<PAGE>
As filed with the Securities and Exchange Commission on
November 16, 1998.
1933 Act Registration No. 33-18781
1940 Act Registration No. 811-5407
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 20 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 22 ( X )
(Check appropriate box or boxes)
____________
TRUST FOR CREDIT UNIONS
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 800-621-2550
____________
Michael J. Richman
Goldman, Sachs & Co.
85 Broad Street - 12th Floor
New York, New York 10004
212-902-0841
(Name and address of agent for service)
____________
<PAGE>
It is proposed that this filing will become effective (check appropriate box).
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( X ) on November 20, 1998 pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a)(i) of Rule 485 or earlier
upon acceleration of the effective date by the Commission
( ) on (date) pursuant to paragraph (a)(i) of Rule 485
( ) 75 days after filing pursuant to paragraph (a)(ii) of Rule 485 or
earlier upon acceleration of the effective date by the Commission
( ) on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
( ) this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of Securities Being Registered --- Units of beneficial interest.
<PAGE>
TRUST FOR CREDIT UNIONS
____________
CROSS REFERENCE SHEET
(as required by Rule 495)
PART A CAPTION
- ------ -------
1. Cover Page Outside Front Cover Page
2. Synopsis Highlights
3. Condensed Financial Financial Highlights
Information
4. General Description Outside Front Cover Page;
of Registrant Highlights; Investment Objectives
and Portfolios; Description of
Investments; Other Investment
Practices, Policies and Restrictions
5. Management of the Fund Highlights; Management
5a. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Reports to Unitholders; Income;
Other Securities Taxes; Management, Exchange
Privilege; Additional Information
7. Purchase of Securities Outside Front Cover Page
Being Offered Highlights; Purchase of Units; Net
Asset Value; Management
8. Redemption or Repurchase Highlights; Redemption of Units
9. Pending Legal Proceedings Not Applicable
PART B
- ------
10. Cover Page Outside Front Cover Page
11. Table of Contents Outside Front Cover Page
12. General Information and Not Applicable
History
13. Investment Objectives Introduction; Adjustable and
and Policies Fixed Rate Mortgage Loans and
Mortgage-Related Securities;
Investment Restrictions
<PAGE>
14. Management of the Fund Management
15. Control Persons and Description of Units; Management
Principal Holders of
Securities
16. Investment Advisory and Introduction; Advisory and
Other Services Other Services
17. Brokerage Allocation and Advisory and Other Services
Other Services
18. Capital Stock and Description of Units
Other Securities
19. Purchase, Redemption and Not Applicable
Pricing of Securities
Being Offered
20. Tax Status Not Applicable
21. Underwriters Advisory and Other Services
22. Calculation of Performance Calculation of Performance
Data Quotations
23. Financial Statements Financial Statements
PART C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement
<PAGE>
---------------------------------
TRUST
for Credit Unions
---------------------------------
Prospectus
November 20, 1998
MONEY MARKET PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
and
MORTGAGE SECURITIES PORTFOLIO
<PAGE>
TRUST FOR CREDIT UNIONS
----------------
Trust for Credit Unions (the "Fund") is an open-end, diversified, management
investment company (commonly known as a "mutual fund") offered only to state
and federally chartered credit unions. The Fund seeks to achieve a high level
of income to the extent consistent with the investment objectives of its in-
vestment portfolios, which include: the Money Market Portfolio, the Government
Securities Portfolio and the Mortgage Securities Portfolio (individually, a
"Portfolio" and collectively, the "Portfolios"). 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 Securities Portfolio's objective
is to achieve a high level of current income, consistent with low volatility
of principal. The Government Securities Portfolio invests primarily in obliga-
tions of the United States Government ("U.S. Government"), its agencies, in-
strumentalities or sponsored enterprises authorized under the Federal Credit
Union Act. The Government Securities Portfolio has 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 six-month U.S. Treasury security and no longer than
that of a one-year U.S. Treasury security. The Mortgage Securities Portfolio's
objective is to achieve a high level of current income, consistent with rela-
tively low volatility of principal. The Mortgage Securities Portfolio invests
primarily in privately issued mortgage-related securities rated, at the time
of purchase, in one of the two highest rating categories by a nationally rec-
ognized statistical rating organization ("NRSRO") and in mortgage-related se-
curities issued or guaranteed by the U.S. Government, its agencies, instrumen-
talities or sponsored enterprises. The Mortgage Securities Portfolio's maximum
duration will not exceed that of a three-year U.S. Treasury security and its
target duration will be equal to that of a two-year U.S. Treasury security.
With respect to the Government Securities Portfolio and the Mortgage Securi-
ties Portfolio, it is expected that over the long term the volatility of each
Portfolio will be low in relation to longer-term bond funds; however, there
may be a loss of principal.
(continued on next page)
UNITS OF THE PORTFOLIOS ARE NOT ENDORSED BY, INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, ANY CREDIT UNION
OR BY THE NATIONAL CREDIT UNION SHARE INSURANCE FUND, THE NATIONAL CREDIT
UNION ADMINISTRATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
PORTFOLIOS INVOLVES RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE MONEY
MARKET PORTFOLIO SEEKS TO MAINTAIN ITS NET ASSET VALUE PER UNIT AT $1.00,
ALTHOUGH THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO ON A
CONTINUOUS BASIS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(continued from previous page)
Goldman, Sachs & Co., through Goldman Sachs Asset Management, a separate op-
erating division, serves as the Fund's investment adviser. Goldman, Sachs &
Co. also serves as the transfer agent. Callahan Credit Union Financial Serv-
ices Limited Partnership serves as the Fund's administrator. Callahan Finan-
cial Services, Inc., the general partner of Callahan Credit Union Financial
Services Limited Partnership, and Goldman, Sachs & Co. serve as the Fund's co-
distributors. This Prospectus dated November 20, 1998, which sets forth con-
cisely the information about the Fund that a prospective investor ought to
know before investing, should be retained for future reference.
A Statement of Additional Information (the "Additional Statement") dated the
same date, containing further information about the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated herein by reference in its entirety,
and may be obtained without charge from Goldman, Sachs & Co. or Callahan
Financial Services, Inc. by calling the applicable telephone number listed
below.
GOLDMAN, SACHS & CO. Toll Free.......................800-342-5828
Adviser and Co-Distributor (800-DIAL-TCU)
One New York Plaza
New York, New York 10004
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 1001
Washington, D.C. 20036-5504
CALLAHAN FINANCIAL SERVICES, INC. Toll Free.......................800-237-5678
Co-Distributor
1001 Connecticut Ave., N.W., Suite 1001
Washington, D.C. 20036-5504
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................. 1
FEES AND EXPENSES.......................................................... 5
FINANCIAL HIGHLIGHTS....................................................... 7
INVESTMENT OBJECTIVES AND PORTFOLIOS....................................... 10
DESCRIPTION OF INVESTMENTS................................................. 12
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS...................... 19
REPORTS TO UNITHOLDERS..................................................... 22
PURCHASE OF UNITS.......................................................... 23
REDEMPTION OF UNITS........................................................ 24
EXCHANGE PRIVILEGE......................................................... 26
INCOME..................................................................... 26
NET ASSET VALUE............................................................ 27
TAXES...................................................................... 28
MANAGEMENT................................................................. 29
PERFORMANCE AND YIELD INFORMATION.......................................... 32
ADDITIONAL INFORMATION..................................................... 33
</TABLE>
i
<PAGE>
HIGHLIGHTS
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") offered solely to state and federally
chartered credit unions. Units of each of the Fund's Portfolios are designed
to qualify as eligible investments for federally chartered credit unions
pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union
Act, Part 703 of the National Credit Union Administration ("NCUA") Rules and
Regulations and NCUA Letter Number 155. The Fund intends to review changes in
the applicable laws, rules and regulations governing eligible investments for
federally chartered credit unions, and to take such action as may be necessary
so that the investments of the Fund qualify as eligible investments under the
Federal Credit Union Act and the regulations thereunder. Units of the
Portfolios, however, may or may not qualify as eligible investments for
particular state chartered credit unions. The Fund encourages each state
chartered credit union to consult qualified legal counsel concerning whether
the Portfolios are permissible investments under the laws applicable to it.
INVESTMENT OBJECTIVES AND PORTFOLIOS
Pages 10 through 12
The Fund seeks to achieve a high level of income to the extent consistent
with the investment objectives of the Portfolios offered in this Prospectus.
Money Market Portfolio--seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of
liquidity by investing in high quality money market instruments authorized
under the Federal Credit Union Act. The Money Market Portfolio invests
exclusively in (a) securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies, instrumentalities or
sponsored enterprises, (b) U.S. dollar denominated obligations issued or
guaranteed by U.S. banks with total assets exceeding $1 billion (including
obligations issued by foreign branches of such banks) but only to the
extent permitted under the Federal Credit Union Act and the rules and
regulations promulgated thereunder, (c) repurchase agreements pertaining
thereto and (d) federal funds.
Government Securities Portfolio--seeks to achieve a high level of current
income, consistent with low volatility of principal, by investing in
obligations authorized under the Federal Credit Union Act. The Government
Securities Portfolio has a maximum duration equal to that of a two-year
U.S. Treasury security and a target duration no shorter than that of a six-
month U.S. Treasury security and no longer than that of a one-year U.S.
Treasury security. 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. The
Mortgage Securities Portfolio has a maximum duration not to exceed that of
a three-year U.S. Treasury security and a target duration equal to that of
a two-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 will attempt, through the purchase of securities with
short or negative durations, to limit the effect of interest rate
fluctuations on the Portfolio's net asset value. See "Risk Factors."
Each Portfolio is represented by a separate series of units of beneficial
interest and investors may elect to invest in any or all three Portfolios.
PURCHASE OF UNITS
Pages 23 and 24
Purchases of units of any Portfolio may be made only by Federal Reserve
wire. There is no minimum for initial or subsequent investments nor are
minimum balances required.
Orders for Money Market Portfolio units received and accepted before 3:00
p.m., New York time, on a Business Day (as such term is defined under
"Additional Information") earn same day income if federal funds are received
by 3:30 p.m., New York time, the same day. Orders for Government Securities
Portfolio and Mortgage Securities Portfolio units received before 4:00 p.m.,
New York time, on a Business Day earn income commencing the next Business Day
provided that federal funds have been received by the next Business Day.
REDEMPTION OF UNITS
Pages 24 through 26
Redemptions of units of the Portfolios may be made at the net asset value
next determined after the request therefor has been received by the Fund.
Redemption requests with respect to Money Market Portfolio units so received
before 3:00 p.m., New York time, on a Business Day normally provide same day
federal funds at the unitholder's designated account. Redemption requests with
respect to Government Securities Portfolio and Mortgage Securities Portfolio
units so received before 4:00 p.m., New York time, normally provide federal
funds on the next Business Day at the unitholder's designated account.
2
<PAGE>
INCOME AND CAPITAL GAINS DISTRIBUTION POLICY
Pages 26 and 27
Dividends from net investment income are declared daily and paid monthly by
each Portfolio of the Fund. The Fund intends that net realized capital gains,
if any, after offset by any available capital loss carryforwards from prior
years of each Portfolio will be declared at least annually as a dividend. In
the case of the Money Market Portfolio, net short-term capital gains, if any,
may be reflected in daily dividend declarations. In the case of the Government
Securities Portfolio and the Mortgage Securities Portfolio, over the course of
the fiscal year, dividends accrued and paid will constitute all or
substantially all of the Portfolio's net investment income. In addition, from
time to time in order to enhance stability of principal and to stabilize the
monthly rate of distributions to unitholders, a portion of such dividends may
constitute a return of capital. Unitholders of each Portfolio will receive
dividends in additional units of that Portfolio or may elect to receive cash.
