by or represent
direct or indirect interests in mortgage-related securities or mortgage loans.
The issuers of certain mortgage-related securities may elect to have the pool
of mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"),
which is subject to special federal income tax rules. A description of the
types of mortgage-related securities in which the Government Securities
Portfolio and the Mortgage Securities Portfolio may invest is provided below.
The descriptions are general and summary in nature, and do not detail every
possible variation of the types of mortgage-related securities that are
permissible for the Portfolios.
12
<PAGE>
1. INVESTMENT CHARACTERISTICS OF MORTGAGE-RELATED SECURITIES
In general, changes in both prepayment rates on mortgage-related securities
and interest rates and the volume of transactions in units of the Government
Securities Portfolio and the Mortgage Securities Portfolio will affect each
Portfolio's return. A predominant factor affecting the prepayment rate on a
pool of mortgage loans is the difference between the interest rates on
outstanding mortgage loans and prevailing mortgage loan interest rates (giving
consideration to the cost of any refinancing). In general, if mortgage loan
interest rates fall sufficiently below the interest rates on fixed rate
mortgage loans underlying mortgage-related securities, the rate of prepayment
would be expected to increase. Prepayments of adjustable rate mortgage loans
may also increase in a declining interest rate environment as borrowers seek
to "lock-in" low rates. Conversely, if mortgage loan interest rates rise above
the interest rates on outstanding mortgage loans, the rate of prepayment may
be expected to decrease. Due to these factors, mortgage-related securities may
be less effective than U.S. Treasury securities of similar maturity at
maintaining yields during periods of declining interest rates, since the
mortgage payments will normally be reinvested in instruments with lower yields
reflecting prevailing market conditions.
Because the Portfolios' investments are interest rate sensitive, each
Portfolio's performance will depend in large part upon the ability of the
Portfolio to anticipate and respond to fluctuations in market interest rates
and to utilize appropriate strategies to maximize returns to the Portfolio,
while attempting to minimize the associated risks to its investment capital.
Prepayments may have a disproportionate effect on certain mortgage-related
securities such as stripped mortgage-backed and certain other multiple class
pass-through securities, which are discussed below.
Generally, to the extent mortgage-related securities are purchased at a
premium, a faster than anticipated rate of unscheduled principal prepayments
will result in a lower than anticipated yield. On the other hand, if the
securities are purchased at a discount, a faster than anticipated rate of
unscheduled prepayment of principal will result in a higher than anticipated
yield.
2. PRIVATE MORTGAGE PASS-THROUGH SECURITIES
The Mortgage Securities Portfolio may invest in privately-issued mortgage
pass-through securities ("Mortgage Pass-Throughs") which represent interests
in pools of mortgage loans that are issued by trusts formed by originators of
and institutional investors in mortgage loans (or represent interests in
custodial arrangements administered by such institutions). These originators
and institutions include commercial banks, savings and loans associations,
credit unions, savings banks, mortgage bankers, insurance companies,
investment banks or special purpose subsidiaries of the foregoing. For federal
income tax purposes, such trusts are generally treated as grantor trusts or
REMICs and, in either case, are generally not subject to any significant
amount of federal income tax at the entity level.
The mortgage pools underlying Mortgage Pass-Throughs consist of private
mortgage loans evidenced by promissory notes secured by first mortgages or
first deeds of trust or other similar security instruments creating a first
lien on residential, residential multi-family and mixed residential/commercial
properties. Mortgage Pass-Throughs (whether fixed or adjustable rate) provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amounts paid
to any guarantor, administrator and/or servicer of the underlying
13
<PAGE>
mortgage loans. A trust fund with respect to which a REMIC election has been
made may include regular interests in other REMICs which in turn will
ultimately evidence interests in mortgage loans.
Mortgage Pass-Throughs generally offer a higher yield than Government
Mortgage-Related Securities (as defined below) because of the absence of any
direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal on mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loan, pool and hazard insurance, subordination and letters of credit. The
insurance and guarantees are issued by government entities, private insurers,
banks and mortgage poolers. Mortgage-related securities without insurance or
guarantees may be purchased by the Mortgage Securities Portfolio if they have
the required rating from an NRSRO. Although the market for such securities is
becoming increasingly liquid, some mortgage-related securities issued by
private organizations may not be readily marketable. Types of credit support
are discussed further in the Additional Statement.
3. GOVERNMENT MORTGAGE-RELATED SECURITIES
The Fund's Portfolios may invest in mortgage-related securities issued or
guaranteed by the U.S. Government and its agencies, instrumentalities or
sponsored enterprises ("Government Mortgage-Related Securities"). These
securities include Government National Mortgage Association ("GNMA") mortgage-
backed certificates ("GNMA Certificates"), which are mortgage-backed
securities of the modified pass-through type where both interest and principal
payments (including prepayments) are passed through monthly to the holder of
the certificate whether or not they are paid by the underlying mortgagor. The
National Housing Act provides that the full faith and credit of the United
States is pledged to the timely payment of principal and interest by GNMA of
amounts due on these GNMA Certificates. Each GNMA Certificate evidences an
interest in a specific pool of mortgage loans (frequently one-to-four family
residential loans) insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans Administration.
Government Mortgage-Related Securities also include securities issued by the
Federal National Mortgage Association ("FNMA") and by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA, a federally chartered and stockholder-
owned corporation, issues pass-through securities which are guaranteed as to
timely payment of principal and interest by FNMA. FHLMC, also a federally
chartered corporation, issues pass-through securities which are guaranteed as
to timely payment of interest and ultimate collection of principal by FHLMC.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States.
The Government Securities Portfolio and Mortgage Securities Portfolio may
purchase "stripped" securities issued or guaranteed by U.S. Government
agencies or instrumentalities that evidence ownership in the future interest
payments or the future principal payments on Government Mortgage-Related
Securities. Stripped mortgage-backed securities ("SMBS") are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of Government Mortgage-Related
Securities. A common type of SMBS will have one class receiving all of the
interest, while the other class will receive all of the principal. However, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience different
than anticipated prepayments of principal, a Portfolio may fail to recoup
fully its initial investment in these
14
<PAGE>
securities. Although the market for such securities is increasingly liquid,
Goldman, Sachs & Co., in accordance with guidelines and standards adopted by
the Board of Trustees, may determine that certain interest-only and principal-
only fixed mortgage-backed securities issued by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises are not readily
marketable. If so, these securities will be considered illiquid for purposes
of the Fund's limitation on investments in illiquid securities. The yields on
a class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other Government Mortgaged-Related Securities
because they are extremely sensitive to the rate of principal payments,
including prepayments. Prepayments can result in a Portfolio's failure to
recoup its initial investment even though the SMBS are issued or guaranteed by
the U.S. Government. Consistent with the Rules and Regulations of the National
Credit Union Administration, the Government Securities Portfolio and the
Mortgage Securities Portfolio will purchase SMBS solely to reduce the interest
rate risk of their holdings (although this policy will not reduce the risk of
loss on the SMBS themselves that are held by the Portfolios) and will not
purchase SMBS issued by private issuers.
4. MULTICLASS MORTGAGE SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
Mortgage-related securities acquired by the Portfolios may include
collateralized mortgage obligations and other multiclass mortgage-related
securities (collectively, "CMOs") issued by FNMA, FHLMC or other U.S.
Government agencies, instrumentalities or sponsored enterprises, as well as by
private issuers in the case of the Mortgage Securities Portfolio. CMOs provide
an investor with a specified interest in the cash flow of a pool of underlying
mortgages or other mortgage-related securities. Issuers of CMOs frequently
elect to be taxed as REMICs. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final scheduled distribution
date. The relative payment rights of the various CMO classes may be structured
in many ways. In many cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. Sometimes, however, CMO
classes are "parallel pay," i.e. payments of principal are made to two or more
classes concurrently. In accordance with the Rules and Regulations of the
National Credit Union Administration, unless the purchase is made solely to
reduce interest rate risk or the instrument is a floating or adjustable rate
CMO class described below, the Fund will not invest in any CMO class that
meets any of the following three tests using prevailing market-interest rates
and prepayment speeds: (1) the CMO class has an expected average life greater
than 10 years; (2) the average life of the CMO class extends by more than 4
years assuming an immediate and sustained parallel shift in the yield curve of
300 basis points, or shortens by more than 6 years assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points; or (3)
the estimated change in the price of the CMO class is more than 17% due to an
immediate and sustained parallel shift in the yield curve of plus or minus 300
basis points. For these purposes, "average life" means the weighted average
time to principal repayment, with the amount of the principal paydowns (both
scheduled and unscheduled) as the weights. The expected average life and
average life sensitivity tests described above do not apply to a floating or
adjustable rate CMO class, irrespective of whether it has been purchased to
reduce interest rate risk, if (a) the interest rate is reset at least
annually, (b) the interest rate is below the contractual cap of the CMO class
at the time of purchase or a subsequent testing date, (c) the index upon which
the interest rate is based is a widely-used market interest rate index such as
the London Interbank Offered Rate (LIBOR) and (d) the interest rate of the
instrument varies directly (not inversely) with the index upon which it is
based and
15
<PAGE>
is not reset as a multiple of the change in the index. If an instrument is a
floating or adjustable rate CMO class which passes the requirements described
in (a) through (d) above, the Portfolio will nevertheless not invest in any
such floating or adjustable rate CMO class that using prevailing market-
interest rates and prepayment speeds meets the price sensitivity test listed
above, unless the security is purchased to reduce interest rate risk. CMOs may
exhibit more or less price volatility and interest rate risk than other types
of mortgage-related obligations. Although the market for CMOs is generally
liquid, Goldman Sachs & Co. may determine that certain CMOs are not readily
marketable. If so, these CMOs will be considered illiquid for purposes of the
Fund's limitations on investments in illiquid securities. CMOs are discussed
further in the Additional Statement under "Adjustable and Fixed Rate Mortgage
Loans and Mortgage-Related Securities."
OTHER GOVERNMENT SECURITIES
Each Portfolio may acquire other securities issued or guaranteed as to
principal and interest by the U.S. Government or by its agencies,
instrumentalities or sponsored enterprises ("Government Securities"). These
securities, in general, include a variety of U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as GNMA participation certificates), (b) the limited
authority of the issuer to borrow from the U.S. Treasury (such as securities
of the Student Loan Marketing Association), (c) the authority of the U.S.
Government to purchase certain obligations of the issuer (such as securities
of the FNMA), or (d) only the credit of the issuer. No assurance can be given
that the U.S. Government will provide financial support to U.S. Government,
its agencies, instrumentalities or sponsored enterprises as described in
clauses (b) or (c) in the future, other than as set forth above, since it is
not obligated to do so by law.
Government Securities are deemed to include (to the extent consistent with
the Investment Company Act of 1940) securities for which the payment of
principal and interest is backed by an irrevocable letter of credit issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises.
Government Securities are also deemed to include (to the extent consistent
with the Investment Company Act of 1940) participations in loans made to
foreign governments or their agencies that are guaranteed as to principal and
interest by the U.S. Government or its agencies, instrumentalities or
sponsored enterprises. The secondary market for certain of these
participations is extremely limited. In the absence of a substantial secondary
market, such participations will therefore be regarded as illiquid.
Each Portfolio may invest in separately traded principal and interest
components of securities, including mortgage-related securities, issued or
guaranteed by the United States Government, its agencies, instrumentalities or
sponsored enterprises. In the case of securities issued or guaranteed by the
United States Government, the principal and interest components of selected
securities are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS"). Under the STRIPS
program, the principal and interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
Each Portfolio may invest in zero coupon bonds, which are debt obligations
issued or purchased at a significant discount from face value provided that
such bonds do not have maturity dates of more
16
<PAGE>
than 10 years from settlement. Each Portfolio will only purchase zero coupon
bonds which are Government Securities. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds do
not require the periodic payment of interest. Such investments benefit the
issuer by mitigating its need for cash to meet debt service, but some also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which provide for regular payments of
interest. Each Portfolio will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations.
GOVERNMENT RELATED OBLIGATIONS
Although they are not considered obligations of the U.S. Government for
certain securities law purposes, and therefore do not qualify as U.S.
Government Securities, each Portfolio may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises.
REPURCHASE AGREEMENTS
When a Portfolio purchases securities, it may enter into a repurchase
agreement with the seller wherein the seller agrees, at the time of sale, to
repurchase the securities at a mutually agreed upon time and price. A
Portfolio may enter into repurchase agreements with broker-dealers and with
banks. Although the securities subject to the repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be
more than one year after the Portfolio's acquisition of the securities and
normally would be within a shorter period of time. The Portfolios generally
intend to enter into repurchase agreements which terminate within seven days
notice by a Portfolio. Except as provided under "Other Portfolio Management
Policies," if a Portfolio were to enter into repurchase agreements which
provide for a notice period greater than seven days, the Portfolio would do so
only if such investment, together with other illiquid securities, did not
exceed 15% (10% in the case of the Money Market Portfolio) of the Portfolio's
net assets. The resale price will be in excess of the purchase price,
reflecting an agreed-upon market rate effective for the period of time the
Portfolio's money will be invested in the securities, and will not be related
to the coupon rate of the purchased securities. During the term of the
repurchase agreement, Goldman, Sachs & Co. will require the seller to maintain
the value of the securities subject to the agreement in an amount that exceeds
the repurchase price. In the event the seller of the repurchase agreement
enters a bankruptcy or other insolvency proceeding, or in the event of the
failure of the seller to repurchase the underlying securities as agreed upon,
the Portfolio could, however, experience losses that include (a) possible
decline in the value of the underlying securities during the period while the
Portfolio seeks to enforce its rights thereto and possible delay in
enforcement of those rights, (b) possible loss of all or a part of the income
or proceeds of the repurchase, (c) additional expenses to the Portfolio for
enforcing those rights and (d) possible delay in the disposition of the
underlying securities pending court action or possible loss of rights in such
securities. The percentage of each Portfolio's assets invested in repurchase
agreements may vary from time to time depending upon Goldman, Sachs & Co.'s
evaluation of market trends and other conditions. The Fund will enter into
repurchase transactions only with parties that meet
17
<PAGE>
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 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
18
<PAGE>
which might adversely affect the payment of principal and interest on those
obligations, or that there may be difficulties in obtaining or enforcing a
judgment against a foreign branch.
2. FEDERAL FUNDS
The Portfolios may make unsecured loans of federal funds to United States
banks with total assets exceeding $1 billion (including obligations issued by
foreign branches of such banks) to the extent permitted by the Federal Credit
Union Act and the rules and regulations promulgated thereunder, provided that
(i) the accounts of such banks are insured by the Federal Deposit Insurance
Corporation, (ii) the interest received therefrom is at the market rate for
federal funds transactions, and (iii) the transaction has a maturity of one or
more business days or the Fund is able to require repayment at any time.
Except as provided under "Other Portfolio Management Policies," the Fund
considers federal funds investments maturing in more than seven days to be
illiquid, and therefore will limit such transactions along with all other
illiquid investments to 15% (10% in the case of the Money Market Portfolio) of
the value of a Portfolio's net assets.
Federal funds are funds held by a regional Federal Reserve Bank for the
account of a bank that is a member of such Federal Reserve Bank (a "Fed Member
Bank"). A loan of federal funds is an unsecured loan at a negotiated interest
rate for a negotiated time period, generally overnight, of federal funds by
one Fed Member Bank to another. Since, pursuant to an exemption, the borrowing
Fed Member Bank is not required to maintain reserves on the borrowed federal
funds, the interest rate it pays on such loans is generally higher than the
rate it pays on other deposits of comparable size and maturity that are
subject to reserve requirements. In addition, a "depository institution" or
other exempt institution such as the Fund may under Regulation D of the Board
of Governors of the Federal Reserve System in effect make loans of federal
funds by instructing a correspondent or other willing Fed Member Bank at which
it maintains an account to loan federal funds on its behalf. Loans of federal
funds are not insured by the Federal Deposit Insurance Corporation.