NET ASSET VALUE
Pages 27 and 28
The net asset value per unit of each Portfolio is determined by dividing the
excess of the value of all securities and other assets over liabilities by the
number of units outstanding. The Money Market Portfolio is valued on the basis
of amortized cost, and will normally maintain a net asset value per unit of
$1.00; however, there can be no assurance that the Money Market Portfolio will
be able at all times to maintain a net asset value per unit of $1.00. The net
asset value per unit of the Government Securities Portfolio and the Mortgage
Securities Portfolio will fluctuate as the value of each Portfolio's assets
changes in response to changing market rates of interest, principal
prepayments and other factors.
INVESTMENT ADVISER
Pages 29 and 31
Goldman, Sachs & Co., one of the largest international investment banking
and brokerage firms in the United States, serves as the Fund's investment
adviser and also provides certain administrative services. Goldman, Sachs &
Co. provides its advisory services through Goldman Sachs Asset Management
("GSAM"), a separate operating division.
ADMINISTRATOR
Pages 31 and 32
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP"), a
Delaware limited partnership in which 40 major credit unions are limited
partners, acts as the administrator of the Fund. In this capacity, CUFSLP
periodically reviews the performance of the investment adviser, the transfer
agent, the distributors and the custodian of the Fund and provides other
administrative services to the Fund.
DISTRIBUTORS
Page 32
Callahan Financial Services, Inc. ("CFS"), the general partner of CUFSLP,
and Goldman, Sachs & Co. serve as co-distributors of units in each of the
Fund's Portfolios.
RISK FACTORS
Investments made by the Money Market Portfolio, the Government Securities
Portfolio and the Mortgage Securities Portfolio entail certain risks. These
include the possible failure of an obligor or
3
<PAGE>
counterparty (parties to whom a Portfolio has credit or performance exposure)
to meet its commitments, adverse interest rate changes, adverse economic, real
estate or unemployment trends, possible failure in the processing of
transactions, risks associated with investments in foreign branches of U.S.
banks, and the effects of prepayments on mortgage-related or other debt
instruments. Mortgage-related securities, in particular, typically have
frequent interest and principal payments, and are subject to principal
prepayments. As a result, mortgage-related securities may be less effective
than other types of debt securities as a means of "locking in" interest rates.
Moreover, the rate of principal prepayments will frequently accelerate during
periods of declining interest rates. As a result, when a Portfolio reinvests
amounts representing scheduled and unscheduled payments of principal, it may
receive a lower rate of interest.
Each Portfolio's investments are interest rate sensitive. The Portfolios'
performance will, therefore, depend in large part upon the ability of the
investment adviser to respond to fluctuations in market interest rates and to
utilize appropriate strategies to maximize returns, while attempting to
minimize the associated risks to investment capital. Operating results will
also depend upon the availability of opportunities for the investment of the
Portfolio's assets, including purchases and sales of suitable securities. The
market value of securities held by the Portfolios, including mortgage-related
securities, will generally decline during periods of increasing interest
rates, and increase during periods of declining interest rates (although many
mortgage-related securities will have less potential for capital appreciation
during periods of declining rates than other debt securities).
In the case of the Mortgage Securities Portfolio, privately-issued mortgage-
related securities typically are not guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises, but such securities
generally are structured with one or more types of credit enhancement such as
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. In addition,
concentration in pools of mortgage-related securities sponsored by the same
sponsor or serviced by the same servicer may involve certain risks. Servicers
of mortgage-related pools collect payments on the underlying mortgage assets
for pass-through to the pool on a periodic basis. Upon insolvency of the
servicer, the pool may be at risk with respect to collections received by the
servicer but not yet delivered to the pool.
Some mortgage-related securities acquired by the Portfolios will be issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises; however, under certain interest rate and prepayment
scenarios a Portfolio may nevertheless fail to recoup fully its investment in
certain of these securities. In addition, certain securities held by a
Portfolio may not be readily marketable and, therefore, may be illiquid. As
indicated, one or more of the Fund's Portfolio's may, to the extent consistent
with the Rules and Regulations of the NCUA, invest in zero coupon bonds,
collateralized mortgage obligations and other multiclass mortgage-related
securities which present certain risks. See "Description of Investments" and
"Other Investment Practices, Policies and Restrictions" for further
information.
The involvement of Goldman, Sachs & Co., and its affiliates, partners and
officers, in the investment activities and business operations of the Fund may
present certain potential conflicts-of-interest, as described under
"Management--Investment Adviser and Transfer Agent."
4
<PAGE>
FEES AND EXPENSES
The following table illustrates all expenses and fees that unitholders of
the Fund incur.
UNITHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases...................................... None
Sales Load Imposed on Reinvested Dividends........................... None
Redemption Fees...................................................... None
Exchange Fees........................................................ None
</TABLE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets after fee waivers and expense
limitations)
<TABLE>
<CAPTION>
GOVERNMENT MORTGAGE
MONEY MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ----------
<S> <C> <C> <C>
Investment Advisory Fee (after fee waiv-
ers)...................................... .07% .20% .20%
Administration Fee (after fee waivers)..... .02 .10 .05
Other Expenses (after expense limitations). .04 .04 .05
--- --- ---
Total Portfolio Operating Expenses (af-
ter fee waivers and expense limita-
tions)................................ .13% .34% .30%
=== === ===
</TABLE>
The purpose of this table is to assist the investor in understanding the
various expenses that an investor in the Fund will bear directly or
indirectly. The information is based on estimated expenses the Money Market
Portfolio expects to incur during the current fiscal year. The expenses for
the Government Securities and Mortgage Securities Portfolios reflect actual
expenses incurred during the last fiscal year. During the last fiscal year,
the Money Market Portfolio incurred the following expenses (expressed as a
percentage of average net assets after fee waivers and expense limitations):
investment advisory fees of .06%; administration fees of .02%; and other
expenses of .03%, for total operating expenses of .11%. Had there been no fee
waivers and expense limitations, the fees and expenses for the Money Market
Portfolio for the last fiscal year would have been: investment advisory fees
of .17%; administration fees of .10%; and other expenses of .03%, for total
operating expenses of .30%. There were no waivers or reimbursements made for
the Government Securities and Mortgage Securities Portfolios for the last
fiscal year.
Management fees for the Money Market Portfolio currently consist of an
investment advisory fee to Goldman, Sachs & Co. payable monthly at annual
rates equal to .20% of the first $300 million and .15% over $300 million of
the average daily net assets of such Portfolio and an administration fee to
CUFSLP payable monthly at an annual rate equal to .10% of the average daily
net assets of such Portfolio. For the period from September 1, 1998 to
September 30, 1998, Goldman Sachs & Co. voluntarily agreed to limit its
advisory fee to .06% of the Portfolio's average daily net assets. Effective
October 1, 1998, Goldman, Sachs & Co. increased its advisory fee limitation to
.07% of the Portfolio's average daily net assets. CUFSLP has voluntarily
agreed to limit its administration fee to .02%. Goldman, Sachs & Co. and
CUFSLP may discontinue or modify any of such limitations in the future, at
their discretion. In addition, CUFSLP will limit all expenses (excluding
interest, taxes, brokerage and extraordinary expenses) of the Money Market
Portfolio to the extent the total annualized operating expenses exceed .20% of
its average daily net assets.
5
<PAGE>
Management fees for the Government Securities Portfolio consist of an
investment advisory fee to Goldman, Sachs & Co. and an administration fee to
CUFSLP payable monthly at annual rates equal to .20% and .10%, respectively,
of the average daily net assets of such Portfolio. The Government Securities
Portfolio bears the fees of Goldman, Sachs & Co. and CUFSLP referred to above
as well as other expenses incurred in its operations. CUFSLP and Goldman,
Sachs & Co. have each voluntarily agreed to limit the other ordinary operating
expenses (excluding advisory fees, administration fees, interest, taxes,
brokerage and extraordinary expenses) of the Government Securities Portfolio
such that CUFSLP will reimburse expenses that exceed .05% up to .10% of the
Portfolio's average net assets, and Goldman, Sachs & Co. will reimburse
expenses that exceed .10% up to .15% of the Portfolio's average net assets.
Management fees for the Mortgage Securities Portfolio consist of an
investment advisory fee to Goldman, Sachs & Co. and an administration fee to
CUFSLP payable monthly at annual rates equal to .20% and .05%, respectively,
of the average daily net assets of the Portfolio. The Mortgage Securities
Portfolio bears the fees of Goldman, Sachs & Co. and CUFSLP referred to above
as well as other expenses incurred in its operations.
The following example illustrates the expenses that an investor would pay on
a $1,000 investment over various time periods based on the information
presented above and assuming a 5% annual rate of return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio.................... $1 $ 4 $ 7 $17
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, 1998 (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(B) UNITHOLDERS
--------------------------- ---------------------------------
NET NET RATIO OF
ASSET NET IN EXCESS FROM NET ASSET NET
VALUE AT NET REALIZED FROM NET OF NET REALIZED VALUE EXPENSES
BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT GAIN ON AT END OF TOTAL TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME INCOME INVESTMENTS PERIOD RETURN(A) NET ASSETS
--------- ------------ ------------ ---------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/98......... $1.00 $0.0552 $ -- $(0.0552) $ -- $ -- $1.00 5.67% 0.11%
8/31/97......... 1.00 0.0530 -- (0.0530) -- -- 1.00 5.43 0.18
8/31/96......... 1.00 0.0539 -- (0.0539) -- -- 1.00 5.51 0.19
8/31/95......... 1.00 0.0555 -- (0.0553) -- -- 1.00 5.56 0.20
8/31/94......... 1.00 0.0329 0.0002 (0.0342) (0.0001) (0.0002) 1.00 3.50 0.25
8/31/93......... 1.00 0.0305 0.0004 (0.0305) -- (0.0005) 1.00 3.14 0.25
8/31/92......... 1.00 0.0416 0.0008 (0.0416) -- (0.0007) 1.00 4.39 0.25
8/31/91......... 1.00 0.0641 -- (0.0641) -- -- 1.00 6.93 0.25
8/31/90......... 1.00 0.0824 -- (0.0824) -- -- 1.00 8.58 0.25
8/31/89......... 1.00 0.0899 -- (0.0899) -- -- 1.00 9.28 0.25
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
RATIO OF RATIO OF
NET NET NET
INVESTMENT ASSETS RATIO OF INVESTMENT
INCOME TO AT END OF EXPENSES TO INCOME
AVERAGE PERIOD AVERAGE NET TO AVERAGE
NET ASSETS (000'S) ASSETS NET ASSETS
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended:
8/31/98......... 5.52% $972,857 0.30% 5.33%
8/31/97......... 5.31 441,205 0.33 5.16
8/31/96......... 5.37 426,710 0.31 5.25
8/31/95......... 5.55 382,096 0.33 5.42
8/31/94......... 3.29 216,989 0.34 3.20
8/31/93......... 3.05 616,229 0.33 2.97
8/31/92......... 4.16 864,924 0.29 4.12
8/31/91......... 6.41 654,977 0.25 6.41
8/31/90......... 8.24 258,304 0.25 8.24
8/31/89......... 8.99 167,331 0.25 8.99
</TABLE>
- ----
(a) 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.
(b) Calculated based on average shares outstanding methodology.