In the event the borrower of federal funds enters a bankruptcy or other
insolvency proceeding, the Fund could experience delays and incur expense in
recovering cash. Further, the possibility exists that in such an instance, the
borrowing institution may not be able to repay the loaned funds. Loans of
federal funds rank junior to domestic deposit liabilities of the bank and pari
passu with other senior, unsecured obligations of the bank. With regard to the
solvency of the borrowing institution, the Fund will limit federal funds
lending to those member banks of the Federal Reserve System whose
creditworthiness has been reviewed and found by Goldman, Sachs & Co. to be
comparable in quality to securities rated high quality by an NRSRO.
Creditworthiness is of particular importance given the unsecured nature of
federal funds borrowings.
3. OTHER INVESTMENT COMPANIES
As a means of maintaining short-term liquidity, the Mortgage Securities
Portfolio reserves the right to invest up to 10% of its total assets,
calculated at the time of purchase, in the securities of other investment
companies. The Portfolio may not invest more the 5% of its total assets in the
securities of any one investment company or acquire more than 3% of the voting
securities of any other investment company. The Portfolio and ultimately its
unitholders will indirectly bear a proportionate share of the expenses paid by
investment companies in which it invests in addition to the Portfolio's own
expenses. Pursuant to an exemptive order obtained from the SEC, other
investment companies in which the Portfolio may invest include money market
funds which GSAM, Goldman, Sachs & Co. or any of their affiliates serves as
investment adviser, administrator or distributor.
19
<PAGE>
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Portfolio may purchase or sell portfolio securities in when-issued or
delayed delivery transactions. In such transactions, instruments are bought or
sold with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous yield or price to a Portfolio at the
time of entering into the transactions. However, the yield on a comparable
security available when delivery takes place may vary from the yield on the
security at the time that the when-issued or delayed delivery transaction was
entered into. When the Fund engages in when-issued and delayed delivery
transactions, the Fund relies on the seller or buyer, as the case may be, to
consummate the transaction. Failure to consummate the transaction may result
in the Fund missing the opportunity of obtaining a price or yield considered
to be advantageous. In such transactions the payment obligation and the
interest rate are fixed on the trade date, although no interest accrues to the
purchaser prior to the settlement date. The settlement date for such
transactions will take place no more than 120 days after the trade date.
Consistent with the requirements of the Investment Company Act of 1940,
securities purchased on a when-issued or delayed delivery basis are recorded
as an asset (with the purchase price being recorded as a liability) and are
subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. To the extent that a Portfolio remains
substantially fully invested at the same time that it has entered into such
transactions, which it would normally expect to do, there will be greater
fluctuations in the market value of its net assets than if such Portfolio set
aside cash to satisfy its purchase commitment. However, the Portfolio will
maintain designated liquid assets at least equal in value to commitments for
when-issued or delayed delivery securities, and such assets will be segregated
in an account earmarked specifically for the settlement of such commitments. A
Portfolio will only make commitments to purchase portfolio securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities and not for the purpose of investment leverage.
MORTGAGE DOLLAR ROLLS
The Government Securities Portfolio and the Mortgage Securities Portfolio
may enter into mortgage "dollar rolls" in which each Portfolio sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity)
but not identical securities on a specified future date not exceeding 120
days. During the roll period, a Portfolio loses the right to receive principal
and interest paid on the securities sold. However, the Portfolio would benefit
to the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase (often referred to as
the "drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of a Portfolio compared with what such performance
would have been without the use of mortgage dollar rolls. All cash proceeds
will be invested in instruments that are permissible investments for each
Portfolio. Such Portfolio will hold and maintain in a segregated account until
the settlement date cash, U.S.
20
<PAGE>
Government Securities or other liquid assets in an amount equal to the forward
purchase price. All mortgage dollar rolls will be settled in accordance with
NCUA Rules and Regulations.
For financial reporting and tax purposes, each Portfolio proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. Neither Portfolio
currently intends to enter into mortgage dollar rolls that are accounted for
as a financing.
Mortgage dollar rolls involve the following risks: if the broker-dealer to
whom a Portfolio sells the security becomes insolvent, the Portfolio's right
to purchase or repurchase the mortgage-related securities may be restricted
and the instrument which the Portfolio is required to repurchase may be worth
less than an instrument which the Portfolio originally held. Successful use of
mortgage dollar rolls may depend upon the investment adviser's ability to
predict correctly interest rates and mortgage prepayments. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed.
OPTION ADJUSTED DURATION
Although they have no restrictions as to the minimum or maximum maturity of
any particular security held by them, the Government Securities Portfolio
intends to maintain a maximum duration approximately equal to that of a 2-year
U.S. Treasury security, and the Mortgage Securities Portfolio intends to
maintain a maximum duration approximately equal to that of a 3-year U.S.
Treasury security. Under normal interest rate conditions, the Government
Securities Portfolio's target duration is expected to be no shorter than that
of a 6-month U.S. Treasury security and no longer than that of a 1-year U.S.
Treasury security, and the Mortgage Securities Portfolio's target duration is
expected to be approximately equal to that of a 2-year U.S. Treasury security.
The Portfolios' duration is a measure of the price sensitivity of the
Portfolios, including expected cash flow and mortgage prepayments under a wide
range of interest rate scenarios. Maturity measures only the time until final
payment is due on a bond or other debt security; it does not take into account
the pattern of a security's cash flows over time, including how cash flow is
affected by prepayments and by changes in interest rates. In 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.
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, loan participations by
foreign governments where a substantial
21
<PAGE>
secondary market is absent and, to the extent consistent with a Fund's
investment objective, interest-rate only and principal-only fixed rate
mortgage backed securities issued by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises which may not be readily
marketable. A repurchase agreement or a federal funds loan which by its terms
can be liquidated before its nominal fixed term on seven days' or less notice
is regarded as a liquid instrument. Mortgage-related securities issued in a
private placement are subject to the foregoing limitations, unless 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 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
22
<PAGE>
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.
CERTAIN INVESTMENT RESTRICTIONS
Pursuant to SEC Rule 2a-7 under the Investment Company Act, the Money Market
Portfolio may not invest more than 5% of its assets taken at amortized cost in
the securities of any one issuer (except U.S. Government Securities and
repurchase agreements collateralized by such securities). The Portfolio may,
however, invest up to 25% of its assets in the First Tier Securities of a
single issuer for a period of up to three business days after the purchase
thereof, although the Portfolio may not make more than one such investment at
any time. The Money Market Portfolio may not invest in securities which are
Second Tier Securities at the time of purchase. The foregoing non-fundamental
operating policies are more restrictive than the fundamental policy set forth
in paragraph 1 below. The Money Market Portfolio will operate in accordance
with these operating policies which comply with SEC Rule 2a-7.
The Portfolios are subject to certain fundamental investment restrictions
which, as described in more detail in the Additional Statement, may generally
be changed with respect to a Portfolio only with the approval of the holders
of a majority of the outstanding units of the Portfolio. For a more complete
description of the investment restrictions summarized below and the other
fundamental investment restrictions to which the Portfolios are subject, see
the Additional Statement.
1. The Portfolios may not invest in the instruments of any one issuer, other
than Government Securities (as defined in the Investment Company Act of 1940),
if immediately after such investment more than 5% of the value of such
Portfolio's total assets would be invested in the instruments of such issuer,
except that (a) with certain limitations stated in the Additional Statement,
up to 25% of the value of its total assets may be invested without regard to
such 5% limitation and (b) such 5% limitation shall not apply to repurchase
agreements collateralized by government securities.
2. The Portfolios may not borrow money, except as a temporary measure, and
then only in amounts not exceeding one-third of the value of a Portfolio's net
assets.
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REPORTS TO UNITHOLDERS
Each unitholder of the Government Securities Portfolio and the Mortgage
Securities Portfolio is provided with a printed confirmation for each
transaction. It is not anticipated that a printed confirmation for each
transaction will be provided to unitholders of the Money Market Portfolio.
However, all unitholders will be provided an individual monthly statement for
each Portfolio showing each transaction for the reported month. A year-to-date
statement for any account will be provided upon request made to Goldman, Sachs
& Co. Each unitholder will also receive annual and semiannual financial
statements. Unitholder inquiries should be addressed to Goldman, Sachs & Co.
at the address set forth on the cover page of this Prospectus.
PURCHASE OF UNITS
Purchases of units of the Portfolios may be made only by Federal Reserve
wire. Payment by other means, including check or draft or transfer of funds
which are not federal funds, will not be accepted. There is no minimum for
initial or subsequent investments nor are minimum balances required.
MONEY MARKET PORTFOLIO
Units of the Money Market Portfolio are offered on a continuous basis at
their net asset value next determined after receipt of a purchase order in the
manner set forth below, provided that The Northern Trust Company ("Northern"),
Chicago, Illinois, the subcustodian for State Street Bank and Trust Company
("State Street"), receives the purchase price in federal funds on the same
Business Day (as such term is defined under "Additional Information"). See
"Net Asset Value." Purchase orders may be placed and will become effective
only on Business Days. Purchase orders may be made by telephoning Goldman,
Sachs & Co. at 800-342-5828 or by a written request addressed to Goldman,
Sachs & Co. Attention: Shareholder Services, Trust for Credit Unions--Money
Market Portfolio, 4900 Sears Tower, Chicago, Illinois 60606.
Federal Reserve wires for the purchase of Money Market Portfolio units
should be directed to Northern, as sub-custodian for State Street, rather than
to State Street itself. Units of the Money Market Portfolio are deemed to have
been purchased when an order becomes effective and are entitled to dividends
on Units purchased as follows:
<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY
GOLDMAN, SACHS & CO. DIVIDENDS BEGIN
----------------------- ---------------
<S> <C>
By: 2:30 p.m.--N.Y. time Same Business Day
-------------------------------------------------------------------------
After: 2:30 p.m.--N.Y. time Next Business Day
-------------------------------------------------------------------------
</TABLE>
Federal Reserve wires should be sent as early as possible, but no later than
3:30 p.m., New York time, to facilitate crediting to the unitholder's account.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
Units of each Portfolio are offered on a continuous basis at their net asset
value next determined after the order therefor has been received. See "Net
Asset Value."
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<PAGE>
Purchase orders may be placed only on Business Days. If the order is
received by Goldman, Sachs & Co. by 4:00 p.m., New York time, settlement of
the transaction will occur on the next Business Day and the units to which the
order relates will be issued and will commence earning income on such next
Business Day, provided that federal funds in respect of such order have been
received by Northern by such next Business Day. If the order is received by
Goldman, Sachs & Co. after 4:00 p.m., New York time, settlement of the
transaction will occur on the second Business Day and the units to which the
order relates will be issued and will commence earning income on the second
Business Day, provided the federal funds in respect of such order are received
by Northern by such second Business Day. If payment in federal funds is not
received within the period stated above, an investor's purchase order will be
cancelled, and the investor will be responsible for any loss resulting to the
Fund.
OTHER INFORMATION
In the interest of economy, certificates representing Fund units are not
issued. The Fund and its co-distributors reserve the right to reject any
purchase order.
After the initial purchase of units, an Account Information Form must be
completed promptly and mailed to Goldman, Sachs & Co. at the address set forth
on the cover page of this Prospectus. Redemptions may not be effected prior to
receipt of such Account Information Form.
Goldman, Sachs & Co. and/or CFS may from time to time, at their own expense,
provide compensation to certain dealers whose customers purchase significant
amounts of units of the Fund. The amount of such compensation may be made on a
one-time and/or periodic basis and, in the case of Goldman, Sachs & Co., may
be up to 20% of the annual fees that are earned by Goldman, Sachs & Co. as
investment adviser to the Fund (after adjustments) and are attributable to
units held by such customers. Such compensation does not represent an
additional expense to the Fund or its unitholders, since it will be paid from
the assets of Goldman, Sachs & Co., its affiliates or CFS.
REDEMPTION OF UNITS
The Fund redeems its units without charge upon request of a unitholder at
the net asset value next determined after the receipt of such request in
proper form. See "Net Asset Value." Although redemption requests may be placed
on any day on which the Fund's net asset value per unit is determined,
proceeds will be remitted only on Business Days (as such term is defined under
"Additional Information"). Redemption requests may be made by calling Goldman,
Sachs & Co. at 800-342-5828 or by a written request addressed to Goldman,
Sachs & Co., Attention: Shareholder Services, Trust for Credit Unions, 4900
Sears Tower, Chicago, Illinois 60606. The letter of instruction must specify
the number of Units to be redeemed, the Portfolio from which Units are being
redeemed, the account number, payment instructions and the exact registration
on the account. A unitholder may request redemptions by telephone if the
optional telephone redemption privilege is elected on the Account Information
Form. It may be difficult to implement redemptions by telephone in times of
drastic economic or market changes. In an effort to prevent unauthorized or
fraudulent redemption and exchange requests by telephone, Goldman, Sachs & Co.
and State Street each employ reasonable procedures specified by the Fund to
confirm that such instructions are genuine. Consequently, proceeds of
telephone redemptions will be wired directly to the credit union, central
credit union, or other depository account designated in the unitholder's
Account Information Form, unless the
25
<PAGE>
unitholder provides written instructions indicating another credit union,
central credit union, or other depository account. Telephone redemption
requests will also be recorded. The Fund may implement other procedures from
time to time. If reasonable procedures are not implemented, the Fund may be
liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither the Fund, the Portfolios nor Goldman, Sachs & Co. will be
responsible for the authenticity of redemption instructions received by
telephone. Thus, except as stated, the total risk of loss for unauthorized
transactions is on the investor.
MONEY MARKET PORTFOLIO
If a redemption request with respect to Money Market Portfolio units is
received by Goldman, Sachs & Co. by 2:30 p.m., New York time, the units to be
redeemed do not earn income on the day the request is received, but proceeds
are ordinarily wired on the same day. If such request is received by Goldman,
Sachs & Co. after such time and prior to 4:00 p.m., New York time, the units
to be redeemed earn income on the day the request is received, and proceeds
are ordinarily wired on the morning of the following Business Day. On any
Business Day when the Public Securities Association (PSA) recommends that the
securities market closes early, the Money Market Portfolio reserves the right
to cease accepting purchase and redemption orders for the same Business Day
credit at the time the PSA recommends that the securities market closes. On
days the Money Market Portfolio closes early, purchase and redemption orders
received after the PSA recommended closing time will be credited to the next
Business Day. In addition, the Money Market Portfolio reserves the right to
advance the time by which purchase and redemption orders must be received for
the same Business Day credit as otherwise permitted by the SEC.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
If a redemption request with respect to units of either Portfolio is
received by Goldman, Sachs & Co. by 4:00 p.m., New York time, the proceeds are
ordinarily wired on the next Business Day. Units to be redeemed earn income
with respect to the day the request is received; however, units redeemed on a
day immediately preceding a weekend or holiday continue to earn income until
the next Business Day.
OTHER INFORMATION
Once wire instructions have been given to Northern, neither the Fund nor
Goldman, Sachs & Co. assumes responsibility for the performance of Northern or
of any intermediaries in the transfer process. If a problem with such
performance arises, the investor should deal directly with Northern or such
intermediaries.