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:
8/31/98......... $ 9.84 $0.5764 $(0.0400) $(0.5764) $(0.0100) $ 9.79 5.60% 0.34% 5.83% 93.77% $ 654,653
8/31/97......... 9.76 0.5911 0.0829 (0.5911) (0.0029) 9.84 7.09 0.34 6.02 88.02 564,642
8/31/96......... 9.76 0.6024 (0.0055) (0.5969) -- 9.76 6.26 0.35 6.16 149.66 535,702
8/31/95......... 9.78 0.5515 (0.0011) (0.5582) (0.0122) 9.76 5.82 0.34 5.65 70.58 529,659
8/31/94......... 9.97 0.4286 (0.1974) (0.4212) -- 9.78 2.33 0.35 4.25 42.27 594,331
8/31/93......... 10.03 0.4641 (0.0599) (0.4630) (0.0012) 9.97 4.06 0.34 4.58 67.38 1,122,484
8/31/92......... 10.00 0.5588 0.0311 (0.5594) -- 10.03 6.68 0.36 5.91 195.53 1,153,410
7/10/91(d) to
8/31/91......... 10.00 0.0873 (0.0016) (0.0857) -- 10.00 7.02(e) 0.48(e) 7.16(e) 3.56 94,139
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES TO INCOME
AVERAGE NET TO AVERAGE
ASSETS NET ASSETS
----------- ----------
<S> <C> <C>
Year ended:
8/31/98......... 0.34% 5.83%
8/31/97......... 0.34 6.02
8/31/96......... 0.35 6.16
8/31/95......... 0.34 5.65
8/31/94......... 0.37 4.23
8/31/93......... 0.47 4.45
8/31/92......... 0.59 5.68
7/10/91(d) to
8/31/91......... 0.73(e) 6.91(e)
</TABLE>
- ----
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
8
<PAGE>
TRUST FOR CREDIT UNIONS
MORTGAGE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT
OPERATIONS DISTRIBUTIONS TO UNITHOLDERS
----------------- ---------------------------------------
RATIO OF
NET NET
REALIZED IN EXCESS INVEST-
NET AND IN OF NET NET MENT
ASSET UNREAL- FROM EXCESS REAL- ASSET RATIO OF INCOME
VALUE AT NET IZED GAIN NET OF NET IZED VALUE NET TO
BEGIN- INVEST- (LOSS) ON INVEST- INVEST- GAIN ON FROM AT EXPENSES AVERAGE
NING OF MENT INVEST- MENT MENT INVEST- PAID-IN END OF TOTAL TO AVERAGE NET
PERIOD INCOME MENTS(A) INCOME INCOME MENTS CAPITAL PERIOD RETURN(B) NET ASSETS ASSETS
-------- ------- --------- -------- -------- --------- -------- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/98......... $ 9.75 $0.6395 $0.1272 $(0.6167) $ -- $ -- $ -- $ 9.90 8.10% 0.30% 6.44%
8/31/97......... 9.65 0.6399 0.1011 (0.6399) (0.0011) -- -- 9.75 7.89 0.30 6.57
8/31/96......... 9.74 0.6604 (0.1195) (0.6309) -- -- -- 9.65 5.67 0.28 6.64
8/31/95......... 9.62 0.6075 0.1539 (0.6075) (0.0175) -- (0.0164) 9.74 8.20 0.26 6.36
8/31/94......... 10.13 0.5533 (0.4530) (0.5719) (0.0340) (0.0044) -- 9.62 1.00 0.28 5.66
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)
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
----------------------
NET RATIO OF
PORT- ASSETS NET
FOLIO AT END RATIO OF INVESTMENT
TURN- OF EXPENSES TO INCOME
OVER PERIOD AVERAGE NET TO AVERAGE
RATE(C) (000'S) ASSETS NET ASSETS
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended:
8/31/98......... 108.76% $442,550 0.30% 6.44%
8/31/97......... 106.10 350,315 0.30 6.57
8/31/96......... 163.42 332,546 0.30 6.62
8/31/95......... 130.98 264,409 0.32 6.30
8/31/94......... 188.58 283,886 0.29 5.65
10/9/92(d) to
8/31/93......... 146.24 213,510 0.38(e) 5.59(e)
</TABLE>
- ----
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Commencement of operations.
(e) Annualized.
9
<PAGE>
INVESTMENT OBJECTIVES AND PORTFOLIOS
INTRODUCTION
The Fund is an open-end, diversified, management investment company
(commonly known as a "mutual fund") organized on September 24, 1987 as a
Massachusetts business trust. The Fund seeks to achieve a high level of income
to the extent consistent with the investment objectives of its investment
portfolios. The Fund presently maintains three investment portfolios--the
Money Market Portfolio, the Government Securities Portfolio and the Mortgage
Securities Portfolio (individually, a "Portfolio" and collectively, the
"Portfolios").
The Fund is offered solely to state and federally chartered credit unions.
Units of each of the Fund's Portfolios are designed to qualify as eligible
investments for federally chartered credit unions pursuant to Sections 107(7),
107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National
Credit Union Administration ("NCUA") Rules and Regulations and NCUA Letter
Number 155. The Fund intends to review changes in the applicable laws, rules
and regulations governing eligible investments for federally chartered credit
unions, and to take such action as may be necessary so that the investments of
the Fund qualify as eligible investments under the Federal Credit Union Act
and the regulations thereunder.
Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act set
forth those securities, deposits and other obligations in which federally
chartered credit unions may invest. Included are mortgage-related securities,
securities issued or fully guaranteed as to principal and interest by the U.S.
Government, its agencies, instrumentalities or sponsored enterprises, accounts
in specified federally insured financial institutions and other specified
investments.
The Fund's investments consist exclusively of assets intended to qualify as
eligible investments if owned directly by a federally chartered credit union.
Units of the Fund, however, may or may not qualify as eligible investments for
particular state chartered credit unions. The Fund encourages each state
chartered credit union to consult qualified legal counsel concerning whether
the Fund's units are permissible investments under the laws applicable to it.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing in high quality money market instruments authorized under the
Federal Credit Union Act.
The Money Market Portfolio invests exclusively in:
--securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--U.S. dollar denominated obligations issued or guaranteed by U.S. banks
with total assets exceeding $1 billion (including obligations issued
by foreign branches of such banks), but only to the extent permitted
under the Federal Credit Union Act and the rules and regulations
promulgated thereunder;
--repurchase agreements pertaining thereto; and
--federal funds.
10
<PAGE>
The Money Market Portfolio is managed so that the average maturity of all
instruments in the Portfolio (on a dollar-weighted basis) will not exceed
ninety days. In no event will the Money Market Portfolio purchase any
securities which are deemed to mature more than thirteen months from the date
of purchase.
Pursuant to an SEC order, the Money Market Portfolio, may enter into
principal transactions in certain taxable money market instruments, including
repurchase agreements, with Goldman, Sachs & Co.
Investments by the Money Market Portfolio must present minimal credit risk
and be "First Tier Securities." First Tier Securities are securities that are
rated in the highest short-term rating category by at least two NRSROs, or if
only one NRSRO has assigned a rating, by that NRSRO; or have been issued or
guaranteed by, or otherwise allow the Portfolio under certain conditions to
demand payment from, an entity with such ratings. U.S. Government Securities
are considered First Tier Securities. Securities without short-term ratings
may be purchased only if they are deemed by GSAM to be of comparable quality
to First Tier Securities. NRSROs include Standard & Poor's Ratings Group,
Moody's Investors Service, Inc., Fitch IBCA, Inc., Duff and Phelps, Inc. and
Thomson BankWatch, Inc. For a description of each NRSRO's rating categories,
see the Additional Statement.
GOVERNMENT SECURITIES PORTFOLIO
The Government Securities Portfolio seeks to achieve a high level of current
income, consistent with low volatility of principal, by investing in
obligations authorized under the Federal Credit Union Act.
The Government Securities Portfolio invests exclusively in:
--securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies, instrumentalities or sponsored
enterprises;
--repurchase agreements pertaining thereto; and
--short-term obligations that are permitted investments for the Money
Market Portfolio.
Under normal market and interest rate conditions, at least 65% of the total
assets of the Government Securities Portfolio will consist of adjustable rate
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises. The Government
Securities Portfolio intends to maintain a maximum duration equal to that of a
two-year U.S. Treasury security and a target duration to be no shorter than
that of a six-month U.S. Treasury security and no longer than that of a one-
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 three-year U.S. Treasury security and its target
duration will be equal to that of a two-year U.S. Treasury security.
----------------
The investment objective of each Portfolio (which is set forth in the first
sentence under each Portfolio) may not be changed without the approval of the
holders of a majority of the outstanding units of that Portfolio, as described
under "Additional Information." There can be no assurance that the objective
of each Portfolio will be realized. In seeking its objective, a Portfolio may
not always purchase securities offering the highest yield.
DESCRIPTION OF INVESTMENTS
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are securities that directly or indirectly
represent participations in, or are collateralized by and payable from
payments on, mortgage loans secured by real property. These securities include
both adjustable rate and fixed rate mortgage pass-through securities,
collateralized mortgage obligations and other multiclass mortgage-related
securities as well as other securities that are collateralized by or represent
direct or indirect interests in mortgage-related securities or mortgage loans.
The issuers of certain mortgage-related securities may elect to have the pool
of mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"),
which is subject to special federal income tax rules. A description of the
types of mortgage-related securities in which the Government Securities
Portfolio and the Mortgage Securities Portfolio may invest is provided below.
The descriptions are general and summary in nature, and do not detail every
possible variation of the types of mortgage-related securities that are
permissible for the Portfolios.
12
<PAGE>
1. INVESTMENT CHARACTERISTICS OF MORTGAGE-RELATED SECURITIES
In general, changes in both prepayment rates on mortgage-related securities
and interest rates and the volume of transactions in units of the Government
Securities Portfolio and the Mortgage Securities Portfolio will affect each
Portfolio's return. A predominant factor affecting the prepayment rate on a
pool of mortgage loans is the difference between the interest rates on
outstanding mortgage loans and prevailing mortgage loan interest rates (giving
consideration to the cost of any refinancing). In general, if mortgage loan
interest rates fall sufficiently below the interest rates on fixed rate
mortgage loans underlying mortgage-related securities, the rate of prepayment
would be expected to increase. Prepayments of adjustable rate mortgage loans
may also increase in a declining interest rate environment as borrowers seek
to "lock-in" low rates. Conversely, if mortgage loan interest rates rise above
the interest rates on outstanding mortgage loans, the rate of prepayment may
be expected to decrease. Due to these factors, mortgage-related securities may
be less effective than U.S. Treasury securities of similar maturity at
maintaining yields during periods of declining interest rates, since the
mortgage payments will normally be reinvested in instruments with lower yields
reflecting prevailing market conditions.
Because the Portfolios' investments are interest rate sensitive, each
Portfolio's performance will depend in large part upon the ability of the
Portfolio to anticipate and respond to fluctuations in market interest rates
and to utilize appropriate strategies to maximize returns to the Portfolio,
while attempting to minimize the associated risks to its investment capital.
Prepayments may have a disproportionate effect on certain mortgage-related
securities and other multiple class pass-through securities, which are
discussed below.
Generally, to the extent mortgage-related securities are purchased at a
premium, a faster than anticipated rate of unscheduled principal prepayments
will result in a lower than anticipated yield. On the other hand, if the
securities are purchased at a discount, a faster than anticipated rate of
unscheduled prepayment of principal will result in a higher than anticipated
yield.
2. PRIVATE MORTGAGE PASS-THROUGH SECURITIES
The Mortgage Securities Portfolio may invest in privately-issued mortgage
pass-through securities ("Mortgage Pass-Throughs") which represent interests
in pools of mortgage loans that are issued by trusts formed by originators of
and institutional investors in mortgage loans (or represent interests in
custodial arrangements administered by such institutions). These originators
and institutions include commercial banks, savings and loans associations,
credit unions, savings banks, mortgage bankers, insurance companies,
investment banks or special purpose subsidiaries of the foregoing. For federal
income tax purposes, such trusts are generally treated as grantor trusts or
REMICs and, in either case, are generally not subject to any significant
amount of federal income tax at the entity level.
The mortgage pools underlying Mortgage Pass-Throughs consist of private
mortgage loans evidenced by promissory notes secured by first mortgages or
first deeds of trust or other similar security instruments creating a first
lien on residential, residential multi-family and mixed residential/commercial
properties. (In conformance with the Rules and Regulations of the NCUA, the
Mortgage Securities Portfolio will not invest in commercial mortgage-related
securities.) Mortgage Pass-Throughs (whether fixed or adjustable rate) provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amounts paid
to any guarantor, administrator and/or servicer of the underlying mortgage
loans. A trust fund with respect to
13
<PAGE>
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 also be purchased by the Mortgage Securities Portfolio if they
have the required rating from an NRSRO. Although the market for such
securities is becoming increasingly liquid, some mortgage-related securities
issued by private organizations may not be readily marketable. Types of credit
support are discussed further in the Additional Statement.
3. GOVERNMENT MORTGAGE-RELATED SECURITIES
The Fund's Portfolios may invest in mortgage-related securities issued or
guaranteed by the U.S. Government and its agencies, instrumentalities or
sponsored enterprises ("Government Mortgage-Related Securities"). These
securities include Government National Mortgage Association ("GNMA") mortgage-
backed certificates ("GNMA Certificates"), which are mortgage-backed
securities of the modified pass-through type where both interest and principal
payments (including prepayments) are passed through monthly to the holder of
the certificate whether or not they are paid by the underlying mortgagor. The
National Housing Act provides that the full faith and credit of the United
States is pledged to the timely payment of principal and interest by GNMA of
amounts due on these GNMA Certificates. Each GNMA Certificate evidences an
interest in a specific pool of mortgage loans (frequently one-to-four family
residential loans) insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans Administration.
Government Mortgage-Related Securities also include securities issued by the
Federal National Mortgage Association ("FNMA") and by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA, a federally chartered and stockholder-
owned corporation, issues pass-through securities which are guaranteed as to
timely payment of principal and interest by FNMA. FHLMC, also a federally
chartered corporation, issues pass-through securities which are guaranteed as
to timely payment of interest and ultimate collection of principal by FHLMC.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States.
4. MULTICLASS MORTGAGE SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
Mortgage-related securities acquired by the Portfolios may include
collateralized mortgage obligations and other multiclass mortgage-related
securities (collectively, "CMOs") issued by FNMA, FHLMC or other U.S.
Government agencies, instrumentalities or sponsored enterprises, as well as by
private issuers in the case of the Mortgage Securities Portfolio. CMOs provide
an investor with a specified interest in the cash flow of a pool of underlying
mortgages or other mortgage-related securities. Issuers of CMOs frequently
elect to be taxed as REMICs. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final scheduled distribution
date. The relative payment rights of the various CMO classes may be structured
in many ways. In many cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities,
14
<PAGE>
so that no principal payments will be made on a CMO class until all other
classes having an earlier stated maturity date are paid in full. Sometimes,
however, CMO classes are "parallel pay," i.e. payments of principal are made
to two or more classes concurrently. In some cases, CMOs may have the
characteristics of a stripped mortgage-backed security whose prices can be
highly volatile. 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 its agencies,
instrumentalities or sponsored enterprises as described in clauses (b) or (c)
in the future, other than as set forth above, since it is not obligated to do
so by law.
Government Securities are deemed to include (to the extent consistent with
the Investment Company Act of 1940) securities for which the payment of
principal and interest is backed by an irrevocable letter of credit issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises.
Government Securities are also deemed to include (to the extent consistent
with the Investment Company Act of 1940) participations in loans made to
foreign governments or their agencies that are guaranteed as to principal and
interest by the U.S. Government or its agencies, instrumentalities or
sponsored enterprises. The secondary market for certain of these
participations is extremely limited. In the absence of a substantial secondary
market, such participations will, therefore, be regarded as illiquid.
Each Portfolio may invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises. In the case of
securities issued or guaranteed by the U.S. 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 ten years from settlement.
Each Portfolio will only purchase zero coupon bonds which are
15
<PAGE>
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 unitholders and which,
because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations.
GOVERNMENT RELATED OBLIGATIONS
Each Portfolio may also acquire securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, instrumentalities
or sponsored enterprises in the form of custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, instrumentalities
or sponsored enterprises.
REPURCHASE AGREEMENTS
When a Portfolio purchases securities, it may enter into a repurchase
agreement with the seller wherein the seller agrees, at the time of sale, to
repurchase the securities at a mutually agreed upon time and price. A
Portfolio may enter into repurchase agreements with broker-dealers and with
banks. Although the securities subject to the repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be
more than one year after the Portfolio's acquisition of the securities and
normally would be within a shorter period of time. The Portfolios generally
intend to enter into repurchase agreements which terminate within seven days'
notice by a Portfolio. Except as provided under "Other Portfolio Management
Policies," if a Portfolio were to enter into repurchase agreements which
provide for a notice period greater than seven days, the Portfolio would do so
only if such investment, together with other illiquid securities, did not
exceed 15% (10% in the case of the Money Market Portfolio) of the Portfolio's
net assets. The resale price will be in excess of the purchase price,
reflecting an agreed-upon market rate effective for the period of time the
Portfolio's money will be invested in the securities, and will not be related
to the coupon rate of the purchased securities. During the term of the
repurchase agreement, Goldman, Sachs & Co. will require the seller to maintain
the value of the securities subject to the agreement in an amount that equals
or exceeds the repurchase price. In the event the seller of the repurchase
agreement enters a bankruptcy or other insolvency proceeding, or in the event
of the failure of the seller to repurchase the underlying securities as agreed
upon, the Portfolio could, however, experience losses that include (a)
possible decline in the value of the underlying securities during the period
while the Portfolio seeks to enforce its rights thereto and possible delay in
enforcement of those rights, (b) possible loss of all or a part of the income
or proceeds of the repurchase, (c) additional expenses to the Portfolio for
enforcing those rights and (d) possible delay in the disposition of the
underlying securities pending court action or possible loss of rights in such
securities. The percentage of each Portfolio's assets invested in repurchase
agreements may vary from time to time depending upon Goldman, Sachs & Co.'s
evaluation of market trends and other conditions. The Fund will enter into
repurchase transactions only with parties that meet creditworthiness standards
approved by the Fund's Trustees. Goldman, Sachs & Co. monitors the
16
<PAGE>
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
17
<PAGE>
which might adversely affect the payment of principal and interest on those
obligations, or that there may be difficulties in obtaining or enforcing a
judgment against a foreign branch.
2. FEDERAL FUNDS
The Portfolios may make unsecured loans of federal funds to United States
banks with total assets exceeding $1 billion (including obligations issued by
foreign branches of such banks) to the extent permitted by the Federal Credit
Union Act and the rules and regulations promulgated thereunder, provided that
(i) the accounts of such banks are insured by the Federal Deposit Insurance
Corporation, (ii) the interest received therefrom is at the market rate for
federal funds transactions, and (iii) the transaction has a maturity of one or
more business days or the Fund is able to require repayment at any time.
Except as provided under "Other Portfolio Management Policies," the Fund
considers federal funds investments maturing in more than seven days to be
illiquid, and therefore will limit such transactions along with all other
illiquid investments to 15% (10% in the case of the Money Market Portfolio) of
the value of a Portfolio's net assets.
Federal funds are funds held by a regional Federal Reserve Bank for the
account of a bank that is a member of such Federal Reserve Bank (a "Fed Member
Bank"). A loan of federal funds is an unsecured loan at a negotiated interest
rate for a negotiated time period, generally overnight, of federal funds by
one Fed Member Bank to another. Since, pursuant to an exemption, the borrowing
Fed Member Bank is not required to maintain reserves on the borrowed federal
funds, the interest rate it pays on such loans is generally higher than the
rate it pays on other deposits of comparable size and maturity that are
subject to reserve requirements. In addition, a "depository institution" or
other exempt institution such as the Fund may under Regulation D of the Board
of Governors of the Federal Reserve System in effect make loans of federal
funds by instructing a correspondent or other willing Fed Member Bank at which
it maintains an account to loan federal funds on its behalf. Loans of federal
funds are not insured by the Federal Deposit Insurance Corporation.
In the event the borrower of federal funds enters a bankruptcy or other
insolvency proceeding, the Fund could experience delays and incur expense in
recovering cash. Further, the possibility exists that in such an instance, the
borrowing institution may not be able to repay the loaned funds. Loans of
federal funds rank junior to domestic deposit liabilities of the bank and pari
passu with other senior, unsecured obligations of the bank. With regard to the
solvency of the borrowing institution, the Fund will limit federal funds
lending to those member banks of the Federal Reserve System whose
creditworthiness has been reviewed and found by Goldman, Sachs & Co. to be
comparable in quality to securities rated high quality by an NRSRO.
Creditworthiness is of particular importance given the unsecured nature of
federal funds borrowings.
3. OTHER INVESTMENT COMPANIES
As a means of maintaining short-term liquidity, the Mortgage Securities
Portfolio reserves the right to invest up to 10% of its total assets,
calculated at the time of purchase, in the securities of other investment
companies. The Portfolio may not invest more the 5% of its total assets in the
securities of any one investment company or acquire more than 3% of the voting
securities of any other investment company. The Portfolio and ultimately its
unitholders will indirectly bear a proportionate share of the expenses paid by
investment companies in which it invests in addition to the Portfolio's own
expenses. Pursuant to an exemptive order obtained from the SEC, other
investment companies in which the Portfolio may invest include money market
funds which GSAM, Goldman, Sachs & Co. or any of their affiliates serves as
investment adviser, administrator or distributor.
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<PAGE>
OTHER INVESTMENT PRACTICES, POLICIES AND RESTRICTIONS
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Portfolio may purchase or sell portfolio securities in when-issued or
delayed delivery transactions provided settlement is regular-way. (Regular-way
settlement means delivery of a security from a seller to a buyer within the
time frame that the securities industry has established for that type of
security.) In such transactions, instruments are bought or sold with payment
and delivery taking place in the future in order to secure what is considered
to be an advantageous yield or price to a Portfolio at the time of entering
into the transactions. However, the yield on a comparable security available
when delivery takes place may vary from the yield on the security at the time
that the when-issued or delayed delivery transaction was entered into. When
the Fund engages in when-issued and delayed delivery transactions, the Fund
relies on the seller or buyer, as the case may be, to consummate the
transaction. Failure to consummate the transaction may result in the Fund
missing the opportunity of obtaining a price or yield considered to be
advantageous. In such transactions the payment obligation and the interest
rate are fixed on the trade date, although no interest accrues to the
purchaser prior to the settlement date. Consistent with the requirements of
the Investment Company Act of 1940, securities purchased on a when-issued or
delayed delivery basis are recorded as an asset (with the purchase price being
recorded as a liability) and are subject to changes in value based upon
changes in the general level of interest rates. At the time of delivery of the
security, the value may be more or less than the transaction price. To the
extent that a Portfolio remains substantially fully invested at the same time
that it has entered into such transactions, which it would normally expect to
do, there will be greater fluctuations in the market value of its net assets
than if such Portfolio set aside cash to satisfy its purchase commitment.