If its authorized signature is guaranteed by a credit union, commercial
bank, trust company, member firm of a national securities exchange or other
eligible guarantor institution, a unitholder may change the designated credit
union, central credit union or other depository account at any time upon
written notice to Goldman, Sachs & Co. Additional documentation, regarding any
such change or regarding a redemption by any means, may be required when
deemed appropriate by Goldman, Sachs & Co. and the request for such redemption
will not be considered to have been received in proper form until such
additional documentation has been received.
26
<PAGE>
Under the Investment Company Act of 1940, the Fund is required to settle
redemption requests within seven days of receipt of such request. The right of
a unitholder to redeem units and the date of payment by the Fund may be
suspended for more than seven days for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or
trading on such Exchange is restricted as determined by the SEC; or during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of the Fund's net assets; or for such other period as the SEC
may by order permit for the protection of unitholders of the Fund.
Portfolio units are not redeemable at the option of the Fund unless the
Trustees determine in their sole discretion that failure to so redeem may have
materially adverse consequences to the unitholders of the Portfolio.
EXCHANGE PRIVILEGE
Units of each Portfolio may be exchanged for units of any other Portfolio at
the net asset value next determined either by writing to Goldman, Sachs & Co.,
Attention: Trust for Credit Unions, Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Account Information
Form, by telephone at 800-342-5828 (9:00 a.m. to 4:00 p.m. New York time). All
telephone exchanges must be registered in the same name(s) and with the same
address as registered in the Portfolio from which the exchange is being made.
A unitholder should consider the investment objective, policies and applicable
fees of each Portfolio before making an exchange.
Certain procedures are employed to prevent unauthorized or fraudulent
exchange requests as set forth under "Redemption of Units." In times of
drastic economic or market changes the telephone exchange privilege may be
difficult to implement.
Exchanges are only available in states where exchanges may legally be made.
The Fund reserves the right to reject any exchange request, and the exchange
privilege may be modified or withdrawn at any time. At least sixty (60) days'
notice will be given to unitholders of any material modification or
withdrawal, except when notice is not required by the SEC.
INCOME
Substantially all of the net investment income of the Money Market Portfolio
will be declared as a dividend on each day. Net short-term capital gains, if
any, will be paid in accordance with the requirements of the Internal Revenue
Code of 1986 and may be reflected in daily dividend declarations. The Money
Market Portfolio does not expect to realize long-term capital gains.
The Government Securities Portfolio and the Mortgage Securities Portfolio
each intend to declare a daily dividend (payable monthly) determined with the
objective of distributing the majority of its net investment income while
enhancing the stability of principal. Over the course of the fiscal year,
dividends accrued and paid will constitute substantially all of the
Portfolios' net investment income. The amount of the dividend will reflect
changes in interest rates (i.e., as interest rates increase, dividends will
generally increase and as interest rates decline, dividends will generally be
reduced). Because the
27
<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 and short-term capital
gains will be declared and paid as a dividend at least annually. In
determining amounts of capital gains, any capital loss carryovers from prior
years will be offset against capital gains.
Net investment income of the Money Market Portfolio (from the time of the
immediately preceding determination thereof) consists of (i) interest accrued
or discount accreted (including both original issue and market discount) on
the assets of such Portfolio and any general income of the Fund allocated to
such Portfolio less (ii) the amortization of market premium and the estimated
expenses of such Portfolio.
Net investment income of the Government Securities Portfolio and the
Mortgage Securities Portfolio consists of (i) interest accrued, discount
accreted on certain Portfolio securities and any general income of the Fund
allocated to such Portfolio less (ii) the sum of (a) premiums amortized on
certain Portfolio securities and (b) the estimated expenses of such Portfolio.
The net investment income of the Portfolios is determined by State Street on
a daily basis. On days on which net asset value is calculated, this
determination is made immediately prior to the calculation of the Portfolio's
net asset value as of 4:00 p.m., New York time.
Payment of dividends with respect to net investment income will be paid on
the last calendar day of each month in additional units of the applicable
Portfolio at the net asset value on such day, unless cash distributions are
elected, in which case payment will be made by Federal Reserve wire on the
first Business Day of the succeeding month. Dividends with respect to capital
gains, if any, when declared will be paid in additional units of the
applicable Portfolio at the net asset value on the declared payment date,
unless cash distributions are elected. A unitholder's election to receive
dividends in cash is initially made on its Account Information Form and may be
changed at any time upon written notice to Goldman, Sachs & Co. The election
with respect to the short-term component, if any, of a Portfolio's capital
gains dividend must be the same as the election with respect to such
Portfolio's monthly net investment income dividends (i.e., both must be
received either in units or in cash). The election with respect to the long-
term component, if any, of a Portfolio's annual capital gains dividend may
differ from such election with respect to such Portfolio's monthly net
investment income dividends.
At the time of an investor's purchase of units of either the Government
Securities Portfolio or the Mortgage Securities Portfolio a portion of the per
unit net asset value may be represented by undistributed income of such
Portfolio or unrealized appreciation of the securities held by such Portfolio.
NET ASSET VALUE
The net asset value per unit of each Portfolio is calculated by adding the
value of all securities and other assets of such Portfolio, subtracting the
liabilities of such Portfolio, dividing the remainder by the number of units
of such Portfolio outstanding and rounding the result to the nearest one cent.
28
<PAGE>
MONEY MARKET PORTFOLIO
The net asset value per unit of the Money Market Portfolio for purposes of
both purchase and redemption of units of such Portfolio is calculated by State
Street immediately after the determination of net investment income earned by
unitholders of record, as of 4:00 p.m., New York time on each Business Day (as
such term is defined under "Additional Information").
The Fund seeks to maintain a net asset value for the Money Market Portfolio
of $1.00 per unit. In this connection, the Money Market Portfolio values its
portfolio securities on the basis of amortized cost. The amortized cost method
values a security at its cost on the date of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the
instrument. For a more complete description of the amortized cost valuation
method and its effect on existing and prospective unitholders, see the
Additional Statement. There can be no assurance that the Money Market
Portfolio will be able at all times to maintain a net asset value per unit of
$1.00.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
The net asset value per unit of each Portfolio for purposes of both purchase
and redemption of units is calculated by State Street as of 4:00 p.m., New
York time, immediately after the determination of income to be declared as a
dividend, on each Business Day (as such term is defined under "Additional
Information"). Portfolio securities for which accurate market quotations are
readily available will be valued on the basis of quotations provided by
dealers in such securities or furnished by a pricing service. Portfolio
securities for which accurate market quotations are not readily available and
other assets will be valued at fair value using methods determined in good
faith by Goldman, Sachs & Co. under the supervision of the Trustees and may
include yield equivalents or a pricing matrix. Short-term securities with
maturities of 60 days or less are valued at amortized cost which the Trustees
have determined to equal fair value. In the case of the Government Securities
Portfolio and the Mortgage Securities Portfolio, the net asset value per unit
will fluctuate as the values of portfolio securities change in response to
changing market rates of interest, principal prepayments and other factors.
TAXES
TAXATION OF UNITHOLDERS
If state and federally chartered credit unions meet all requirements of
Section 501(c)(14)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") and all rules and regulations thereunder, they will be exempt from
federal income taxation on any income, dividends or capital gains realized as
the result of purchasing, holding, exchanging or redeeming units of the Fund.
Unitholders should consult their own tax advisers concerning applicable
state tax laws.
FEDERAL TAXATION OF THE FUND
The Fund intends that each of its Portfolios will qualify for the special
tax treatment afforded regulated investment companies under Subchapter M of
the Code. Each Portfolio of the Fund is treated as a separate corporation for
federal tax purposes and generally must comply with the
29
<PAGE>
qualification and other requirements applicable to regulated investment
companies, without regard to the Fund's other Portfolios. If a Portfolio
otherwise complies with such provisions, then in any taxable year for which it
distributes at least 90% of its taxable income determined for federal income
tax purposes, the Portfolio will be relieved of federal income tax on the
amounts distributed. The Fund intends to distribute to its unitholders
substantially all of each Portfolio's net investment income. See "Income." Net
investment income may be different from taxable income determined for federal
income tax purposes. However, such difference is not expected to adversely
affect any Portfolio's compliance with the provisions of the Code applicable
to regulated investment companies.
Generally, on the sale or exchange of obligations held for more than one
year, net gain realized by a Portfolio which is not attributable to original
issue discount or certain market discount will be long-term capital gain. Such
capital gain, if any, will be distributed as capital gain dividends.
The Code will impose a 4% excise tax if a Portfolio fails to meet certain
requirements with respect to distributions of net ordinary income and capital
gain net income. It is not anticipated that this provision will have any
material impact on the Portfolios or their unitholders.
If for any taxable year a Portfolio does not qualify as a regulated
investment company, all of its taxable income will be taxed to such Portfolio
at the appropriate corporate rate without any reduction for distributions made
to unitholders.
The foregoing discussion of tax consequences is based on federal tax laws
and regulations in effect on the date of this Prospectus, which are subject to
change by legislative or administrative action.
MANAGEMENT
TRUSTEES
The trust agreement pursuant to which the Fund is organized (the "Trust
Agreement") provides that, subject to its provisions, the business of the Fund
shall be managed by the Trustees. The Trust Agreement provides that (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to the Trustees' general supervision, advisory and administration services and
duties and also including distribution, custodian, transfer and dividend
disbursing agency, unitholder servicing and accounting services and duties,
(b) a Trustee shall be liable for his 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.
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 &
30
<PAGE>
Co. acts as transfer agent. Goldman, Sachs & Co. became registered as an
investment adviser in 1981. As of September 30, 1996, Goldman, Sachs & Co. and
its affiliates served as investment adviser, administrator or distributor for
approximately $86.2 billion in assets.
Under its advisory agreement with the Fund, Goldman, Sachs & Co., subject to
the general supervision of the Fund's Trustees, manages the Fund's Portfolios
and provides certain administrative services for the Fund. As manager of the
Fund's Portfolios, it is the responsibility of Goldman, Sachs & Co. to make
investment decisions for the Fund and to place the purchase and sale orders
for the portfolio transactions of the Fund. Unitholder inquiries should be
directed to Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
The portfolio managers for the Government Securities Portfolio and the
Mortgage Securities Portfolio are Jonathan A. Beinner, Peter D. Dion, James B.
Clark and James P. McCarthy. Their responsibilities include investing in the
particular types of securities the Portfolios may hold. Mr. Beinner is a Vice
President of Goldman, Sachs & Co. Mr. Beinner joined GSAM in 1990 after
working in the trading and arbitrage group of Franklin Savings Association.
Mr. Dion 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. Goldman, Sachs & Co. has
voluntarily agreed to limit its advisory fee with respect to the Money Market
Portfolio to .12% of the first $250 million, .10% of the next $250 million,
.09% of the next $250 million and .08% over $750 million of the Portfolio's
average daily net assets. This voluntary limitation may be terminated by
Goldman, Sachs & Co. at any time. For the fiscal year ended August 31, 1996,
the Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio paid, after waivers, advisory fees to Goldman, Sachs &
Co. at the annual rates of .11%, .20% and .18%, respectively, of their average
daily net assets.
ACTIVITIES OF GOLDMAN, SACHS & CO. AND ITS AFFILIATES AND OTHER ACCOUNTS
MANAGED BY GOLDMAN, SACHS & CO. The involvement of Goldman, Sachs & Co. and
its affiliates in the management of, or its interest in, other accounts and
other activities of Goldman, Sachs & Co. may present conflicts of interest
with respect to the Portfolios or limit 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 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
31
<PAGE>
Goldman, Sachs & Co. will have access to proprietary information for the
purpose of managing the Portfolios. The results of the Portfolios' investment
activities, therefore, may differ from those of Goldman, Sachs & Co. and its
affiliates and it is possible that the Portfolios could sustain losses during
periods in which Goldman, Sachs & Co. and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other
accounts. From time to time, the Portfolios' activities may be limited because
of regulatory restrictions applicable to Goldman, Sachs & Co. and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Activities of Goldman, Sachs & Co. and its Affiliates and
Other Accounts Managed by Goldman, Sachs & Co." in the Additional Statement
for further information.
ADMINISTRATOR
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), c/o
Callahan Financial Services, Inc., P.O. Box 11, Manchester, MD 21102, a
Delaware limited partnership for which Callahan Financial Services, Inc.
serves as general partner and in which 38 major credit unions are limited
partners, acts as the administrator of the Fund. Under its administration
agreement with the Fund, CUFSLP, subject to the general supervision of the
Fund's Trustees, periodically reviews the performance of the investment
adviser, the transfer agent, the distributors and the custodian of the Fund;
provides facilities, equipment and personnel to serve the needs of investors;
develops and monitors investor programs for credit unions; provides assistance
in connection with the processing of unit purchase and redemption orders as
reasonably requested by the transfer agent or the Fund; handles unitholder
problems and calls relating to administrative matters; provides advice and
assistance concerning the regulatory requirements applicable to credit unions
that invest in the Fund; and provides other administrative services to the
Fund.
For such services, and the assumption by CUFSLP of the expenses related
thereto, pursuant to its administration agreement CUFSLP is entitled to
receive fees, computed daily and payable monthly, from the Money Market
Portfolio, Government Securities Portfolio and Mortgage Securities Portfolio,
respectively, at annual rates equal to .10% .10% and .05% of the average daily
net assets of the respective Portfolio. CUFSLP has voluntarily agreed to limit
its administration fee charged to the Money Market Portfolio to .05% of the
first $500 million, .04% of the next $250 million and .03% over $750 million
of the Portfolio's average daily net assets. This voluntary limitation may be
terminated by CUFSLP at any time. For the fiscal year ended August 31, 1996,
the Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio paid, after waivers, administration fees to CUFSLP at the
annual rates of .05%, .10% and .05%, respectively, of their average daily net
assets.
DISTRIBUTORS
Callahan Financial Services, Inc. ("CFS"), 1001 Connecticut Ave., N.W.,
Suite 1022, Washington, D.C. 20036-5504, a Delaware corporation, and Goldman,
Sachs & Co., 85 Broad Street, New York, New York, 10004, serve as co-
distributors of units of the Fund. CFS, a registered broker-dealer under the
Securities Exchange Act of 1934, is an affiliate of Callahan & Associates,
Inc., a corporation organized under the laws of the District of Columbia,
founded in 1985.
CFS and Goldman, Sachs & Co. have entered into distribution agreements with
the Fund to sell units of the Portfolios upon the terms and at the current
offering price described in this Prospectus.
32
<PAGE>
CFS and Goldman, Sachs & Co. are not obligated to sell any certain number of
units of the Portfolios. From time to time the distributors may purchase or
sell units for their own account.
FUND EXPENSES
Common expenses of the Fund are 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 0.20% of its
average daily net assets, CUFSLP will either reduce the administration fees
payable or pay the Operating Expenses of the Money Market Portfolio.
Additionally, CUFSLP and Goldman, Sachs & Co. have each voluntarily agreed to
limit all other expenses of the Government Securities Portfolio such that
CUFSLP will reimburse other expenses that exceed .05% up to .10% of the
Portfolio's average net assets, and Goldman, Sachs & Co. will reimburse other
expenses that exceed .10% up to .15% of the Portfolio's average net assets.
There are no sales loads, commissions or other fees imposed on investors at
the time of purchase of units and no redemption fees or other charges imposed
at the time of redemption of units.
PERFORMANCE AND YIELD INFORMATION
From time to time quotations of the Money Market Portfolio's yield and
effective yield may be included in advertisements and communications to
unitholders. Both yield figures are based on historical earnings and are not
intended to indicate future performance. The yield of the Portfolio refers to
the net investment income generated by an investment in the Portfolio over a
specified seven-day period. This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The effective yield is expressed similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment. Yield and effective
yield for the Portfolio will vary based on changes in market conditions, the
level of interest rates and the level of the Portfolio's expenses.