However, the Portfolio will segregate liquid assets at least equal in value to
commitments for when-issued or delayed delivery securities. Although a
Portfolio will generally make commitments to purchase portfolio securities on
a when-issued or delayed delivery basis with the intention of actually
acquiring the securities, a Portfolio may dispose of when-issued securities or
forward commitments prior to settlement when deemed to be appropriate.
MORTGAGE DOLLAR ROLLS
The Government Securities Portfolio and the Mortgage Securities Portfolio
may enter into mortgage "dollar rolls" in which each Portfolio sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar but not identical securities on a
specified future date. Delivery for all purchases and sales of securities will
be by regular-way settlement. During the roll period, a Portfolio loses the
right to receive principal and interest paid on the securities sold. However,
the Portfolio would benefit to the extent of any difference between the price
received for the securities sold and the lower forward price for the future
purchase (often referred to as the "drop") or fee income plus the interest
earned on the cash proceeds of the securities sold until the settlement date
of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use
of this technique will diminish the investment performance of a Portfolio
compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for each Portfolio. Such Portfolio will hold and
maintain in a segregated account until the settlement date cash, U.S.
Government Securities or other liquid assets in an amount equal to the forward
purchase price.
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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 two-
year U.S. Treasury security, and the Mortgage Securities Portfolio intends to
maintain a maximum duration approximately equal to that of a three-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 six-month U.S. Treasury security and no longer than that of a one-year
U.S. Treasury security, and the Mortgage Securities Portfolio's target
duration is expected to be approximately equal to that of a two-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 and loan participations of
foreign governments or their agencies that are guaranteed as to principal and
interest by the U.S. Government or its agencies, instrumentalities or
sponsored enterprises where a substantial secondary market is absent. A
repurchase agreement or a federal funds loan which by its terms can be
liquidated before its nominal fixed term on seven days' or less notice is
regarded as a liquid instrument. Mortgage-related securities issued in a
private
20
<PAGE>
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 the Portfolios. Instruments held by the Portfolios may be sold
for a variety of reasons, such as a more favorable investment opportunity or
other circumstances bearing on the desirability of continuing to hold such
instruments. A high rate of portfolio turnover involves correspondingly
greater transaction costs, which must be borne directly by each Portfolio and
ultimately by their unitholders.
Portfolio turnover rate is computed by dividing the lesser of the amount of
securities purchased or securities sold (excluding all securities whose
maturities at acquisition are one year or less) by the average monthly value
of such securities owned during the year, and includes purchase and sale
transactions entered into in connection with mortgage dollar rolls. A 100%
turnover rate would occur, for example, if all of the securities held in such
Portfolio were sold and replaced within one year. The rate at which Portfolio
transactions occur will depend upon Goldman, Sachs & Co.'s perception of how
market conditions will affect such Portfolio. Goldman, Sachs & Co. will not
consider portfolio turnover a limiting factor in making investment decisions
for a Portfolio consistent with such Portfolio's investment objective and such
Portfolio's investment management policies. A higher degree of portfolio
turnover results in increased transaction costs to such Portfolio in the form
of dealer spreads. Because of the exclusion of short-term securities from the
calculation of portfolio turnover rates, the portfolio turnover rate for the
Money Market Portfolio is expected to be zero for regulatory reporting
purposes.
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
21
<PAGE>
respect to no more than 5% of their net assets, engage in portfolio securities
lending. The market value of inverse floaters may be more volatile than the
market value of other instruments.
If, after purchase by a Portfolio, an investment ceases to meet the
investment criteria stated in this Prospectus, GSAM will consider whether the
Portfolio should continue to hold the investment. Investments purchased prior
to January 1, 1998 (the effective date of recent amendments to the Rules and
Regulations of the NCUA) will be governed by the Rules and Regulations in
effect when purchased, and the Portfolios may continue to hold such
investments after such date subject to compliance with such former Rules and
Regulations. See "Investment Restrictions" in the Additional Statement.
CERTAIN INVESTMENT RESTRICTIONS
Pursuant to SEC Rule 2a-7 under the Investment Company Act, the Money Market
Portfolio may not invest more than 5% of its assets, measured at the time of
purchase, in the securities of any one issuer other than U.S. Government
Securities, repurchase agreements collateralized by such securities and
securities subject to certain unconditional guarantees. The Portfolio may,
however, invest up to 25% of its assets in the First Tier Securities of a
single issuer for a period of up to three business days after the purchase
thereof, although the Portfolio may not make more than one such investment at
any time. The Money Market Portfolio may not invest in securities which are
Second Tier Securities at the time of purchase. The Money Market Portfolio's
compliance with the diversification requirements of SEC Rule 2a-7 will be
deemed compliance with the fundamental investment restriction below.
The Portfolios are subject to certain fundamental investment restrictions
which, as described in more detail in the Additional Statement, may generally
be changed with respect to a Portfolio only with the approval of the holders
of a majority of the outstanding units of the Portfolio. For a more complete
description of the investment restrictions summarized below and the other
fundamental investment restrictions to which the Portfolios are subject, see
the Additional Statement.
1. The Portfolios may not invest in the instruments of any one issuer, other
than Government Securities (as defined in the Investment Company Act of 1940),
if immediately after such investment more than 5% of the value of a
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 a Portfolio's 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.
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
22
<PAGE>
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. A unitholder may
also utilize the SMARTPlus personal computer software system to purchase and
redeem units and also obtain Portfolio and account information.
Federal Reserve wires for the purchase of Money Market Portfolio units
should be directed to Northern, as subcustodian for State Street, rather than
to State Street itself. Units of the Money Market Portfolio are deemed to have
been purchased when an order becomes effective and are entitled to dividends
on Units purchased as follows:
<TABLE>
<CAPTION>
IF ORDER IS RECEIVED AND ACCEPTED
BY GOLDMAN, SACHS & CO. DIVIDENDS BEGIN
--------------------------------- ---------------
<S> <C>
By: 3:00 p.m.--N.Y.
time Same Business Day
-------------------------------------------------------------------------
After: 3:00 p.m.--N.Y.
time Next Business Day
-------------------------------------------------------------------------
</TABLE>
Federal Reserve wires should be sent as early as possible, but no later than
3:30 p.m., New York time, to facilitate crediting to the unitholder's account.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
Units of each Portfolio are offered on a continuous basis at their net asset
value next determined after the order therefor has been received and accepted.
See "Net Asset Value."
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
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<PAGE>
Northern by such next Business Day. If the order is received and accepted by
Goldman, Sachs & Co. after 4:00 p.m., New York time, settlement of the
transaction will occur on the second Business Day and the units to which the
order relates will be issued and will commence earning income on the second
Business Day, provided the federal funds in respect of such order are received
by Northern by such second Business Day. If payment in federal funds is not
received within the period stated above, an investor's purchase order will be
cancelled, and the investor will be responsible for any loss resulting to the
Fund.
OTHER INFORMATION
In the interest of economy, certificates representing Fund units are not
issued. The Fund and its co-distributors reserve the right to reject any
purchase order.
After the initial purchase of units, an Account Information Form must be
completed promptly and mailed to Goldman, Sachs & Co. at the address set forth
on the cover page of this Prospectus. Redemptions may not be effected prior to
receipt of such Account Information Form.
Goldman, Sachs & Co. and/or CFS may from time to time, at their own expense,
provide compensation to certain dealers whose customers purchase significant
amounts of units of the Fund. The amount of such compensation may be made on a
one-time and/or periodic basis and, in the case of Goldman, Sachs & Co., may
be up to 20% of the annual fees that are earned by Goldman, Sachs & Co. as
investment adviser to the Fund (after adjustments) and are attributable to
units held by such customers. Such compensation does not represent an
additional expense to the Fund or its unitholders, since it will be paid from
the assets of Goldman, Sachs & Co., its affiliates or CFS.
REDEMPTION OF UNITS
The Fund redeems its units without charge upon request of a unitholder at
the net asset value next determined after the receipt of such request in
proper form. See "Net Asset Value." Although redemption requests may be placed
on any day on which the Fund's net asset value per unit is determined,
proceeds will be remitted only on Business Days (as such term is defined under
"Additional Information"). Redemption requests may be made by calling Goldman,
Sachs & Co. at 800-342-5828 or by a written request addressed to Goldman,
Sachs & Co., Attention: Shareholder Services, Trust for Credit Unions, 4900
Sears Tower, Chicago, Illinois 60606. The letter of instruction must specify
the number of Units to be redeemed, the Portfolio from which Units are being
redeemed, the account number, payment instructions and the exact registration
on the account. A unitholder may request redemptions by telephone if the
optional telephone redemption privilege is elected on the Account Information
Form. It may be difficult to implement redemptions by telephone in times of
drastic economic or market changes. In an effort to prevent unauthorized or
fraudulent redemption and exchange requests by telephone, Goldman, Sachs & Co.
and State Street each employ reasonable procedures specified by the Fund to
confirm that such instructions are genuine. Consequently, proceeds of
telephone redemptions will be wired directly to the credit union, central
credit union, or 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
24
<PAGE>
liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither the Fund, the Portfolios nor Goldman, Sachs & Co. will be
responsible for the authenticity of redemption instructions received by
telephone. Thus, except as stated, the total risk of loss for unauthorized
transactions is on the investor.
MONEY MARKET PORTFOLIO
Except as provided in "Other Information" below, if a redemption request
with respect to Money Market Portfolio units is received by Goldman, Sachs &
Co. before 3:00 p.m., New York time, the units to be redeemed do not earn
income on the day the request is received, but proceeds are ordinarily wired
on the same day. If such request is received by Goldman, Sachs & Co. after
such time and prior to 4:00 p.m., New York time, the units to be redeemed earn
income on the day the request is received, and proceeds are ordinarily wired
on the morning of the following Business Day.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
Except as provided in "Other Information" below, if a redemption request
with respect to units of either Portfolio is received by Goldman, Sachs & Co.
by 4:00 p.m., New York time, the proceeds are ordinarily wired on the next
Business Day. Units to be redeemed earn income with respect to the day the
request is received; however, units redeemed on a day immediately preceding a
weekend or holiday continue to earn income until the next Business Day.
OTHER INFORMATION
On any Business Day when The Bond Market Association ("BMA") recommends that
the securities market closes early, each Portfolio reserves the right to cease
accepting purchase and redemption orders for the same Business Day credit at
the time the BMA recommends that the securities market closes. On days a
Portfolio closes early, purchase and redemption orders received after the BMA
recommended closing time will be credited to the next Business Day. In
addition, each Portfolio reserves the right to advance the time by which
purchase and redemption orders must be received for the same Business Day
credit as otherwise permitted by the SEC.
Once wire instructions have been given to Northern, neither the Fund nor
Goldman, Sachs & Co. assumes responsibility for the performance of Northern or
of any intermediaries in the transfer process. If a problem with such
performance arises, the investor should deal directly with Northern or such
intermediaries.
If its authorized signature is guaranteed by a credit union, commercial
bank, trust company, member firm of a national securities exchange or other
eligible guarantor institution, a unitholder may change the designated credit
union, central credit union or other depository account at any time upon
written notice to Goldman, Sachs & Co. Additional documentation, regarding any
such change or regarding a redemption by any means, may be required when
deemed appropriate by Goldman, Sachs & Co. and the request for such redemption
will not be considered to have been received in proper form until such
additional documentation has been received.
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
25
<PAGE>
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 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
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<PAGE>
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.
Payment of dividends with respect to net investment income will be paid on
the last calendar day of each month in additional units of the applicable
Portfolio at the net asset value on such day, unless cash distributions are
elected, in which case payment will be made by Federal Reserve wire on the
first Business Day of the succeeding month. Dividends with respect to capital
gains, if any, when declared will be paid in additional units of the
applicable Portfolio at the net asset value on the declared payment date,
unless cash distributions are elected. A unitholder's election to receive
dividends in cash is initially made on its Account Information Form and may be
changed at any time upon written notice to Goldman, Sachs & Co. The election
with respect to the short-term component, if any, of a Portfolio's capital
gains dividend must be the same as the election with respect to such
Portfolio's monthly net investment income dividends (i.e., both must be
received either in units or in cash). The election with respect to the long-
term component, if any, of a Portfolio's annual capital gains dividend may
differ from such election with respect to such Portfolio's monthly net
investment income dividends.
At the time of an investor's purchase of units of either the Government
Securities Portfolio or the Mortgage Securities Portfolio a portion of the per
unit net asset value may be represented by undistributed income of such
Portfolio or unrealized appreciation of the securities held by such Portfolio.
NET ASSET VALUE
The net asset value per unit of each Portfolio is calculated by adding the
value of all securities and other assets of such Portfolio, subtracting the
liabilities of such Portfolio, dividing the remainder by the number of units
of such Portfolio outstanding and rounding the result to the nearest one cent.
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<PAGE>
MONEY MARKET PORTFOLIO
The net asset value per unit of the Money Market Portfolio for purposes of
both purchase and redemption of units of such Portfolio is calculated by State
Street immediately after the determination of net investment income earned by
unitholders of record as of the close of regular trading on the New York Stock
Exchange (normally, but not always, 4:00 p.m., New York time) on each Business
Day (as such term is defined under "Additional Information").
The Fund seeks to maintain a net asset value for the Money Market Portfolio
of $1.00 per unit. In this connection, the Money Market Portfolio values its
portfolio securities on the basis of amortized cost. The amortized cost method
values a security at its cost on the date of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the
instrument. For a more complete description of the amortized cost valuation
method and its effect on existing and prospective unitholders, see the
Additional Statement. There can be no assurance that the Money Market
Portfolio will be able at all times to maintain a net asset value per unit of
$1.00.
GOVERNMENT SECURITIES PORTFOLIO AND MORTGAGE SECURITIES PORTFOLIO
The net asset value per unit of each Portfolio for purposes of both purchase
and redemption of units is calculated by State Street, immediately after the
determination of income to be declared as a dividend, as of the close of
regular trading on the New York Stock Exchange (normally, but not always, 4:00
p.m., New York time), on each Business Day (as such term is defined under
"Additional Information"). Portfolio securities for which accurate market
quotations are readily available will be valued on the basis of quotations
provided by dealers in such securities or furnished by a pricing service.
Portfolio securities for which accurate market quotations are not readily
available and other assets will be valued at fair value using methods
determined in good faith by Goldman, Sachs & Co. under the supervision of the
Trustees and may include yield equivalents or a pricing matrix. Short-term
securities with maturities of 60 days or less are valued at amortized cost
which the Trustees have determined to equal fair value. In the case of the
Government Securities Portfolio and the Mortgage Securities Portfolio, the net
asset value per unit will fluctuate as the values of portfolio securities
change in response to changing market rates of interest, principal prepayments
and other factors.
TAXES
TAXATION OF UNITHOLDERS
If state and federally chartered credit unions meet all requirements of
Section 501(c)(14)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), and all rules and regulations thereunder, they will be exempt from
federal income taxation on any income, dividends or capital gains realized as
the result of purchasing, holding, exchanging or redeeming units of the Fund.
Unitholders should consult their own tax advisers concerning applicable
state tax laws.
FEDERAL TAXATION OF THE FUND
The Fund intends that each of its Portfolios will qualify for the special
tax treatment afforded regulated investment companies under Subchapter M of
the Code. Each Portfolio of the Fund is
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<PAGE>
treated as a separate corporation for federal tax purposes and generally must
comply with the qualification and other requirements applicable to regulated
investment companies, without regard to the Fund's other Portfolios. If a
Portfolio otherwise complies with such provisions, then in any taxable year
for which it distributes at least 90% of its investment company taxable income
determined for federal income tax purposes (before any deduction for dividends
paid), 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 company taxable income and net capital
gain. See "Income."
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 & Co. acts as transfer agent. Goldman, Sachs & Co.
became registered as an investment adviser in 1981. As of October 31, 1998,
Goldman, Sachs & Co. and its affiliates served as investment adviser,
administrator or distributor for approximately $177 billion in assets.
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<PAGE>
Under its advisory agreement with the Fund, Goldman, Sachs & Co., subject to
the general supervision of the Fund's Trustees, manages the Fund's Portfolios
and provides certain administrative services for the Fund. As manager of the
Fund's Portfolios, it is the responsibility of Goldman, Sachs & Co. to make
investment decisions for the Fund and to place the purchase and sale orders
for the portfolio transactions of the Fund. Unitholder inquiries should be
directed to Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
The portfolio managers for the Government Securities Portfolio and the
Mortgage Securities Portfolio are Jonathan A. Beinner, Peter D. Dion, James B.
Clark and James P. McCarthy. Their responsibilities include investing in the
particular types of securities the Portfolios may hold. Mr. Beinner is a
Managing Director of Goldman, Sachs & Co. Mr. Beinner joined GSAM in 1990
after working in the trading and arbitrage group of Franklin Savings
Association. Mr. Dion is a Vice President of Goldman, Sachs & Co. Mr. Dion
joined GSAM in 1992 after working as a portfolio administrator at Chase
Manhattan Bank, N.A. Mr. Clark is a Vice President of Goldman, Sachs & Co. Mr.
Clark joined GSAM in 1994 after working as a senior trader at Federal Home
Loan Mortgage Corporation. Prior to that, he was an investment manager at
Travelers Insurance Company. Mr. McCarthy is a Vice President of Goldman,
Sachs & Co. Mr. McCarthy joined GSAM in 1995 after working as a bond trader at
Nomura Securities.
As compensation for the services rendered to the Fund by Goldman, Sachs &
Co. pursuant to its advisory agreement, Goldman, Sachs & Co. is entitled to
receive fees, computed daily and payable monthly, from the Money Market
Portfolio at annual rates equal to .20% up to $300 million and .15% over $300
million, and from the Government Securities Portfolio and Mortgage Securities
Portfolio, respectively, at annual rates equal to .20% and .20% of the average
daily net assets of the particular Portfolio. For the period from September 1,
1998 to September 30, 1998, Goldman, Sachs & Co. voluntarily agreed to limit
its advisory fee with respect to the Money Market Portfolio to .06% of the
Portfolio's average daily net assets. Effective October 1, 1998, Goldman,
Sachs & Co. increased its advisory fee limitation to .07% of the Portfolio's
average daily net assets. This voluntary limitation may be modified or
terminated by Goldman, Sachs & Co. at any time. For the fiscal year ended
August 31, 1998, 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 .06%, .20% and .20%, respectively,
of their average daily net assets.
ACTIVITIES OF GOLDMAN, SACHS & CO. AND ITS AFFILIATES AND OTHER ACCOUNTS
MANAGED BY GOLDMAN, SACHS & CO. The involvement of Goldman, Sachs & Co. and
its affiliates in the management of, or their 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. 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. In
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<PAGE>
addition, the Portfolios may, from time to time, enter into transactions in
which other clients of Goldman, Sachs & Co. have an adverse interest. 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.
YEAR 2000. Many computer systems were designed using only two digits to
signify the year (for example, "98" for "1998"). On January 1, 2000, if these
computer systems are not corrected, they may incorrectly interpret "00" as the
year "1900" rather than the year "2000," leading to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these
systems conduct forward-looking calculations, these computer problems may
occur prior to January 1, 2000. Like other investment companies and financial
and business organizations, the Fund could be adversely affected in its
ability to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Fund's investment adviser or other Fund service
providers do not adequately address this problem in a timely manner. The
Fund's investment adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for the
Year 2000 Problem. Currently, the Fund's investment adviser does not
anticipate that the transition to the 21st century will have any material
impact on its ability to continue to service the Fund at current levels. In
addition, the Fund's investment adviser has sought assurances from the Fund's
other service providers that they are taking the steps necessary so that they
do not experience Year 2000 Problems, and the Fund's investment adviser will
continue to monitor the situation. At this time, however, no assurance can be
given that the actions taken by the Fund's investment adviser and the Fund's
other service providers will be sufficient to avoid any adverse effect on the
Fund due to the Year 2000 Problem. Furthermore, even if the actions taken by
the Fund's investment adviser and other service providers are successful, the
Fund may nevertheless suffer losses if the issuers of securities held by the
Fund are adversely affected by the Year 2000 Problem. Also, it is possible
that the normal operations of the Fund will, in any event, be disrupted
significantly by the failure of communications and public utility companies,
governmental entities, financial processors or others to perform their
services as a result of the Year 2000 Problem.
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 40 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.
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<PAGE>
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 .02% of the
Portfolio's average daily net assets. This voluntary limitation may be
terminated by CUFSLP at any time. For the fiscal year ended August 31, 1998,
the Money Market Portfolio, Government Securities Portfolio and Mortgage
Securities Portfolio paid, after waivers, administration fees to CUFSLP at the
annual rates of .02%, .10% and .05%, respectively, of their average daily net
assets.
DISTRIBUTORS
Callahan Financial Services, Inc. ("CFS"), 1001 Connecticut Ave., N.W.,
Suite 1001, 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. CFS and Goldman, Sachs & Co. are
not obligated to sell any certain number of units of the Portfolios. From time
to time the distributors may purchase or sell units for their own account.
FUND EXPENSES
Common expenses of the Fund are generally allocated pro rata to the
respective Portfolios based upon their respective net asset values.
CUFSLP has agreed that to the extent the total annualized operating expenses
(excluding interest, taxes, brokerage and extraordinary expenses) (the
"Operating Expenses") of the Money Market Portfolio exceed .20% of its average
daily net assets, CUFSLP will either reduce the administration fees payable or
pay the Operating Expenses of the Money Market Portfolio. Additionally, CUFSLP
and Goldman, Sachs & Co. have each voluntarily agreed to limit all other
expenses of the Government Securities Portfolio such that CUFSLP will
reimburse other expenses that exceed .05% up to .10% of the Portfolio's
average net assets, and Goldman, Sachs & Co. will reimburse other expenses
that exceed .10% up to .15% of the Portfolio's average net assets.
There are no sales loads, commissions or other fees imposed on investors at
the time of purchase of units and no redemption fees or other charges imposed
at the time of redemption of units.
PERFORMANCE AND YIELD INFORMATION
From time to time quotations of the Money Market Portfolio's yield and
effective yield may be included in advertisements and communications to
unitholders. Both yield figures are based on historical earnings and are not
intended to indicate future performance. The yield of the Portfolio refers to
the net investment income generated by an investment in the Portfolio over a
specified seven-day
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<PAGE>
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 semiannual 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.
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
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<PAGE>
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 1999, such
holidays are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas Day. On those days
when one of such organizations closes early, the right is reserved by Goldman,
Sachs & Co. to advance the time on that day by which purchase and redemption
requests must be received to become effective; provided that the current net
asset value of each unit shall be computed at least once on such days.
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<PAGE>
---------------------------------
TRUST
for Credit Unions
---------------------------------
Investment Adviser
Goldman, Sachs & Co.
New York, New York
Transfer Agent Custodian Distributors
Goldman, Sachs & Co. State Street Bank Callahan Financial
Chicago, Illinois and Trust Services, Inc.
Company Washington, DC
Boston, (800) 237-5678
Massachusetts
Administrator Auditors Goldman, Sachs & Co.