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. 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.
33
<PAGE>
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 1997, such
holidays are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas Day. On those days
when one of such organizations closes early, the right is reserved by Goldman,
Sachs & Co. to advance the time on that day by which purchase and redemption
requests must be received to become effective; provided that the current net
asset value of each unit shall be computed at least once on such days.
34
<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 Trust Callahan Financial
Chicago, Illinois Company Services, Inc.
Boston, Massachusetts Washington, DC
(800) 237-5678
Administrator Auditors Goldman, Sachs & Co.
Callahan Credit Union Arthur Andersen LLP New York, New York
Financial Boston, Massachusetts (800) 342-5828
Services Limited Partnership (800-DIAL-TCU)
Washington, DC
<PAGE>
[LOGO] TRUST
--------
for Credit Unions
Prospectus
December 30, 1996
TARGET MATURITY PORTFOLIO (Feb 1997)
TARGET MATURITY PORTFOLIO (May 1997)
<PAGE>
TRUST FOR CREDIT UNIONS
TARGET MATURITY PORTFOLIO (FEB 97)
TARGET MATURITY PORTFOLIO (MAY 97)
---------------
Trust for Credit Unions (the "Fund") is an open-end, diversified, management
investment company (commonly known as a "mutual fund") offered only to state
and federally chartered credit unions and credit union service organizations.
This Prospectus relates solely to the offering of units of the Target Maturity
Portfolio (Feb 97) and Target Maturity Portfolio (May 97) (individually, a
"Portfolio" and together, the "Portfolios").
The objective of each Portfolio is to achieve a high level of current income
and to return $10 per unit (the initial public offering price) to investors on
or about the third anniversary of its commencement date for the Target
Maturity Portfolio (Feb 97) and Target Maturity Portfolio (May 97) (February
18, 1997 and May 15, 1997, respectively). There can be no assurance that a
Portfolio will attain its investment objective. The Portfolios invest
primarily in mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises and in
privately-issued mortgage-related securities rated, at the time of purchase,
in one of the two highest rating categories by a nationally recognized
statistical rating organization ("NRSRO"). Units of each Portfolio are
designed to qualify as eligible investments for federally chartered credit
unions, but may or may not qualify as eligible investments for particular
state chartered credit unions.
Goldman, Sachs & Co., through Goldman Sachs Asset Management, a separate
operating division, serves as the Fund's investment adviser. Goldman, Sachs &
Co. also serves as the Fund's transfer agent. Callahan Credit Union Financial
Services Limited Partnership serves as the Fund's administrator. Callahan
Financial Services, Inc., the general partner of Callahan Credit Union
Financial Services Limited Partnership, and Goldman, Sachs & Co. serve as the
Fund's co-distributors.
The Fund's initial public offering for the Target Maturity Portfolio (Feb
97) and Target Maturity Portfolio (May 97) closed on February 15, 1994 and May
20, 1994, respectively. The Fund's co-distributors may solicit orders for
units of each of the Portfolios during a subsequent subscription period at
some future date, but presently do not expect to do so.
This Prospectus dated December 30, 1996, which sets forth concisely the
information about the Portfolios that a prospective investor ought to know
before investing, should be retained for future reference. A Statement of
Additional Information (the "Additional Statement") dated the same date,
containing further information about each Portfolio which may be of interest
to investors, has been filed with the Securities and
(Continued on following page)
UNITS OF THE PORTFOLIOS ARE NOT ENDORSED BY, INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, ANY CREDIT UNION
OR BY THE NATIONAL CREDIT UNION SHARE INSURANCE FUND, THE NATIONAL CREDIT
UNION ADMINISTRATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
PORTFOLIOS INVOLVES RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(Continued from previous page)
Exchange Commission (the "SEC"), is incorporated herein by reference in its
entirety, and may be obtained without charge from Goldman, Sachs & Co. or
Callahan Credit Union Financial Services Limited Partnership by calling the
applicable telephone number listed below.
GOLDMAN, SACHS & CO. Toll Free.......................800-342-5828
Advisor and Co-Distributor (800-DIAL-TCU)
One New York Plaza
New York, New York 10005
CALLAHAN CREDIT UNION FINANCIAL Toll Free.......................800-237-5678
SERVICES LIMITED PARTNERSHIP
Administrator
c/o Callahan Financial Services, Inc.
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
CALLAHAN FINANCIAL SERVICES, INC. Toll Free.......................800-237-5678
Co-Distributor
1001 Connecticut Ave., N.W., Suite 1022
Washington, D.C. 20036-5504
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................. 1
FEES AND EXPENSES.......................................................... 6
FINANCIAL HIGHLIGHTS....................................................... 7
INVESTMENT OBJECTIVE....................................................... 8
DESCRIPTION OF INVESTMENTS................................................. 9
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS...................... 16
REPORTS TO UNITHOLDERS..................................................... 20
PURCHASE OF UNITS.......................................................... 20
REDEMPTION OF UNITS........................................................ 21
INCOME..................................................................... 22
NET ASSET VALUE............................................................ 23
TAXES...................................................................... 23
MANAGEMENT................................................................. 24
PERFORMANCE AND YIELD INFORMATION.......................................... 26
ADDITIONAL INFORMATION..................................................... 27
</TABLE>
i
<PAGE>
HIGHLIGHTS
INTRODUCTION
Each of the Portfolios is an open-end, diversified, management investment
company (commonly known as a "mutual fund") offered solely to state and
federally chartered credit unions and credit union service organizations.
Units of each Portfolio are designed to qualify as eligible investments for
federally chartered credit unions pursuant to Sections 107(7), 107(8) and
107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union
Administration Rules ("NCUA") and Regulations and NCUA Letter Number 155. The
Fund intends to review changes in the applicable laws, rules and regulations
governing eligible investments for federally chartered credit unions, and to
take such action as may be necessary so that the investments of each Portfolio
qualify as eligible investments under the Federal Credit Union Act and the
regulations thereunder. Units of each Portfolio, however, may or may not
qualify as eligible investments for particular state chartered credit unions
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 a Portfolio is a permissible
investment under the laws applicable to it.
INVESTMENT OBJECTIVE Pages 8 and 9
The Portfolios seek to achieve a high level of current income by investing
in obligations authorized under the Federal Credit Union Act and to return $10
per unit (the initial public offering price) to investors on or about the
following dates: Target Maturity Portfolio (Feb 97)-February 18, 1997 and
Target Maturity Portfolio (May 97)-May 15, 1997, respectively. Under normal
circumstances, each Portfolio will invest primarily (i.e., at least 65% of its
assets) in mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises and in
privately-issued mortgage-related securities rated, at the time of purchase,
in one of the two highest rating categories by an NRSRO. These securities will
include both adjustable rate and fixed rate mortgage pass-through securities,
collateralized mortgage obligations and other multi-class mortgage-related
securities, as well as other securities that are collateralized by or
represent direct or indirect interests in mortgage-related securities or
mortgage loans. Each Portfolio may also invest in (a) other securities issued
or guaranteed as to principal and interest by the U.S. Government or by its
agencies, instrumentalities or sponsored enterprises, (b) repurchase
agreements pertaining thereto and (c) certain short-term obligations (as
specified in "Description of Investments--Short-Term Obligations").
Although the Portfolios may purchase securities of any maturity, each
Portfolio will seek to attain its objective to return $10 per unit by (1)
preserving capital through active portfolio management, including the purchase
and sale of securities to change each Portfolio's option-adjusted duration
(see "Description of Investments--Other Portfolio Management Policies") and
(2) reducing, over time, the price sensitivity of each Portfolio to changes in
interest rates in light of expected cash flows and mortgage prepayments under
different interest rate scenarios. Each Portfolio will seek to achieve a high
level of income through the active management of its assets in relation to
market conditions, interest rate changes and the remaining term of each
Portfolio. No assurance can be given that each Portfolio will achieve its
investment objective.
PURCHASE OF UNITS Page 20
Purchase of units of each Portfolio may be made only by Federal Reserve
wire. The minimum investment by an investor is $1,000,000. If, however, an
investor is a unitholder in the Fund's other
1
<PAGE>
investment portfolios at the time of purchase, the amount of minimum
investment will be reduced by the value of the investor's holdings in the
other portfolios up to a maximum reduction of $500,000.
Orders for Portfolio units received before 4:00 p.m., New York time, on a
Business Day earn income commencing the next Business Day provided that
federal funds have been received by such next Business Day.
REDEMPTION OF UNITS Pages 21 and 22
All units of a Portfolio that are outstanding on the Termination Date (as
defined below) will be redeemed by the Fund without a redemption fee at their
net asset value (which is targeted to be approximately $10) as of the close of
business on the Termination Date of a Portfolio, and each Portfolio will be
liquidated without further unitholder action. The Termination Dates of the
respective Portfolios will occur on or about February 18, 1997 for Target
Maturity Portfolio (Feb 97) and May 15, 1997 for Target Maturity Portfolio
(May 97). Investors may also redeem units at any time before the Portfolio's
Termination Date at their net asset value next determined after a request has
been received by the Fund, less a redemption fee for early withdrawal equal to
.50% of the net asset value of the redeemed units at the time of redemption.
The redemption fee is not a sales charge, but is kept by a Portfolio for the
benefit of its unitholders. The purpose of the fee is to offset costs a
Portfolio may incur (for example in connection with the liquidation of
portfolio securities) in order to make payment in cash to a redeeming
unitholder. Redemption requests received before 4:00 p.m., New York time,
normally provide federal funds on the next Business Day (as defined under
"Additional Information") to the unitholder's designated account.
INCOME AND CAPITAL GAINS DISTRIBUTION POLICY Pages 22 and 23
Dividends from net investment income will be declared daily and paid monthly
by each Portfolio in cash by Federal Reserve wire unless an election is made
to invest dividends in units of the Fund's Money Market Portfolio on the last
calendar day of each month. Over the course of the fiscal year, dividends
accrued and paid will constitute all or substantially all of each Portfolio's
net investment income. From time to time, in order to stabilize the monthly
rate of distribution to unitholders and to enhance stability of principal, a
portion of such dividends may constitute a return of capital. Each Portfolio
intends that net realized capital gains, if any, after offset by any available
capital loss carryforwards from prior fiscal years, will be declared as a
dividend at least annually. Dividends payable to unitholders with respect to
net investment income and capital gains, if any, will be paid in cash unless
an election is made to invest dividends in units of the Fund's Money Market
Portfolio at net asset value on the payment date.
NET ASSET VALUE Page 23
The net asset value per unit of each Portfolio is determined by dividing the
excess of the market value of all securities and other assets over liabilities
by the number of units outstanding. Each Portfolio's net asset value per unit
will fluctuate as the value of such Portfolio's assets changes in response to
changing market rates of interest, principal prepayments and other factors.
All units of a Portfolio that are outstanding on its Termination Date will be
redeemed at net asset value as of the close of business on such Termination
Date, which is targeted to be approximately $10.
2
<PAGE>
INVESTMENT ADVISER Pages 24 and 25
Goldman, Sachs & Co., one of the largest international investment banking
and brokerage firms in the United States, serves as the Fund's investment
adviser and also provides certain administrative services. Goldman, Sachs &
Co. provides its advisory services through Goldman Sachs Asset Management
("GSAM"), a separate operating division.
ADMINISTRATOR Pages 25 and 26
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), a
Delaware limited partnership in which 38 major credit unions are limited
partners, acts as the administrator of the Fund. In this capacity, CUFSLP
periodically reviews the performance of the investment adviser, the transfer
agent, the co-distributors and the custodian of the Fund and provides other
administrative services to the Fund.
DISTRIBUTORS Page 26
Callahan Financial Services, Inc. ("CFS"), the general partner of CUFSLP,
and Goldman, Sachs & Co. serve as co-distributors of units in the Portfolios.
RISK FACTORS
Although each Portfolio's objective is to return $10 per unit (the initial
public offering price) to investors on its Termination Date, there is no
assurance that this objective will be achieved. In particular, while each
Portfolio will seek to reduce, over time, its price sensitivity to interest
rates, each Portfolio will purchase securities with maturities that fall after
the Termination Date, and it is possible that a Portfolio will realize capital
losses that are not offset by capital gains on the dispositions of securities
held by it. If a Portfolio realizes any capital losses on dispositions of
securities that are not offset by capital gains on dispositions of other
securities, a Portfolio may be unable to distribute to its unitholders on the
Termination Date an amount equal to approximately $10 per unit then
outstanding. In addition, the timing of the realization of any such capital
gains or capital losses, and the possibility that a Portfolio may be required
to distribute all or a portion of any such capital gains prior to the
Termination Date, may adversely affect the ability of a Portfolio to
distribute an amount equal to approximately $10 per unit on the Termination
Date, as well as the level of income earned by a Portfolio during its term.
Each Portfolio's ability to attain its investment objective will depend, in
part, on the success of the investment adviser's investment and hedging
strategies, on future interest rate trends, and on developments in the market
for mortgage-related securities. For example, a decline in market rates of
interest, or an increase in prepayments on mortgage-related securities held by
a Portfolio, may have an adverse effect on the income earned and dividends
paid by that Portfolio. In addition, operating results will depend upon the
availability of opportunities for the investment of each Portfolio's assets.
In this regard, the universe of suitable investments for each Portfolio will
be more limited than that for many other investment companies because of each
Portfolio's policy to limit its price sensitivity to interest rates and to
terminate on the Termination Date, and each Portfolio's income and dividends
may decline in the last year of its term for these reasons. As a result of
each Portfolio's active management techniques, the Portfolios expect to
experience a high portfolio turnover rate. A high rate
3
<PAGE>
of portfolio turnover involves correspondingly greater transaction costs,
which must be borne directly by each Portfolio and ultimately by its
unitholders. For a further discussion of the implications of a high portfolio
turnover rate, see "Other Portfolio Management Policies."
Furthermore, because the co-distributors do not expect to offer additional
Portfolio units and because units may be redeemed by investors at any time
during the term of each Portfolio, it is expected that the number of
outstanding Portfolio units could decrease before its Termination Date. The
redemption of units could increase the per unit expenses of the remaining
investors and adversely affect both a Portfolio's performance and the
investments of the remaining unitholders. Unitholder redemptions may also
require the investment adviser to sell portfolio securities that it would
otherwise keep in a Portfolio and to realign the remaining securities in the
Portfolio in light of the Portfolio's objective resulting in increased
expenses and lower performance. It is possible that the costs incurred by a
Portfolio in liquidating portfolio securities to meet redemption requests will
exceed the Portfolio's redemption fee for early withdrawal and that remaining
unitholders will, in this respect, also be adversely affected.
Each Portfolio's investments are interest rate sensitive, and their yields
will depend on a variety of factors including general market conditions for
the investments, the financial condition of the issuers involved, the size of
the particular offerings and the maturity, credit quality and rating of the
particular securities. Generally, the longer the maturity of a security, the
higher its yield and the greater its volatility. The market value of
securities held by a Portfolio (and consequently, a Portfolio's net asset
value) will generally decline during periods of increasing interest rates, and
increase during periods of declining interest rates (although many mortgage-
related securities will generally have less potential for capital appreciation
during periods of declining rates than other debt securities). Mortgage-
related securities, in particular, typically have frequent interest and
principal payments, and are subject to principal prepayments. As a result,
mortgage-related securities may be less effective than other types of debt
securities as a means of "locking in" interest rates. Moreover, the rate of
principal prepayments will frequently accelerate during periods of declining
interest rates. As a result, when a Portfolio reinvests amounts representing
scheduled and unscheduled payments of principal, it may receive a lower rate
of interest.