New York, New York
Callahan Credit Union Arthur Andersen LLP (800) 342-5828
Financial Boston, (800-DIAL-TCU)
Services Limited Massachusetts
Partnership
Washington, DC
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
TRUST FOR CREDIT UNIONS
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606-6303
MONEY MARKET PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
MORTGAGE SECURITIES PORTFOLIO
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. This Additional Statement should be read in conjunction with the
Prospectus dated November 20, 1998, the ("Prospectus") relating to the offering
of units of the Money Market Portfolio, Government Securities Portfolio and
Mortgage Securities Portfolio of the Trust for Credit Unions. A copy of the
Prospectus may be obtained from Goldman, Sachs & Co. at (800) 342-5828 or
Callahan Financial Services, Inc. (800) 237-5678.
TABLE OF CONTENTS
Page
----
Introduction B-2
Management B-4
Advisory and Other Services B-7
Portfolio Transactions B-9
Amortized Cost Valuation B-19
Description of Units B-21
Adjustable and Fixed Rate Mortgage Loans B-24
and Mortgage-Related Securities
Other Investment Practices B-36
Investment Restrictions B-37
Calculation of Performance Quotations B-41
Other Information B-47
Financial Statements B-48
Description of Securities Ratings B-49
Appendix A B-54
The date of this Additional Statement is November 20, 1998.
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.
<PAGE>
INTRODUCTION
Trust for Credit Unions (the "Fund" or the "Trust") is an open-end, diversified,
management investment company (commonly known as a "mutual fund") offered only
to state and federally chartered credit unions. The Fund seeks to achieve a
high level of income to the extent consistent with the investment objectives of
its investment portfolios. This Additional Statement relates to the offering of
the units of the Fund's Money Market Portfolio, Government Securities Portfolio
and Mortgage Securities Portfolio (individually, a "Portfolio" and collectively,
the "Portfolios").
The Fund was established under Massachusetts law by an Agreement and Declaration
of Trust dated September 24, 1987. The Agreement and Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional units
of beneficial interest of one or more separate series ("Portfolios")
representing interests in separate investment portfolios. The Trustees have the
right to establish investment portfolios in addition to those heretofore
established. See "Additional Information" in the Prospectus. Investment in the
Portfolios relieves investors from the administrative and accounting burdens
involved in direct investments, and also provides related benefits as described
below.
High Current Income. The Money Market Portfolio seeks to maximize current
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income to the extent consistent with the preservation of capital and the
maintenance of liquidity by investing in high quality money market investments
authorized under the Federal Credit Union Act. The Government Securities and
Mortgage Securities Portfolios seek to achieve a higher current yield than a
money market fund, since they can invest in longer-term, higher yielding
securities, and may utilize certain investment techniques not available to a
money market fund. Similarly, the yields of the Government Securities and
Mortgage Securities Portfolios are expected to exceed that offered by bank
certificates of deposit and money market accounts. However, the Portfolios do
not maintain a constant net asset value per unit and are subject to greater
fluctuation in the value of their units than a money market fund. Unlike bank
certificates of deposit and money market accounts, investments in units of the
Portfolios are not insured or guaranteed by any government agency.
Relative Stability of Principal. Unlike the Money Market Portfolio which seeks
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to maintain its net asset value per unit at $1.00 (although there is no
assurance that the Portfolio will be able to do so on a continuous basis), the
Government Securities and Mortgage Securities Portfolios' net asset values per
unit fluctuate. The Government Securities Portfolio attempts to reduce net
asset value fluctuation by maintaining a maximum duration equal to that of a
two-year U.S. Treasury security and a target duration no shorter than that of a
six-month U.S. Treasury security and no longer than that of a
B-2
<PAGE>
one-year U.S. Treasury security. Similarly, the Mortgage Securities Portfolio
attempts to reduce net asset value fluctuation by maintaining a maximum duration
that will not exceed that of a three-year U.S. Treasury security and a target
duration equal to that of a two-year U.S. Treasury security and utilizing
certain active management techniques to hedge interest rate risk. Duration,
which is a measure of the price sensitivity of the Portfolio, including expected
cash flows and mortgage prepayments under a wide range of interest rate
scenarios, is reviewed and recalculated daily. However, there is no assurance
that these strategies will be successful. There can be no assurance that
Goldman, Sachs & Co.'s estimation of a Portfolio's duration will be accurate or
that the duration of a Portfolio will always remain within the maximum target
duration described above.
Liquidity. Because the Portfolios' units may be redeemed upon request of a
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unitholder on any Business Day at net asset value, the Portfolios offer greater
liquidity than many competing investments such as certificates of deposit and
direct investments in certain mortgage-related securities.
Experienced Professional Management. Successfully creating and managing a
- -----------------------------------
diversified portfolio of mortgage-related securities requires professionals with
extensive experience. Members of the Goldman, Sachs & Co.'s portfolio
management team bring together many years of experience in the analysis,
valuation and trading of U.S. fixed income securities. At October 31, 1998,
they were responsible for approximately $40 billion in fixed income assets
including approximately $14 billion in mortgage-related securities.
A Sophisticated Investment Process. The Portfolios' investment process starts
- ----------------------------------
with a review of trends for the overall economy as well as for different sectors
of the U.S. mortgage and other markets. Goldman, Sachs & Co.'s portfolio
managers then analyze yield spreads, implied volatility and the shape of the
yield curve.
In planning each Portfolio's strategy, the managers are able to draw upon the
economic and fixed income research resources of Goldman, Sachs & Co. They also
have access to the firm's proprietary models. Among the quantitative techniques
used in the Government Securities and Mortgage Securities Portfolios' investment
process are:
. option-adjusted analytics to make initial strategic asset allocations within
the mortgage markets and to reevaluate investments as market conditions
change; and
. analytics to estimate mortgage prepayments and cash flows under different
interest rate scenarios and to maintain an optimal portfolio structure.
B-3
<PAGE>
The Portfolio managers may use these and other trading and hedging techniques in
response to market and interest rate conditions. In particular, these and other
evaluative tools help the portfolio managers select securities with investment
characteristics they believe are desirable.
Convenience of a Fund Structure. The Government Securities and Mortgage
- -------------------------------
Securities Portfolios eliminate many of the complications that direct ownership
of mortgage securities entails. For example, most mortgage-related securities
generate monthly payments of both principal and interest, just as the underlying
mortgages do. To conserve their principal, investors must make a special effort
to segregate and reinvest the principal portion of each payment on their own.
The Portfolios relieve investors of this chore by automatically reinvesting all
principal payments within the Portfolio and distributing only current income
each month.
MANAGEMENT
Information pertaining to the Trustees and officers of the Fund is set forth
below. Trustees deemed to be "interested persons" of the Fund for purposes of
the Investment Company Act of 1940 (the "1940 Act") are indicated by an
asterisk.
Gene R. Artemenko, Age 70, Route 7, Box 1593, Reeds Spring, Missouri 65737.
Trustee. Retired. Formerly, President and Treasurer of the United Air Lines
Employees' Credit Union until June 1991.
James C. Barr, Age 63, 1600 North Oak Street, #420, Arlington, Virginia 22209.
Trustee. Managing Member of J.C.B. Enterprises, L.L.C., March 1997 to Present.
Chief Executive Officer of the National Milk Producers Federation, March 1985 to
March 1997.
Edgar F. Callahan, Age 70, 156 Second Street, San Francisco, California 94105-
3993. Trustee. Chief Executive Officer of PATELCO Credit Union, October 1987 to
Present.
Robert M. Coen, Age 59, 2003 Sheridan Road, Evanston, Illinois 60208. Chairman
and Trustee. Professor of Economics, Northwestern University.
John T. Collins, Age 52, 1330 Connecticut Ave. N.W., Washington, D.C. 20036.
Vice Chairman and Trustee. Partner in the law firm of Steptoe & Johnson,
January 1985 to Present. Prior to January 1985, General Counsel to the U.S.
Senate Banking Committee.
Thomas S. Condit, Age 57, 2000 Lincoln Park West, Apt.301, Chicago, Illinois
60614. Trustee. Retired Partner, New Media Publishing, Inc., January 1996 to
August 1998. Chief Executive Officer of Craver, Matthews, Smith & Co., Inc. (a
direct mail fund raising company), June
B-4
<PAGE>
1993 to January 1996. President and Chief Executive Officer of National
Cooperative Bank (a financial services company), June 1983 to May 1993 and
various positions with affiliated or subsidiary corporations from June 1983 to
January 1992.
*Douglas C. Grip, Age 36, One New York Plaza, New York, NY 10004. Trustee.
Managing Director of Goldman, Sachs & Co. since November 1997; Vice President,
Goldman Sachs & Co., May 1996 to 1997; President, MFS Retirement Services Inc.,
of Massachusetts Financial Services prior thereto.
Rudy J. Hanley, Age 55, P.O. Box 11547, Santa Ana, California 92706. Trustee.
Chief Executive Officer of Orange County Teachers Federal Credit Union,
September 1982 to Present. Director of Credit Union National Association,
November 1992 to September 1995.
Betty G. Hobbs, Age 60, 1400 8th Avenue So., Nashville, Tennessee 37202.
Trustee. President and Chief Executive Officer of Tennessee Teachers Credit
Union for over 25 years.
*Wendell A. Sebastian, Age 54, 711 S. Dale Mabry, Tampa, Florida. Trustee.
President and Chief Executive Officer of GTE Federal Credit Union, February 1998
to present. President of Callahan Financial Services, Inc. ("CFS"), July 1996
to January 1998. President of GTE Federal Credit Union, September 1991 to July
1996.
Charles W. Filson, Age 54, 1001 Connecticut Avenue, N.W., Suite 1001,
Washington, D.C. 20036-5504. President. Director of Callahan Financial Services,
Inc. since March 1989 and Treasurer since October 1987.
Nancy L. Mucker, Age 49, 4900 Sears Tower, Chicago, Illinois 60606-6303. Vice
President. Vice President of Goldman, Sachs & Co., April 1985 to Present.
Manager, Product/Sales Support Shareholder Servicing of Goldman Sachs Asset
Management, November 1989 to Present.
James A. Fitzpatrick, Age 38, 4900 Sears Tower, Chicago, Illinois 60606-6303.
Vice President. Vice President of Goldman, Sachs & Co., April 1997 to Present.
Vice President and General Manager, First Data Corporation, May 1983 to April
1997.
Gordon Linke, Age 50, 555 California Street, San Francisco, California 94104.
Vice President. Vice President of Goldman, Sachs & Co. March 1990 to Present.
Jesse Cole, Age 35, 4900 Sears Tower, Chicago, Illinois 60606-6303. Vice
President. Vice President of Goldman Sachs & Co., June 1998 to present. Vice
President of AIM Management Group, Inc., April 1996 to June 1998; Assistant Vice
President, Northern Trust Company, May 1987 to April 1996.
B-5
<PAGE>
Philip V. Giuca, Jr., Age 36, 10 Hanover Square, New York, New York. Assistant
Treasurer. Vice President of Goldman, Sachs & Co., May 1992 to Present; Tax
Accountant of Goldman, Sachs & Co., December 1990 to May 1992.
Anne Marcel, Age 41, 4900 Sears Tower, Chicago, Illinois 60606-6303. Vice
President. Vice President of Goldman, Sachs & Co., July 1998 to present. Vice
President, Stein Roe-Farnham, Inc., October 1992 to June 1998.
John M. Perlowski, Age 34, One New York Plaza, New York, 10004. Treasurer.
Vice President, Goldman, Sachs & Co., July 1995 to Present. Director/Fund
Accounting & Custody, Investors Bank & Trust Co., November 1993 to July 1995.