In addition, there can be no assurance that the date of subsequent sales (if
any) of a Portfolio's units, will occur at a time when market and interest-
rate conditions are favorable with respect to the types of mortgage-related
securities in which each Portfolio will invest. Investments by the Portfolios
during unfavorable conditions will adversely affect the Portfolio's investment
performance.
Each Portfolio's policy of investing primarily in mortgage-related
securities will have the effect of increasing the Portfolio's exposure to the
risks associated with such securities and may cause the net asset value of the
Portfolio to fluctuate more than if the Portfolio invested in other types of
securities. Privately-issued mortgage-related securities typically are not
guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises but such securities are generally structured with one or
more types of credit enhancement such as guarantees, subordination, insurance
policies or letters of credit obtained by the issuer or sponsor from third
parties, through various means of structuring the transaction or through a
combination of such approaches. In addition, although the Portfolios treat
each mortgage-related portfolio as a separate issuer, concentration in issues
of mortgage-related securities within the same master trust, sponsored by the
same sponsor or serviced
4
<PAGE>
by the same servicer may involve certain risks. Servicers of mortgage-related
pools collect payments on the underlying mortgage assets for pass-through to
the securityholders on a periodic basis. Upon insolvency of the servicer, the
securityholders may be at risk with respect to collections received by the
servicer but not yet delivered to the securityholders. In addition, a
sponsor's transfer of assets to a trust or other pooling vehicle may not
represent a true sale and, upon insolvency of the sponsor, the securityholders
of the trust or other pool may be at risk with respect to the assets
transferred to the trust or pool by the sponsor.
Some mortgage-related securities acquired by each Portfolio will be issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises; however, under certain interest rate and prepayment
scenarios each Portfolio may nevertheless fail to recoup fully its investment
in certain of these securities. In addition, certain securities held by a
Portfolio may not be readily marketable and, therefore, may be illiquid. The
yields on a class of stripped mortgage-backed securities that receives all or
most of the interest (i.e. IO's) are generally higher than the prevailing
market yields on other mortgage-related securities because they are extremely
sensitive to the rate of principal payments, including prepayments.
Prepayments can result in a Portfolio's failure to recoup its initial
investment even though the stripped mortgage backed securities are issued or
guaranteed by the U.S. Government. Investors should be aware that investments
made by each Portfolio also entail other risks. These include the possible
failure of an obligor or counter-party (parties to whom a Portfolio has credit
or performance exposure) to meet its commitments, adverse economic, real
estate or unemployment trends, possible failure in the processing of
transactions and risks associated with investments in foreign branches of U.S.
banks. Each Portfolio may engage in various investment practices that involve
special risks, such as repurchase agreements and mortgage dollar rolls. As
indicated, one or more of the Fund's Portfolios may, to the extent consistent
with the Rules and Regulations of the National Credit Union Administration,
invest in stripped mortgage-backed securities, zero coupon bonds,
collateralized mortgage obligations and other multi-class mortgage-related
securities which present certain risks. See "Description of Investments" and
"Other Investment Practices, Policies and Restrictions" for further
information.
The involvement of Goldman, Sachs & Co., and its affiliates, partners and
officers, in the investment activities and business operations of the Fund may
present certain potential conflicts-of-interest, as described under
"Management--Investment Adviser and Transfer Agent."
5
<PAGE>
FEES AND EXPENSES
The following table illustrates all expenses and fees that a unitholder of a
Portfolio will incur.
UNITHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases..................................... None
Sales Load Imposed on Reinvested Dividends. ........................ None
Maximum Redemption Fee.............................................. 0.50%
Maximum Exchange Fees............................................... None
</TABLE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
TMP TMP
FEB MAY
97 97
--- ---
<S> <C> <C>
Investment Advisory Fee......................................... .24% .25%
Administration Fee.............................................. .05% .05%
Other Expenses.................................................. .10% .15%
--- ---
Total Portfolio Operating Expenses.............................. .39% .45%
=== ===
</TABLE>
The purpose of this table is to assist investors in understanding the
various expenses that an investor in a Portfolio will bear directly or
indirectly. The information is based on estimated expenses that the Portfolios
expect to incur during the current fiscal period through their respective
termination dates.
Management fees for each Portfolio consist of an investment advisory fee to
Goldman, Sachs & Co. payable monthly at an annual rate equal to .25% of
average daily net assets up to $75 million and .20% of average daily net
assets over $75 million of the Portfolio, and an administration fee to CUFSLP
payable monthly at an annual rate equal to .05% of the average daily net
assets of the Portfolio. Units that are redeemed by investors before the
Termination Date will be subject to a redemption fee for early withdrawal
equal to .50% of the net asset value of the redeemed units. Units that are
redeemed on the Termination Date are not subject to a redemption fee.
The following example illustrates the expenses that an investor would pay on
a $1,000 investment in a Portfolio over various time periods based on the
information presented above assuming a 5% annual rate of return and an
investment of all dividends and distributions. The first line assumes
redemption at the end of each time period. The second line assumes no
redemption.
<TABLE>
<CAPTION>
TMP TMP
FEB 97 MAY 97
-------------- --------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Redemption Assumed.......................... $ 9 $19 $10 $20
No Redemption Assumed....................... $ 4 $13 $ 5 $14
--- --- --- ---
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than those
shown in the Table.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information with respect to a unit of the Target Maturity
Portfolio (Feb 97) and the Target Maturity Portfolio (May 97) outstanding
during the periods indicated has been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report, incorporated by
reference into the Additional Statement, from the Fund's annual report to
unitholders for the fiscal year ended August 31, 1996 (the "Annual Report"),
and should be read in conjunction with the financial statements and related
notes appearing in the Annual Report. This Annual Report also contains other
performance information and is available upon request and without charge by
writing to either of the addresses on the inside cover of this Prospectus.
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS UNITHOLDERS
---------------------- -----------------
RATIO OF
NET NET
REALIZED INVEST-
NET AND IN NET MENT NET
ASSET UNREAL- FROM EXCESS ASSET RATIO OF INCOME PORT- ASSETS
VALUE AT NET IZED GAIN NET OF NET VALUE AT NET TO FOLIO AT END
BEGIN- INVEST- (LOSS) ON INVEST- INVEST- END EXPENSES AVERAGE TURN OF
NING OF MENT INVEST- MENT MENT OF TOTAL TO AVERAGE NET OVER PERIOD
PERIOD INCOME MENTS(A) INCOME INCOME PERIOD RETURN(B) NET ASSETS ASSETS RATE(C) (000'S)
-------- ---------- ----------- -------- ------- -------- --------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TARGET MATURITY PORTFOLIO (FEB 97)
- ------------------------------------------------------------------------------------------------------------------------------
Year ended:
8/31/96......... $9.71 $ 0.6436 $ (0.0106) $(0.6830) $ -- $9.66 6.70% 0.39% 6.64% 211.33% $94,727
8/31/95......... 9.63 0.6674 0.0261 (0.6135) -- 9.71 7.48 0.41 6.94 171.98 95,221
2/15/94(d) to
8/31/94......... 10.00 0.3313 (0.4189) (0.2824) -- 9.63 (0.83) 0.42(e) 6.30(e) 156.03 97,380
<CAPTION>
TARGET MATURITY PORTFOLIO (MAY 97)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/96......... 9.99 0.7028 (0.0446) (0.6982) -- 9.95 6.77 0.43 7.03 190.34 63,169
8/31/95......... 9.91 0.6674 0.0673 (0.6547) -- 9.99 7.70 0.45 6.77 147.76 63,459
5/23/94(d) to
8/31/94......... 10.00 0.1594 (0.0674) (0.1594) (0.0226) 9.91 0.92 0.48(e) 5.80(e) 74.68 68,867
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period and no
redemption fee. For Target Maturity Portfolio (Feb 97) and Target Maturity
Portfolio (May 97), total return would be reduced if a redemption fee were
taken into account.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
7
<PAGE>
INVESTMENT OBJECTIVE
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") organized on September 24, 1987 as a
Massachusetts business trust. The Fund seeks to achieve a high level of income
to the extent consistent with the investment objectives of its investment
portfolios. The Fund presently maintains five investment portfolios--the Money
Market Portfolio, Government Securities Portfolio, Mortgage Securities
Portfolio, Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97). This Prospectus relates solely to the offering of units of two
Portfolios--Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97) (individually, a "Portfolio" and together, the "Portfolios").
The Fund is offered solely to state and federally chartered credit unions
and credit union service organizations. Units of each of the Fund's investment
portfolios are designed to qualify as eligible investments for federally
chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the
Federal Credit Union Act, Part 703 of the National Credit Union Administration
Rules ("NCUA") and Regulations and NCUA Letter Number 155. The Fund intends to
review changes in the applicable laws, rules and regulations governing
eligible investments for federally chartered credit unions, and to take such
action as may be necessary so that the investments of the Fund qualify as
eligible investments under the Federal Credit Union Act and the regulations
thereunder.
Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act set
forth those securities, deposits and other obligations in which federally
chartered credit unions may invest. Included are mortgage-related securities,
securities issued or fully guaranteed as to principal and interest by the
United States Government or its agencies, instrumentalities or sponsored
enterprises, accounts in specified federally insured financial institutions
and other specified investments.
The investments of the Portfolios consist exclusively of assets intended to
qualify as eligible investments if owned directly by a federally chartered
credit union. Units of the Portfolios, however, may or may not qualify as
eligible investments for particular state chartered credit unions 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 units of the Portfolios are permissible investments
under the laws applicable to it.
TARGET MATURITY PORTFOLIOS
Each Portfolio seeks to achieve a high level of current income by investing
in obligations authorized under the Federal Credit Union Act and to return $10
per unit (the initial public offering price) to investors on or about the
following Termination Dates: Target Maturity Portfolio (Feb 97)-February 18,
1997 and Target Maturity Portfolio (May 97)-May 15, 1997.
Each Portfolio invests exclusively in:
--mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises
and privately-issued mortgage-related securities, rated at the time of
purchase, in one of the two highest rating categories by an NRSRO;
--other securities issued or guaranteed as to principal and interest by
the U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--repurchase agreements pertaining thereto; and
--short-term obligations (as specified in "Description of Investments--
Short-Term Obligations").
8
<PAGE>
The investment objective of each Portfolio (which is set forth in the first
sentence of this section) may not be changed without the approval of the
holders of a majority of the outstanding units of a Portfolio, as described
under "Additional Information." Although each Portfolio is permitted to
purchase securities of any maturity, each Portfolio will seek to attain its
objective to return $10 per unit by (1) preserving capital through active
portfolio management, including the purchase and sale of securities to change
the Portfolio's option-adjusted duration (see "Description of Investments--
Other Portfolio Management Policies") and (2) reducing, over time, its price
sensitivity to changes in interest rates in light of expected cash flows and
mortgage prepayments under different interest rate scenarios. Each Portfolio
will seek to achieve a high level of income through the active management of
its assets in relation to market conditions, interest rate changes and the
remaining term of the Portfolio. There can be no assurance that the objective
of any Portfolio will be realized. In seeking its objective, a Portfolio may
not always purchase securities offering the highest yield.
DESCRIPTION OF INVESTMENTS
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are securities that directly or indirectly
represent participations in, or are collateralized by and payable from
payments on, mortgage loans secured by real property. These securities include
both adjustable rate and fixed rate mortgage pass-through securities and
collateralized mortgage obligations and other multi-class mortgage-related
securities as well as other securities that are collateralized by or represent
direct or indirect interests in mortgage-related securities or mortgage loans.
The issuers of certain mortgage-related securities may elect to have the pool
of mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"),
which is subject to special federal income tax rules. A description of the
types of mortgage-related securities in which the Portfolios will invest is
provided below. The descriptions are general and summary in nature, and do not
detail every possible variation of the types of mortgage-related securities
that are permissible for each Portfolio.
1. INVESTMENT CHARACTERISTICS OF MORTGAGE-RELATED SECURITIES
In general, changes in both prepayment rates on mortgage-related securities
and interest rates and the volume of transactions in Portfolio units will
affect a Portfolio's return. A predominant factor affecting the prepayment
rate on a pool of mortgage loans is the difference between the interest rates
on outstanding mortgage loans and prevailing mortgage loan interest rates
(giving consideration to the cost of any refinancing). In general, if mortgage
loan interest rates fall sufficiently below the interest rates on fixed rate
mortgage loans underlying mortgage-related securities, the rate of prepayment
would be expected to increase. Prepayments of adjustable rate mortgage loans
may also increase in a declining interest rate environment as borrowers seek
to "lock-in" low rates. Conversely, if mortgage loan interest rates rise above
the interest rates on outstanding mortgage loans, the rate of prepayment may
be expected to decrease. Due to these factors, mortgage-related securities may
be less effective than U.S. Treasury securities of similar maturity at
maintaining yields during periods of declining interest rates, since the
mortgage payments will normally be reinvested in instruments with lower yields
reflecting prevailing market conditions.
Because each Portfolio's investments are interest rate sensitive, the
Portfolio's performance will depend in large part upon the ability of the
Portfolio to anticipate and respond to fluctuations in market interest rates
and to utilize appropriate strategies to maximize returns to the Portfolio,
while attempting
9
<PAGE>
to minimize the associated risks to its investment capital. Prepayments may
have a disproportionate effect on certain mortgage-related securities such as
stripped mortgage-backed and certain other multiple class pass-through
securities, which are discussed below.
Generally, to the extent mortgage-related securities are purchased at a
premium, a faster than anticipated rate of unscheduled principal prepayments
will result in a lower than anticipated yield. On the other hand, if the
securities are purchased at a discount, a faster than anticipated rate of
unscheduled prepayment of principal will result in a higher than anticipated
yield.
2. PRIVATE MORTGAGE PASS-THROUGH SECURITIES
Privately-issued mortgage pass-through securities ("Private Mortgage Pass-
Throughs") represent interests in pools of mortgage loans that are issued by
trusts formed by originators of and institutional investors in mortgage loans
(or represent interests in custodial arrangements administered by such
institutions). These originators and institutions include commercial banks,
mortgage bankers, savings and loan associations, credit unions, savings banks,
insurance companies, investment banks or special purpose subsidiaries of the
foregoing. For federal income tax purposes, such trusts are generally treated
as grantor trusts or REMICs and, in either case, are generally not subject to
any significant amount of federal income tax at the entity level.
The mortgage pools underlying Private Mortgage Pass-Throughs consist of
private mortgage loans evidenced by promissory notes secured by first
mortgages or first deeds of trust or other similar security instruments
creating a first lien on residential, residential multi-family and commercial
properties. Private Mortgage Pass-Throughs (whether fixed or adjustable rate)
provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amounts paid
to any guarantor, administrator and/or servicer of the underlying mortgage
loans. A trust fund with respect to which a REMIC election has been made may
include regular interests in other REMICs which in turn will ultimately
evidence interests in mortgage loans.
Private Mortgage Pass-Throughs generally offer a higher yield than
Government Mortgage-Related Securities (as defined below) because of the
absence of any direct or indirect government or agency payment guarantees.
However, timely payment of interest and principal on mortgage loans in these
pools may be supported by various forms of insurance or guarantees, including
individual loan, pool and hazard insurance, subordination and letters of
credit. The insurance and guarantees are issued by government entities,
private insurers, banks and mortgage poolers. Mortgage-related securities
without insurance or guarantees may be purchased by a Portfolio if they have
the required rating from an NRSRO. Although the market for such securities is
becoming increasingly liquid, some mortgage-related securities issued by
private organizations may not be readily marketable. Types of credit support
are discussed further in the Additional Statement.
3. GOVERNMENT MORTGAGE-RELATED SECURITIES
Each Portfolio may also invest in mortgage-related securities issued or
guaranteed by the U.S. Government and its agencies, instrumentalities or
sponsored enterprises ("Government Mortgage-Related Securities"). These
securities include the Government National Mortgage Association ("GNMA")
mortgage-backed certificates ("GNMA Certificates"), which are mortgage-backed
securities of the modified pass-through type where both scheduled interest and
principal payments (including prepayments) are paid monthly to the holder of
the certificate whether or not they are paid by the
10
<PAGE>
underlying mortgagor. The National Housing Act provides that the full faith
and credit of the United States is pledged to the timely payment of principal
and interest by GNMA of amounts due on these GNMA Certificates. Each GNMA
Certificate evidences an interest in a specific pool of mortgage loans
(frequently one-to-four family residential loans) insured by the Federal
Housing Administration or the Farmers Home Administration or guaranteed by the
Veterans Administration.
Government Mortgage-Related Securities also include securities issued by the
Federal National Mortgage Association ("FNMA") and by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA, a federally chartered and stockholder-
owned corporation, issues pass-through securities which are guaranteed as to
timely payment of principal and interest by FNMA. FHLMC, also a federally
chartered corporation, issues pass-through securities which are guaranteed as
to timely payment of interest and ultimate collection of principal by FHLMC.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States.
To the extent consistent with its investment objective, each Portfolio may
purchase "stripped" securities issued or guaranteed by U.S. Government
agencies or instrumentalities that evidence ownership in the future interest
payments or future principal payments on Government Mortgage-Related
Securities. Stripped mortgage-backed securities ("SMBS") are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of Government Mortgage-Related
Securities. A common type of SMBS will have one class receiving all of the
interest, while the other class will receive all of the principal. However, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience different
than anticipated prepayments of principal, a Portfolio may fail to recoup
fully its initial investment in these securities. Although the market for such
securities is increasingly liquid, Goldman, Sachs & Co., in accordance with
guidelines and standards adopted by the Board of Trustees, may determine that
certain SMBS are not readily marketable. If so, these securities will be
considered illiquid for purposes of each Portfolio's limitation on investments
in illiquid securities. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on
other Government Mortgage-Related Securities because they are extremely
sensitive to the rate of principal payments, including prepayments.
Prepayments can result in a Portfolio's failure to recoup its initial
investment even though the SMBS are issued or guaranteed by the U.S.
Government. Consistent with the Rules and Regulations of the National Credit
Union Administration, the Portfolios will purchase SMBS solely to reduce the
interest rate risk of the holdings (although this policy will not reduce the
risk of loss on the SMBS themselves that are held by the Portfolios), and will
not purchase SMBS issued by private issuers.
4. MULTI-CLASS MORTGAGE-RELATED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS
Mortgage-related securities acquired by each Portfolio will include
collateralized mortgage obligations and other multi-class mortgage-related
securities (collectively, "CMOs") issued by FNMA, FHLMC or other mortgage-
related U.S. Government agencies, instrumentalities or sponsored enterprises,
as well as by private issuers. CMOs provide an investor with a specified
interest in the cash flow of a pool of underlying mortgages or other mortgage-
related securities. Issuers of CMOs frequently elect to be taxed as REMICs.
CMOs are issued in multiple classes, each with a specified fixed or floating
interest rate and a final scheduled distribution date. The relative payment
rights of the
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various CMO classes may be structured in many ways. In many cases, payments of
principal are applied to the CMO classes in the order of their respective
stated maturities, so that no principal payments will be made on a CMO class
until all other classes having an earlier stated maturity date are paid in
full. Sometimes, however, CMO classes are "parallel pay," i.e., payments of
principal are made to two or more classes concurrently. In accordance with the
Rules and Regulations of the National Credit Union Administration, unless the
purchase is made solely to reduce interest rate risk or unless the instrument
is a floating or adjustable rate CMO class, the Portfolios will not invest in
any CMO class that meets any of the following three tests using prevailing
market-interest rates and prepayment speeds: (1) the CMO class has an expected
average life greater than 10 years; (2) the average life of the CMO class
extends by more than 4 years assuming an immediate and sustained parallel
shift in the yield curve of plus 300 basis points, or shortens by more than 6
years assuming an immediate and sustained parallel shift in the yield curve of
minus 300 basis points; or (3) the estimated change in the price of the CMO
class is more than 17% due to an immediate and sustained parallel shift in the
yield curve of plus or minus 300 basis points. For these purposes, "average
life" means the weighted average time to principal repayment, with the amount
of the principal paydowns (both scheduled and unscheduled) as the weights. The
expected average life and average life sensitivity test described above do not
apply to a floating or adjustable rate CMO class, irrespective of whether it
has been purchased to reduce interest rate risk, if (a) the interest rate is
reset at least annually, (b) the interest rate is below the contractual cap of
the CMO class at the time of purchase or a subsequent testing date, (c) the
index upon which the interest rate is based is a widely-used market interest
rate index such as the London Interbank Offered Rate (LIBOR) and (d) the
interest rate of the instrument varies directly (not inversely) with the index
upon which it is based and is not reset as a multiple of the change in the
index. If an instrument is a floating or adjustable rate CMO class which
passes the requirements described in (a) through (d) above, the Portfolios
will not invest in any such floating or adjustable rate CMO class that using
prevailing market-interest rates and pre-payment speeds meets the price
sensitivity test listed above. CMOs may exhibit more or less price volatility
and interest rate risk than other types of mortgage-related obligations.
Although the market for CMOs is generally liquid, Goldman, Sachs & Co. may
determine that certain CMOs are not readily marketable. If so, these CMOs will
be considered illiquid for purposes of the Fund's limitations on investments
in illiquid securities. CMOs are discussed further in the Additional Statement
under "Adjustable and Fixed Rate Mortgage Loans and Mortgage-Related
Securities."
OTHER GOVERNMENT SECURITIES
Each Portfolio may acquire other securities issued or guaranteed as to
principal and interest by the U.S. Government or by its agencies,
instrumentalities or sponsored enterprises ("Government Securities"). These
securities in general include a variety of U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as GNMA participation certificates), (b) the limited
authority of the issuer to borrow from the U.S. Treasury (such as securities
of the Student Loan Marketing Association), (c) the authority of the U.S.
Government to purchase certain obligations of the issuer (such as securities
of FNMA), or (d) only the credit of the issuer. No assurance can be given that
the U.S. Government will provide financial support to U.S. Government
agencies, instrumentalities or sponsored enterprises as described in clauses
(b) or (c) in the future, other than as set forth above, since it is not
obligated to do so by law.
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Government Securities are deemed to include (to the extent that it is
consistent with the Investment Company Act of 1940) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises. Government Securities are also deemed to include (to the extent
consistent with the Investment Company Act of 1940) participations in loans
made to foreign governments or their agencies that are guaranteed as to
principal and interest by the U.S. Government or its agencies,
instrumentalities or sponsored enterprises. The secondary market for certain
of these participations is extremely limited. In the absence of a substantial
secondary market, such participations will therefore be regarded as illiquid.
Each Portfolio may invest in separately traded principal and interest
components of securities, including mortgage-related securities, issued or
guaranteed by the United States Government, its agencies, instrumentalities or
sponsored enterprises. In the case of securities issued or guaranteed by the
United States Government, the principal and interest components of selected
securities are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS"). Under the STRIPS
program, the principal and interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
Each Portfolio may invest in zero coupon bonds, which are debt obligations
issued or purchased at a significant discount from face value, provided that
such bonds do not have maturity dates of more than 10 years from settlement.
Each Portfolio will only purchase zero coupon bonds which are Government
Securities. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity or the first interest
payment date at a rate of interest reflecting the market rate of the security
at the time of issuance. Zero coupon bonds do not require the periodic payment
of interest. Such investments benefit the issuer by mitigating its need for
cash to meet debt service, but some also require a higher rate of return to
attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value than debt
obligations which provide for regular payments of interest. Each Portfolio
will accrue income on such investments for tax and accounting purposes, as
required, which is distributable to shareholders and which, because no cash is
received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Portfolio's distribution obligations.
GOVERNMENT RELATED OBLIGATIONS
Although they are not considered obligations of the U.S. Government for
certain securities law purposes, and therefore do not qualify as U.S.
Government Securities, each Portfolio may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises.
REPURCHASE AGREEMENTS
When a Portfolio purchases securities, it may enter into a repurchase
agreement with the seller wherein the seller agrees, at the time of sale, to
repurchase the securities at a mutually agreed upon time and price. A
Portfolio may enter into repurchase agreements with broker-dealers and with
banks. Although the securities subject to the repurchase agreement may bear
maturities exceeding one year, settlement for the repurchase would never be
more than one year after a Portfolio's acquisition of the
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securities and normally would be within a shorter period of time. The
Portfolios generally intend to enter into repurchase agreements which
terminate within seven days after notice by a Portfolio. If a Portfolio were
to enter into repurchase agreements which provide for a notice period greater
than seven days, a Portfolio would do so only if such investment, together
with other illiquid securities, did not exceed 15% of the Portfolio's net
assets. The resale price will be in excess of the purchase price, reflecting
an agreed-upon market rate effective for the period of time a Portfolio's
money will be invested in the securities, and will not be related to the
coupon rate of the purchased securities. During the term of the repurchase
agreement, Goldman, Sachs & Co. will require the seller to maintain the value
of the securities subject to the agreement in an amount that exceeds the
repurchase price. In the event the seller of the repurchase agreement enters a
bankruptcy or other insolvency proceeding, or in the event of the failure of
the seller to repurchase the underlying securities as agreed upon, a Portfolio
could, however, experience losses that include (a) possible decline in the
value of the underlying securities during the period while a Portfolio seeks
to enforce its rights thereto and possible delay in enforcement of those
rights, (b) possible loss of all or a part of the income or proceeds of the
repurchase, (c) additional expenses to a Portfolio for enforcing those rights
and (d) possible delay in the disposition of the underlying securities pending
court action or possible loss of rights in such securities. The percentage of
each Portfolio's assets invested in repurchase agreements may vary from time
to time depending upon Goldman, Sachs & Co.'s evaluation of market trends and
other conditions. The Portfolios will enter into repurchase transactions only
with parties that meet creditworthiness standards approved by the Fund's
Trustees. Goldman, Sachs & Co. monitors the creditworthiness of such parties
under the Trustees' general supervision. In addition, the Portfolios, together
with other registered investment companies having advisory agreements with
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
A Portfolio may invest in United States dollar-denominated obligations
issued or guaranteed by United States banks with total assets exceeding $1
billion (including obligations issued by foreign branches of such banks) but
only to the extent permitted under the Federal Credit Union Act and the rules
and regulations promulgated thereunder. Such obligations will be rated in one
of the two highest rating categories by an NRSRO or, if unrated, determined to
be of comparable quality by Goldman, Sachs & Co. and may include certificates
of deposit, bankers' acceptances, bank notes, deposit notes and other
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations
or by government regulation.
Obligations of foreign branches of United States banks include fixed time
deposits. Fixed time deposits are payable at a stated maturity date and bear a
fixed rate of interest. Generally, fixed time deposits are not payable until
maturity, but may permit early withdrawal subject to penalties which vary
depending upon market conditions and the remaining maturity of the
obligations. Fixed time deposits do not have a market, and those fixed time
deposits with maturities over seven days will be regarded as illiquid.
However, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party.
Bank notes and bankers acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured
obligations of the bank. Bank notes are classified as "other
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borrowings" on a bank's balance sheet, while deposit notes and certificates of
deposit are classified as deposits. Bank notes are not insured by the Federal
Deposit Insurance Corporation or any other insurer. Deposit notes are insured
by the Federal Deposit Insurance Corporation only to the extent of $100,000
per depositor per bank.
Banks are subject to extensive but different governmental regulations which
may limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operations of this industry.
Obligations of foreign branches of United States banks involve investment
risks in addition to those of domestic obligations of domestic issuers,
including the possibility that liquidity could be impaired because of future
political and economic developments, that the obligations may be less
marketable than comparable domestic obligations of domestic issuers, that a
foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations, that deposits may be seized or nationalized, that
foreign governmental restrictions such as exchange controls may be adopted
which might adversely affect the payment of principal and interest on those
obligations, or that there may be difficulties in obtaining or enforcing a
judgment against a foreign branch.
2. FEDERAL FUNDS
The Portfolios may make unsecured loans of federal funds to United States
banks with total assets exceeding $1 billion (including obligations issued by
foreign branches of such banks) to the extent permitted by the Federal Credit
Union Act and the rules and regulations promulgated thereunder, provided that
(i) the accounts of such banks are insured by the Federal Deposit Insurance
Corporation, (ii) the interest received therefrom is at the market rate for
federal funds transactions and (iii) the transaction has a maturity of one or
more business days or the Fund is able to require repayment at any time. The
Portfolios consider federal funds investments maturing in more than seven days
to be illiquid, and therefore will limit such transactions along with all
other illiquid investments to 15% of the value of a Portfolio's net assets.
Federal funds are funds held by a regional Federal Reserve Bank for the
account of a bank that is a member of such Federal Reserve Bank (a "Fed Member
Bank"). A loan of federal funds is an unsecured loan at a negotiated interest
rate for a negotiated time period, generally overnight, of federal funds by
one Fed Member Bank to another. Since, pursuant to an exemption, the borrowing
Fed Member Bank is not required to maintain reserves on the borrowed federal
funds, the interest rate it pays on such loans is generally higher than the
rate it pays on other deposits of comparable size and maturity that are
subject to reserve requirements. In addition, a "depository institution" or
other exempt institution such as the Fund may under Regulation D of the Board
of Governors of the Federal Reserve System in effect make loans of federal
funds by instructing a correspondent or other willing Fed Member Bank at which
it maintains an account to loan federal funds on its behalf. Loans of federal
funds are not insured by the Federal Deposit Insurance Corporation.
In the event the borrower of federal funds enters a bankruptcy or other
insolvency proceeding, a Portfolio could experience delays and incur expense
in recovering cash. Further, the possibility exists that in such an instance,
the borrowing institution may not be able to repay the loaned funds. Loans of
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federal funds rank junior to domestic deposit liabilities of the bank and pari
passu with other senior, unsecured obligations of the bank. With regard to the
solvency of the borrowing institution, the Portfolios will limit federal funds
lending to those member banks of the Federal Reserve System whose
creditworthiness has been reviewed and found by Goldman, Sachs & Co. to be
comparable in quality to securities rated high quality by an NRSRO.
Creditworthiness is of particular importance given the unsecured nature of
federal funds borrowings.
3. OTHER INVESTMENT COMPANIES
As a means of maintaining short-term liquidity, each Portfolio reserves the
right to invest up to 10% of its total assets, calculated at the time of
purchase, in the securities of other investment companies. A Portfolio may not
invest more than 5% of its total assets in the securities of any one
investment company or acquire more than 3% of the voting securities of any
other investment company. Pursuant to an exemptive order obtained from the
SEC, other investment companies and its unitholders in which the Portfolios
may invest include money market funds for which GSAM, Goldman, Sachs & Co. or
any of their affiliates serves as investment adviser, administrator or
distributor. Each Portfolio and ultimately its unitholders will indirectly
bear its proportionate share of any management fees paid by investment
companies in which it invests in addition to the advisory fee paid by the
Portfolio, except that to the extent that any Portfolio invests in a money
market fund for which GSAM, Goldman, Sachs & Co. or any of their affiliates
acts as adviser (such as the Fund's Money Market Portfolio), the fee payable
by that Portfolio to GSAM will be reduced by an amount equal to the
Portfolio's proportionate share of the advisory and administrative fees paid
by such money market fund to GSAM, Goldman, Sachs & Co. or any of their
affiliates.
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Portfolio may purchase or sell portfolio securities in when-issued or
delayed delivery transactions. In such transactions, instruments are bought or
sold with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous yield or price to a Portfolio at the
time of entering into the transactions. However, the yield on a comparable
security available when delivery takes place may vary from the yield on the
security at the time that the when-issued or delayed delivery transaction was
entered into. When a Portfolio engages in when-issued and delayed delivery
transactions, the Portfolio relies on the seller or buyer, as the case may be,
to consummate the transaction. Failure to consummate the transaction may
result in a Portfolio's missing the opportunity of obtaining a price or yield
considered to be advantageous. In such transactions the payment obligation and
the interest rate are fixed on the trade date, although no interest accrues to
the purchaser prior to the settlement date. The settlement date for such
transactions will take place no more than 120 days after the trade date.
Consistent with the requirements of the Investment Company Act of 1940,
securities purchased on a when-issued or delayed delivery basis are recorded
as an asset (with the purchase price being recorded as a liability) and are
subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. To the extent that a Portfolio remains
substantially fully invested at the same time that it has entered into such
transactions, which it would normally expect to do, there will be greater
fluctuations in the market value of its net assets than if such Portfolio set
aside cash to satisfy its purchase commitment. However, a Portfolio will
maintain designated liquid assets at least equal in value to commitments for
when-issued or delayed delivery securities, and such assets will be segregated
in an account earmarked specifically for the settlement of such commitments. A
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Portfolio will only make commitments to purchase portfolio securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities and not for the purpose of investment leverage.
MORTGAGE DOLLAR ROLLS
The Portfolios may enter into mortgage "dollar rolls" in which a Portfolio
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, a Portfolio loses the right to
receive principal and interest paid on the securities sold. However, the
Portfolio would benefit to the extent of any difference between the price
received for the securities sold and the lower forward price for the future
purchase (often referred to as the "drop") or fee income plus the interest
earned on the cash proceeds of the securities sold until the settlement date
of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use
of this technique will diminish the investment performance of a Portfolio
compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for the Portfolios. The Portfolios will hold and
maintain in a segregated account until the settlement date cash, U.S.
Government Securities or other liquid assets in an amount equal to the forward
purchase price. All mortgage dollar rolls will be settled in accordance with
National Credit Union Administration Rules and Regulations.
For financial reporting and tax purposes, each Portfolio proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Portfolios do
not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.
Mortgage dollar rolls involve the following risks: if the broker-dealer to
whom a Portfolio sells the security becomes insolvent, the Portfolio's right
to purchase or repurchase the mortgage-related securities may be restricted
and the instrument which the Portfolio is required to repurchase may be worth
less than an instrument which the Portfolio originally held. Successful use of
mortgage dollar rolls may depend upon the investment adviser's ability to
predict correctly interest rates and mortgage prepayments. For these reasons
there is no assurance that mortgage dollar rolls can be successfully employed.
OTHER PORTFOLIO MANAGEMENT POLICIES
In addition to the techniques described above, a Portfolio may, with respect
to no more than 5% of its total assets, engage in portfolio securities lending
and may purchase inverse floating rate securities in accordance with NCUA
Rules and Regulations. A Portfolio will not invest more than 15% of the value
of its total assets in securities which are illiquid, including restricted
securities, federal funds loans maturing in more than seven days and fixed
time deposits maturing in more than seven days, repurchase agreements
providing for settlement in more than seven days after notice, loan
participations by foreign governments where a substantial secondary market is
absent and, to the
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extent consistent with a Portfolio's investment objective interest-only and
principal-only fixed rate mortgage backed securities issued by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises which may
not be readily marketable. A repurchase agreement or a federal funds loan
which by its terms can be liquidated before its nominal fixed term on seven
days' or less notice is regarded as a liquid instrument. Mortgage-related
securities issued in a private placement are subject to this 15% limitation,
unless 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, as amended, 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 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 Portfolios by taking
advantage of yield disparities or other factors that occur in the mortgage-
related securities markets. The Portfolios may dispose of any portfolio
security prior to its maturity if such disposition and reinvestment of the
proceeds are expected to enhance yield consistent with Goldman, Sachs & Co.'s
judgment as to a desirable portfolio maturity structure or if such disposition
is believed to be advisable due to other circumstances or considerations.
Goldman, Sachs & Co. expects that the net asset value of the Portfolios will
be relatively stable during normal market conditions. However, each
Portfolio's net asset value will vary to some extent, and a sudden and sharp
increase in prevailing interest rates could cause a substantial decline in
each Portfolio's net asset value, while a sudden and sharp decline in interest
rates could result in a substantial increase in each Portfolio's net asset
value.
In addition, as stated above each Portfolio intends to reduce, over time,
its "duration" in an effort to return $10 per unit upon the termination of a
Portfolio. Each Portfolio's duration is a measure of the price sensitivity of
a Portfolio, including expected cash flows and mortgage prepayments under a
wide range of interest rate scenarios. Maturity measures only the time until
final payment is due on a bond or other debt security; it does not take into
account the pattern of a security's cash flows over time, including how cash
flow is affected by prepayments and by changes in interest rates. In
determining the duration of the Portfolios, Goldman, Sachs & Co. will estimate
the duration of obligations that are subject to interest rate changes and
prepayment or redemption by the issuer, taking into account the influence of
interest rates. This method of determining duration is known as option-
adjusted duration. The Portfolios will actively buy and sell securities in
order to adjust its option-adjusted duration. There 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.
Each Portfolio may sell an instrument soon after its acquisition if Goldman,
Sachs & Co. believes that such disposition is consistent with attaining the
investment objective of each Portfolio. Portfolio
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instruments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such instruments. A high rate of portfolio turnover
involves correspondingly greater transaction costs, which must be borne
directly by each Portfolio and ultimately by its unitholders.
Portfolio turnover rate is computed by dividing the lesser of the amount of
securities purchased or securities sold (excluding all securities whose
maturities at acquisition are one year or less) by the average monthly value
of such securities owned during the year, and includes purchase and sale
transactions entered into in connection with mortgage dollar rolls. A 100%
turnover rate would occur, for example, if all of the securities held by a
Portfolio were sold and replaced within one year. The rate at which
transactions occur will depend upon Goldman, Sachs & Co.'s perception of how
market conditions will affect a Portfolio. Goldman, Sachs & Co. will not
consider portfolio turnover a limiting factor in making investment decisions
for a Portfolio consistent with its investment objective and portfolio
management policies. A higher degree of portfolio turnover results in
increased transaction costs in the form of dealer spreads.
Each Portfolio's expected high turnover rate could cause a Portfolio to
realize gains in excess of restrictions imposed by the Internal Revenue Code
of 1986 which require that less than 30% of the Portfolio's gross income in
each taxable year be derived from sales or other dispositions of securities
held for less than three months. If this requirement is not satisfied, a
Portfolio would not qualify for the special Federal tax treatment allowed to a
regulated investment company. The Portfolios intend to monitor their
compliance with this requirement.
CERTAIN INVESTMENT RESTRICTIONS
The Portfolios are subject to certain fundamental investment restrictions
which, as described in more detail in the Additional Statement, may be changed
with respect to a Portfolio only with the approval of the holders of a
majority of the outstanding units of that Portfolio. For a more complete
description of the investment restrictions summarized below and the other
fundamental investment restrictions to which the Portfolios are subject, see
the Additional Statement.
1. A Portfolio may not invest in the instruments of any one issuer, other
than Government Securities (as defined in the Investment Company Act of 1940),
if immediately after such investment, more than 5% of the value of a
Portfolio's total assets would be invested in the instruments of such issuer,
except that (a) up to 25% of the value of its total assets may be invested
without regard to such 5% limitation and (b) such 5% limitation shall not
apply to repurchase agreements collateralized by Government Securities.
2. A Portfolio may not borrow money, except for temporary or short-term
purposes, provided that the Portfolio maintains asset coverage of 300% for all
such borrowing. (As a matter of non-fundamental policy, a Portfolio may not
purchase securities while borrowings exceed 5% of the value of the Portfolio's
assets.)
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REPORTS TO UNITHOLDERS
Each unitholder of a Portfolio is provided with a printed confirmation for
each transaction and an individual monthly statement for the Portfolio. A
year-to-date statement for any account will be provided upon request made to
Goldman, Sachs & Co. Each unitholder will also receive annual and semi-annual
financial statements. Unitholder inquiries should be addressed to Goldman,
Sachs & Co. at the address set forth on the cover page of this Prospectus.
PURCHASE OF UNITS
Purchases of units of the Portfolios may be made only by Federal Reserve
wire. Payment by other means, including check or draft or transfer of funds
which are not federal funds, will not be accepted.
Units of the Portfolios may be offered on a continuous basis at their net
asset value next determined after the order therefor has been received. See
"Net Asset Value." However, the Portfolios currently do not expect to offer
additional Portfolio units for sale.
If authorized, purchase orders may be placed only on Business Days. If the
order is received by Goldman, Sachs & Co. by 4:00 p.m., New York time,
settlement of the transaction will occur on the next Business Day and the
units to which the order relates will be issued and will commence earning
income on such next Business Day provided that federal funds in respect of
such order have been received by The Northern Trust Company ("Northern") by
such next Business Day. If the order is received by Goldman, Sachs & Co. after
4:00 p.m., New York time, settlement of the transaction will occur on the
second Business Day and the units to which the order relates will be issued
and will commence earning income the second Business Day, provided the federal
funds in respect of such order are received by Northern by such second
Business Day. If payment in federal funds is not received within the period
stated above, an investor's purchase order will be cancelled, and the investor
will be responsible for any loss resulting to the Fund.
OTHER INFORMATION
In the interest of economy, certificates representing Portfolio units will
not be issued. The Fund and its co-distributors reserve the right to reject
any purchase order.
After the initial purchase of units, an Account Information Form must be
completed promptly and mailed to Goldman, Sachs & Co. at the address set forth
on the cover page of this Prospectus. Redemptions may not be effected prior to
receipt of such Account Information Form.
Goldman, Sachs & Co. and/or CFS may from time to time, at their own expense,
provide compensation to certain dealers whose customers purchase significant
amounts of units of the Portfolios. The amount of such compensation may be
made on a one-time and/or periodic basis and, in the case of Goldman, Sachs &
Co., may be up to 20% of the annual fees that are earned by Goldman, Sachs &
Co. as investment adviser to the Portfolios (after adjustments) and are
attributable to units held by such customers. Such compensation will not
represent an additional expense to the Portfolios or their unitholders, since
it will be paid from assets of Goldman, Sachs & Co., its affiliates or CFS.
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REDEMPTION OF UNITS
All units of a Portfolio outstanding on their applicable Termination Date
will be redeemed by the Fund without a redemption charge at their net asset
value as of the close of business on the Termination Date. See "Net Asset
Value." The Termination Dates of the respective Portfolios will occur on or
about February 18, 1997 for Target Maturity Portfolio (Feb. 97) and May 15,
1997 for Target Maturity Portfolio (May 97). Investors may also redeem units
at any time before a Termination Date at their net asset value next determined
after a request has been received by the Fund, less a redemption fee for early
withdrawal equal to .50% of the net asset value of the redeemed units at the
time of redemption. The redemption fee is not a sales charge, but is kept by a
Portfolio for the benefit of continuing unitholders. The purpose of the
redemption fee is to offset costs a Portfolio may incur in order to make
payment in cash to a redeeming unitholder, such as costs incurred in
liquidating portfolio securities, transaction and brokerage costs, odd-lot
premiums, transfer taxes, administrative fees, custodian fees and registrar or
transfer agent fees.
Redemption requests are made by calling Goldman, Sachs & Co. at 800-342-5828
(800-DIAL-TCU) or by a written request addressed to Goldman, Sachs & Co.,
Attention: Shareholder Services, Trust for Credit Unions, 4900 Sears Tower,
Chicago, Illinois 60606. The letter of instruction must specify the Portfolio,
the number of units to be redeemed, the account number, payment instructions
and the exact registration on the account. A unitholder may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form accompanying this Prospectus. It may
be difficult to implement redemptions by telephone in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, Goldman, Sachs & Co. and State Street each
employ reasonable procedures specified by the Fund to confirm that such
instructions are genuine. Consequently, proceeds of telephone redemptions will
be wired directly to the credit union, central credit union or other
depository account designated in the unitholder's Account Information Form,
unless the unitholder provides written instructions indicating another credit
union, central credit union, or other depository account. Telephone redemption
requests will also be recorded. The Fund may implement other procedures from
time to time. If reasonable procedures are not implemented, the Fund may be
liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither a Portfolio, the Fund nor Goldman Sachs & Co. will be
responsible for the authenticity of redemption instructions received by
telephone. Thus, except as stated, the total risk of loss for unauthorized
transactions is on the investor.
Although redemption requests may be placed on any day on which a Portfolio's
net asset value per unit is determined, proceeds will be remitted only on
Business Days (as defined under "Additional Information"). If a redemption
request is received by Goldman, Sachs & Co. by 4:00 p.m., New York time, the
proceeds are ordinarily wired on the next Business Day. Units to be redeemed
earn income with respect to the day the request is received; however, units
redeemed on a day immediately preceding a weekend or a holiday continue to
earn income until the next Business Day.
OTHER INFORMATION
Once wire instructions have been given to Northern, neither the Fund nor
Goldman, Sachs & Co. assumes responsibility for the performance of Northern or
of any intermediaries in the transfer process. If a problem with such
performance arises, the investor should deal directly with Northern or such
intermediaries.
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<PAGE>
If its authorized signature is guaranteed by a credit union, commercial
bank, trust company, member firm of a national securities exchange or other
eligible guarantor institution, a unitholder may change the designated credit
union, central credit union or other depository account at any time upon
written notice to Goldman, Sachs & Co. Additional documentation, regarding any
such change or regarding a redemption by any means, may be required when
deemed appropriate by Goldman, Sachs & Co., and the request for such
redemption will not be considered to have been received in proper form until
such additional documentation has been received.
Under the Investment Company Act of 1940, the Fund is required to settle
redemption requests within seven days of receipt of such request. The right of
a unitholder to redeem units and the date of payment by the Fund may be
suspended for more than seven days for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or
trading on such Exchange is restricted as determined by the SEC; or during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by a Portfolio or to
determine fairly the value of a Portfolio's net assets; or for such other
period as the SEC may by order permit for the protection of unitholders of a
Portfolio.
Prior to the applicable Termination Date, units of a Portfolio are not
redeemable at the option of the Fund unless the Trustees determine in their
sole discretion that failure to so redeem may have materially adverse
consequences to the unitholders of the relevant Portfolio.
INCOME
The Portfolios intend to declare a daily dividend (payable monthly)
determined with the objective of distributing the majority of its net
investment income while enhancing the stability of principal. Over the course
of a fiscal year, dividends accrued and paid will constitute substantially all
of the Portfolios' net investment income. From time to time, in order to
stabilize the monthly rate of distribution to unitholders and to enhance
stability of principal, a portion of such dividends may constitute a return of
capital. The Portfolios also intend that all net realized long-term and short-
term capital gains will be declared and paid as a dividend at least annually.
In determining amounts of capital gains, any capital loss carryovers from
prior years will be offset against capital gains.
Net investment income of each Portfolio consists of (i) interest accrued or
discount accreted on certain securities held by each Portfolio and any general
income of the Fund allocated to each Portfolio less (ii) the sum of (a)
premiums amortized on certain securities held by each Portfolio and (b) the
estimated expenses of each Portfolio.
The net investment income of the Portfolios is determined by State Street on
a daily basis. On days on which net asset value is calculated, this
determination is made immediately prior to the calculation of each Portfolio's
net asset value as of 4:00 p.m., New York time.
Dividends payable to unitholders with respect to net investment income and
capital gains, if any, will be paid in cash by Federal Reserve wire on the
first Business Day of the succeeding month, unless an election is made to
invest dividends in units of the Fund's Money Market Portfolio on the last
calendar day of each month at net asset value on such day. A unitholder must
elect to invest dividends in units of the Fund's Money Market Portfolio on the
Account Information Form and, unless the
22
<PAGE>
unitholder is a current investor in the Money Market Portfolio, must open an
account with the Fund for that Portfolio. A unitholder's dividend election may
be changed at any time upon written notice to Goldman, Sachs & Co. The
election with respect to each Portfolio's capital gains dividends must be the
same as the election with respect to each Portfolio's monthly net investment
income dividends (i.e., both must be either received in cash or invested in
Money Market Portfolio units).
NET ASSET VALUE
Net asset value per unit of each Portfolio is calculated by adding the value
of all securities and other assets of a Portfolio, subtracting the liabilities
of that Portfolio, and dividing the remainder by the number of units of the
Portfolio outstanding.
The net asset value per unit of each Portfolio for purposes of redemption of
units is calculated by State Street as of 4:00 p.m., New York time,
immediately after the determination of income declared as a dividend, on each
Business Day (as defined under "Additional Information"). Portfolio securities
for which accurate market quotations are readily available will be valued on
the basis of quotations provided by dealers in such securities or furnished by
a pricing service. Portfolio securities for which accurate market quotations
are not readily available and other assets will be valued at fair value using
methods determined in good faith by Goldman, Sachs & Co. under the supervision
of the Trustees and may include yield equivalents or a pricing matrix. Short-
term securities with maturities of 60 days or less are valued at amortized
cost which the Trustees have determined to equal fair value. Each Portfolio's
net asset value per unit will fluctuate as the value of its portfolio
securities changes in response to changing market rates of interest, principal
prepayments and other factors.
TAXES
TAXATION OF UNITHOLDERS
If state and federally chartered credit unions meet all requirements of
Section 501(c)(14)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") and all rules and regulations thereunder, they will be exempt from
federal income taxation on any income, dividends or capital gains realized as
the result of purchasing, holding, exchanging or redeeming units of a
Portfolio.
Unitholders should consult their own tax advisers concerning applicable
state tax laws.
FEDERAL TAXATION OF THE FUND
The Fund intends that each Portfolio will qualify for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Code. Each Portfolio is treated as a separate corporation for federal tax
purposes and generally must comply with the qualification and other
requirements applicable to regulated investment companies, without regard to
the Fund's other investment portfolios. If each Portfolio otherwise complies
with such provisions, then in any taxable year for which it distributes at
least 90% of its taxable income determined for federal income tax purposes,
each Portfolio will be relieved of federal income tax on the amounts
distributed. The Fund intends to distribute to unitholders substantially all
of each Portfolio's net investment income. See "Income." Net investment income
may be different from taxable income determined for federal income tax
purposes. However, such difference is not expected to affect adversely each
Portfolio's compliance with the provisions of the Code applicable to regulated
investment companies.
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<PAGE>
Generally, on the sale or exchange of obligations held for more than one
year, net gain realized by each Portfolio which is not attributable to
original issue discount or certain market discount will be long-term capital
gain. Such capital gain, if any, will be distributed as capital gain
dividends.
The Code will impose a 4% excise tax if a Portfolio fails to meet certain
requirements with respect to distributions of net ordinary income and capital
gain net income. It is not anticipated that this provision will have any
material impact on the Portfolios or their unitholders.
If for any taxable year a Portfolio does not qualify as a regulated
investment company, all of its taxable income will be taxed to a Portfolio at
the appropriate corporate rate without any reduction for distributions made to
unitholders.
The foregoing discussion of tax consequences is based on federal tax laws
and regulations in effect on the date of this Prospectus, which are subject to
change by legislative or administrative action.
MANAGEMENT
TRUSTEES
The trust agreement pursuant to which the Fund is organized (the "Trust
Agreement") provides that, subject to its provisions, the business of the Fund
shall be managed by the Trustees. The Trust Agreement provides that (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to the Trustees' general supervision, advisory and administration services and
duties and also including distribution, custodian, transfer and dividend
disbursing agency, unitholder servicing and accounting services and duties,
(b) a Trustee shall be liable for his 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.
INVESTMENT ADVISER AND TRANSFER AGENT
Goldman, Sachs & Co., through GSAM, One New York Plaza, New York, New York
10004, a separate operating division, acts as investment adviser to the Fund.
In addition, Goldman, Sachs & Co. acts as transfer agent. Goldman, Sachs & Co.
became registered as an investment adviser in 1981. As of September 30, 1996,
Goldman, Sachs & Co. and its affiliates served as an investment adviser,
administrator or distributor for approximately $86.2 billion in assets.
Under its advisory agreement with the Fund, Goldman, Sachs & Co., subject to
the general supervision of the Fund's Trustees, manages the Portfolios and
provides certain administrative services for the Fund. As manager of the
Portfolios , it is the responsibility of Goldman, Sachs & Co. to make
investment decisions for the Portfolios and to place the purchase and sale
orders for the portfolio transactions of the Portfolios. Unitholder inquiries
should be directed to Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606.
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The Fund's portfolio managers are Jonathan A. Beinner, Peter D. Dion, James
B. Clark and James P. McCarthy. Their responsibilities include investing in
the particular types of securities the Portfolios may hold. Mr. Beinner is a
Vice President of Goldman, Sachs & Co. Mr. Beinner joined GSAM in 1990, after
working in the trading and arbitrage group of Franklin Savings Association.
Mr. Dion 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 for the Portfolios pursuant to its
advisory agreement and the assumption by it of the expenses related thereto,
Goldman, Sachs & Co. is entitled to receive a fee, computed daily and payable
monthly, from a Portfolio at an annual rate equal to .25% up to $75 million
and .20% over $75 million of each of the Portfolio's average daily net assets
considered separately on a per Portfolio basis. For the fiscal year ended
August 31, 1996, the Target Maturity Portfolio (Feb 97) and Target Maturity
Portfolio (May 97) each paid an advisory fee to Goldman, Sachs & Co. at the
annual rates of .24% and .25%, respectively, of each Portfolio's average daily
net assets.
ACTIVITIES OF GOLDMAN, SACHS & CO. AND ITS AFFILIATES AND OTHER ACCOUNTS
MANAGED BY GOLDMAN, SACHS & CO. The involvement of Goldman, Sachs & Co. and
its affiliates in the management of, or its interest in, other accounts and
other activities of Goldman, Sachs & Co. may present conflicts of interest
with respect to the Portfolios or limit 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 transactions in the same
types of securities and instruments as the Portfolios. Goldman, Sachs & Co.
and its affiliates will not have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Portfolios and it is not anticipated that
Goldman, Sachs & Co. will have access to proprietary information for the
purpose of managing the Portfolios. The results of the Portfolios' investment
activities, therefore, may differ from those of Goldman, Sachs & Co. and its
affiliates and it is possible that the Portfolios could sustain losses during
periods in which Goldman, Sachs & Co. and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other
accounts. From time to time, the Portfolios' activities may be limited because
of regulatory restrictions applicable to Goldman, Sachs & Co. and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Activities of Goldman, Sachs & Co. and its Affiliates and
Other Accounts Managed by Goldman, Sachs & Co." in the Additional Statement
for further information.
ADMINISTRATOR
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), c/o
Callahan Financial Services, Inc., 1001 Connecticut Ave., N.W., Suite 1022,
Washington, D.C., 20036-5504, a Delaware limited partnership for which
Callahan Financial Services, Inc. serves as general partner and in which 38
major credit unions are limited partners, acts as the administrator of the
Portfolios. Under its administration agreement with the Fund, CUFSLP, subject
to the general supervision of the Fund's Trustees, periodically reviews the
performance of the investment adviser, the transfer agent, the distributors
and the custodian of the Portfolios; provides facilities, equipment and
personnel to serve
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<PAGE>
the needs of investors; develops and monitors investor programs for credit
unions; provides assistance in connection with the processing of unit purchase
and redemption orders as reasonably requested by the transfer agent or the
Fund; handles unitholder problems and calls relating to administrative
matters; provides advice and assistance concerning the regulatory requirements
applicable to credit unions that invest in the Portfolios; and provides other
administrative services to the Fund.
For such services, CUFSLP is entitled to receive a fee, computed daily and
payable monthly, from each Portfolio at an annual rate equal to .05% of the
average daily net assets of each Portfolio. For the fiscal year ended August
31, 1996, the Target Maturity Portfolio (Feb 97) and Target Maturity Portfolio
(May 97) each paid an administration fee to CUFSLP at the annual rate of .05%,
respectively, of each Portfolio's average daily net assets.
DISTRIBUTORS
Callahan Financial Services, Inc. ("CFS"), 1001 Connecticut Ave., N.W.,
Suite 1022, Washington, D.C. 20036-5504, a Delaware corporation, and Goldman,
Sachs & Co., 85 Broad Street, New York, New York, 10004, serve as co-
distributors of units of the Portfolios. CFS, a registered broker-dealer under
the Securities Exchange Act of 1934, is an affiliate of Callahan & Associates
Inc., a corporation organized under the laws of the District of Columbia,
founded in 1985.
CFS and Goldman, Sachs & Co. have entered into distribution agreements with
the Fund to sell units of the Portfolios upon the terms and at the current
offering price described in this Prospectus. CFS and Goldman, Sachs & Co. are
not obligated to sell any certain number of units of the Portfolios.
FUND EXPENSES
Common expenses of the Fund are generally allocated pro rata to the
Portfolios and the Fund's other investment portfolios based upon their
respective net asset values.
There are no sales loads, commissions or other fees imposed on investors at
the time of purchase of units and no charges imposed at the time of redemption
of units other than the redemption fee described under "Redemption of Units."
PERFORMANCE AND YIELD INFORMATION
From time to time total return and yield data for the Portfolios may be
quoted in advertisements or in unitholder communications. The total return of
the Portfolios will be calculated on an average annual total return basis, and
may also be calculated on an aggregate total return basis, for various
periods. Average annual total return reflects the average annual percentage
change in value of an investment in a Portfolio over the measuring period.
Aggregate total return reflects the total percentage change in value over the
measuring period. The methods prescribed by the SEC for standardized total
return calculations provide that calculations of total return assume that
dividends and capital gain distributions made by the Portfolios during the
period are reinvested in Portfolio units and reflect any non-recurring charges
(such as the redemption fee for early withdrawal). The Fund may, however, also
advertise from time to time the total return of a Portfolio without these
fees, and may advertise total return on a year-by-year or other basis for
various specified periods by means of quotations, charts, graphs or schedules.
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<PAGE>
The yield of a Portfolio is computed based on the net investment income of
the Portfolio during a 30-day period, which period will be identified in
connection with the particular yield quotation. More specifically, a
Portfolio's yield is computed by dividing the Portfolio's net investment
income per unit during a 30-day period by the maximum offering price per unit
on the last day of the period and annualizing the result on a semi-annual
basis. The net investment income used for purposes of determining yield may
differ from net investment income used for accounting purposes.
The Fund may advertise the performance of a Portfolio relative to certain
performance rankings, indices and other investments as described more fully in
the Additional Statement. Investors should note that the investment results of
the Portfolios will fluctuate over time, and any presentation of a Portfolio's
yield or total return for any prior period should not be considered as a
representation of what an investment may earn or what an investor's yield or
return may be in any future period.
ADDITIONAL INFORMATION
Under the Trust Agreement, all units of a Portfolio that are outstanding on
its Termination Date will be redeemed by the Fund at their net asset value,
and each Portfolio will be liquidated without further unitholder action. In
connection with these actions, the Board of Trustees may make appropriate
provision for any liabilities of a Portfolio. Prior to a Termination Date,
however, the Board of Trustees of the Trust may consider whether it is in the
best interests of the unitholders to liquidate a Portfolio on its Termination
Date notwithstanding the provisions of the Declaration of Trust. In
considering the matter, the Board of Trustees will take into account, among
other factors, the adverse effect which capital losses realized upon the
disposition of securities in connection with a liquidation (if any such losses
are anticipated) would have on a Portfolio and its unitholders. In the event
that the Board of Trustees determines that liquidation of a Portfolio on its
Termination Date would not be in the best interests of unitholders, the Board
of Trustees will call a special meeting of unitholders to consider an
appropriate amendment to the Declaration of Trust. The Declaration of Trust
requires the affirmative vote of the holders of a majority of outstanding
units of the particular Portfolio involved to approve such an amendment.
The Trust Agreement provides that each unitholder, by virtue of becoming
such, will be held to have expressly assented and agreed to the terms of the
Trust Agreement and to have become a party thereto. The Trust Agreement
permits the Trustees to issue an unlimited number of full and fractional units
of beneficial interest of one or more separate series representing interests
in separate investment portfolios. The Trustees have the right to establish
investment portfolios in addition to those heretofore established.
Each unit of a Portfolio is entitled to one vote on all matters voted upon
by the unitholders of such Portfolio, with fractional units being entitled to
proportionate fractional votes. Units do not have cumulative voting rights. As
a general matter, the Fund does not hold annual or other meetings of
unitholders. This is because the Trust Agreement provides for unitholder
voting only for the election or removal of one or more Trustees, if a meeting
is called for that purpose, and for certain other designated matters. Each
Trustee serves until the next meeting of unitholders, if any, called for the
purpose of considering the election or reelection of such Trustee or a
successor to such Trustee, and until the election and qualification of his or
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. A
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Portfolio will facilitate unitholder communication with other unitholders as
provided under Section 16(c) of the Investment Company Act of 1940. For a
further description of unitholder rights with respect to the removal of
Trustees and of other designated matters voted on by unitholders, see
"Description of Units" in the Additional Statement.
As used in this Prospectus, the term "Business Day" refers to those days on
which Goldman, Sachs & Co., The Northern Trust Company, State Street Bank and
Trust Company and the Federal Reserve Bank of New York are all open for
business, which are Monday through Friday except for holidays. For 1997, such
holidays are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas Day. On those days
when one of these organizations closes early, the right is reserved by
Goldman, Sachs & Co. to advance the time on that day by which redemption
requests must be received to become effective; provided that the current net
asset value of each unit shall be computed at least once on such days.
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[LOGO] TRUST
--------
for Credit Unions
Investment Adviser
Goldman, Sachs & Co.
New York, New York
<TABLE>
<CAPTION>
Transfer Agent Custodian Distributors
<S> <C> <C>
Goldman, Sachs & Co. State Street Bank and Trust Callahan Financial Services, Inc.
Chicago, Illinois Company Washington, DC
Boston, Massachusetts (800) 237-5678
Administrator
Callahan Credit Union Financial Auditors Goldman, Sachs & Co.
Services Limited Partnership Arthur Andersen LLP New York, New York
Washington, DC Boston, Massachusetts (800) 342-5828
(800-DIAL-TCU)
</TABLE>