Formerly, Manager, Audit Division, Arthur Andersen, September 1986 to November
1993.
Michael J. Richman, Age 38, 85 Broad Street, New York, New York 10004.
Secretary. General Counsel, Goldman Sachs Asset Management Funds Group,
December 1997 to Present. Associate General Counsel, Goldman Sachs Asset
Management, February 1994 to December 1997. Vice President, Assistant General
Counsel, Goldman, Sachs & Co. and Counsel to the Funds Group, Goldman Sachs
Asset Management, June 1992 to Present. Formerly, Partner of Hale and Dorr from
September 1991 to June 1992.
Howard B. Surloff, Age 33, 85 Broad Street, New York, New York 10004. Assistant
Secretary. Assistant General Counsel, Goldman Sachs Asset Management and
Associate General Counsel, Goldman Sachs Asset Management Funds Group, December
1997 to Present. Assistant General Counsel and Vice President, Goldman, Sachs &
Co., November 1993 and May 1994, respectively, to Present. Counsel to the Funds
Group, Goldman Sachs Asset Management November 1993 to Present. Formerly
Associate of Shereff, Friedman, Hoffman & Goodman, October 1990 to November
1993.
Kaysie P. Uniacke, Age 37, One New York Plaza, New York, New York 10004.
Assistant Secretary. Managing Director of Goldman, Sachs & Co. since November
1997; Vice President and Senior Portfolio Manager, Goldman Sachs Asset
Management, 1988 to 1997.
Elizabeth D. Anderson, Age 29, One New York Plaza, New York, New York 10004.
Assistant Secretary. Portfolio Manager, Goldman Sachs Asset Management, April
1996 to present. Junior Portfolio Manager, Goldman Sachs Asset Management, 1995
to April 1996. Funds Trading Assistant, Goldman Sachs Asset Management, 1993 to
1995. Formerly, Compliance Analyst, Prudential Insurance, 1991 through 1993.
Steven E. Hartstein, Age 35, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Legal Product Analyst, Goldman, Sachs &
B-6
<PAGE>
Co., June 1993 to Present. Funds Compliance Officer, Citibank Global Asset
Management, August 1991 to June 1993.
Deborah A. Farrell, Age 27, One New York Plaza, New York, New York 10004.
Assistant Secretary. Legal Assistant, Goldman, Sachs & Co., January 1996 to
Present. Secretary, Goldman, Sachs & Co., January 1994 to January 1996.
Secretary, Cleary, Gottlieb, Steen & Hamilton, September 1990 to January 1994.
As of October 31, 1998, the Trustees and officers of the Fund, as a group, owned
in the aggregate less than 1% of the outstanding shares of the Fund. (For
information about shares of the Fund owned by credit unions of which certain
Trustees are officers, see "Description of Units" below.) Certain officers hold
comparable positions with certain other investment companies of which Goldman,
Sachs & Co., GSAM or an affiliate thereof is the investment adviser and/or
distributor.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended August
31, 1998:
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Aggregate Benefits Accrued as From Goldman Sachs
Compensation Part of Trust's Mutual Funds *
Name of Trustee From the Trust Expense (Including the Trust)
- --------------- -------------- ------- ---------------------
<S> <C> <C> <C>
Gene R. Artemenko $8,000 -0- $8,000
James C. Barr $8,000 -0- $8,000
Edgar F. Callahan $8,000 -0- $8,000
Robert M. Coen $8,000 -0- $8,000
John T. Collins $8,000 -0- $8,000
Thomas S. Condit $8,000 -0- $8,000
Douglas C. Grip** $ 0 -0- -0-
Rudolph J. Hanley $6,000 -0- $6,000
Betty G. Hobbs $8,000 -0- $8,000
John P. McNulty*** $ 0 -0- -0-
Wendell A. Sebastian $ 0 -0- -0-
</TABLE>
ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
As stated in the Prospectus, Goldman, Sachs & Co., through Goldman Sachs Asset
Management ("GSAM"), One New York Plaza, 41st Floor, New York, New York 10004, a
separate operating division, acts as the
Fund's investment adviser. See "Management--Investment Adviser and Transfer
Agent" in the Prospectus for a description of the investment advisory duties of
Goldman, Sachs & Co. Goldman, Sachs & Co.'s
- ------------------------------------
* The Goldman Sachs Mutual Funds consisted of 105 mutual funds, including the
three series of the Trust, on August 31, 1998.
** Mr. Grip was appointed as Trustee of the Trust as of March 30, 1998.
*** Mr. McNulty resigned as a Trustee of the Trust as of March 30, 1998.
B-7
<PAGE>
administrative obligations include, subject to the general supervision of the
Trustees of the Fund, (a) providing supervision of all aspects of the Fund's
non-investment operations not performed by others pursuant to the Fund's
administration agreement or custodian agreement, (b) providing the Fund, to the
extent not provided pursuant to such agreements or the Fund's transfer agency
agreement, with personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective administration of the
Fund, (c) arranging, to the extent not provided pursuant to such agreements, for
the preparation, at the Fund's expense, of its tax returns, reports to
unitholders, periodic updating of the Prospectus and reports filed with the
Securities and Exchange Commission (the "SEC") and other regulatory authorities,
(d) providing the Fund, to the extent not provided pursuant to such agreements,
with adequate office space and necessary office equipment and services, (e)
maintaining all of the Fund's records other than those maintained pursuant to
such agreements, (f) to the extent requested by the Trustees of the Fund,
negotiating changes to the terms and provisions of the Fund's administration
agreement, the custodian agreement and the distribution agreement with Callahan
Financial Services, Inc., and (g) reviewing and paying (or causing to be paid)
all bills or statements for services rendered to the Fund.
The advisory agreement provides that Goldman, Sachs & Co. may render similar
services to others so long as its services under such agreement are not impaired
thereby. The advisory agreement also provides that, subject to applicable
provisions of the 1940 Act, Goldman, Sachs & Co. will not be liable for any
error in judgment or mistake of law or for any loss suffered by the Fund except
a loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties, under the advisory agreement or the
transfer agency agreement. The advisory agreement provides further that the
Fund will indemnify Goldman, Sachs & Co. against certain liabilities, including
liabilities under federal and state securities laws, or, in lieu thereof,
contribute to payment for resulting losses.
The advisory agreement will remain in effect with respect to a particular
Portfolio until March 31, 1999, and will continue from year to year thereafter
provided such continuance is specifically approved at least annually (a) by the
vote of a majority of the outstanding units of such Portfolio (as defined under
"Investment Restrictions") or by a majority of the Trustees of the Fund, and (b)
by the vote of a majority of the Trustees of the Fund who are not parties to the
advisory agreement or "interested persons" (as such term is defined in the 1940
Act) of any party thereto, cast in person at a meeting called for the purpose of
voting on such approval. The advisory agreement will terminate automatically
if assigned (as defined in the 1940 Act) and is terminable at any time with
respect to any Portfolio without
B-8
<PAGE>
penalty by the Trustees of the Fund or by vote of a majority of the outstanding
units of the Portfolio (as defined under "Investment Restrictions") on 60 days'
written notice to Goldman, Sachs & Co. and by Goldman, Sachs & Co. on 60 days'
written notice to the Fund.
Expenses borne by the Money Market Portfolio, Government Securities Portfolio
and Mortgage Securities Portfolio include, subject to the limitations described
in the Prospectus, the fees payable to Goldman, Sachs & Co. and Callahan Credit
Union Financial Services Limited Partnership; the fees and expenses of the
Fund's custodian, filing fees for the registration or qualification of Portfolio
units under federal and state securities laws, expenses of the organization of
the Portfolios, the fees of any trade association of which the Fund is a member,
taxes, interest, costs of liability insurance, fidelity bonds, indemnification
or contribution, any costs, expenses or laws arising out of any liability of or
claim for damages or other relief asserted against the Fund for violation of any
law, legal, auditing and tax services fees and expenses, expenses of preparing
and setting in type prospectuses, statements of addition information, proxy
material, reports and notices and the printing and distributing of the same to
the Portfolios' unitholders and regulatory authorities and compensation and
expenses of the Trustees.
For the fiscal years ended August 31, 1998, August 31, 1997 and August 31, 1996,
the advisory fees paid by each Portfolio were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Money Market Portfolio $ 477,585+ $ 439,853+ $ 541,946+
Government Securities Portfolio $1,181,065 $1,082,182 $1,067,553
Mortgage Securities Portfolio $ 779,686 $ 668,959 $555,708++
</TABLE>
- ---------------------
+ Waived additional advisory fees in the amount of $866,377, $356,960 and
$351,232, respectively, for such periods. Without waivers, the Money Market
Portfolio would have paid advisory fees of $1,343,962, $796,813 and
$893,178, respectively, for such periods. In addition, the expenses of the
Money Market Portfolio were reduced or otherwise limited in the amounts of
$0, $33,469 and $0, respectively, by the Adviser for such periods.
++ Waived additional advisory fees in the amount of $59,027 for such periods.
Without waivers, the Mortgage Securities Portfolio would have paid advisory
fees of $614,735 for such periods.
PORTFOLIO TRANSACTIONS
In connection with portfolio transactions for the Fund, which are generally done
at a net price without a broker's commission (i.e., a
B-9
<PAGE>
dealer is dealing with the Fund as principal and receives compensation equal to
the spread between the dealer's cost for a given security and the resale price
of such security), the Fund's advisory agreement provides that Goldman, Sachs &
Co. shall attempt to obtain the best net price and the most favorable execution.
On occasions when Goldman, Sachs & Co. deems the purchase or sale of a security
to be in the best interests of a Portfolio as well as its other customers
(including any other Portfolio or other investment company or advisory account
for which Goldman, Sachs & Co. acts as investment adviser), the advisory
agreement provides that Goldman, Sachs & Co., to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or
purchased for the Portfolio with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by Goldman, Sachs & Co. in
the manner it considers to be most equitable and consistent with its fiduciary
obligations to such Portfolio and such other customers. In some instances, this
procedure may adversely affect the size of the position obtainable for such
Portfolio. To the extent that the execution and price offered by more than one
dealer are believed to be comparable, the advisory agreement permits Goldman,
Sachs & Co., in its discretion, to purchase and sell portfolio securities to and
from dealers who provide the Fund with brokerage or research services.
During the fiscal year ended August 31, 1998, the Portfolios acquired and sold
securities issued by Lehman Brothers, Salomon Smith Barney, Bear Stearns
Companies, Inc., Nomura Securities International, Inc., Donaldson Lufkin &
Jenrette Securities Corporation, NationsBanc, Swiss Bank Corp., CS First Boston,
J.P. Morgan Securities, Inc. and Deutsche Bank. At August 31, 1998, the Money
Market Portfolio held the following amounts of securities of its regular
brokers/dealers as defined in Rule 10b-1 under the 1940 Act, or their parents ($
in thousands): Salomon Smith Barney - $34,678; Bear Stearns Companies, Inc. -
$48,020; Nomura Securities International, Inc. - $41,665; Donaldson Lufkin &
Jenrette - $42,370; NationsBanc Montgomery Securities LLC - $81,280; CS First
Boston - $19,120; J.P. Morgan Securities, Inc. - $125,000; and Deutsche Bank -
$19,120. The Government Securities Portfolios held the following: Salomon Smith
Barney - $8,442; Bear Stearns Companies, Inc. - $18,090; Nomura Securities
International, Inc. -$19,597.50; Donaldson, Lufkin & Jenrette - $12,060; and
NationsBanc Montgomery Securities LLC - $24,120. The Mortgage Securities
Portfolio held the following: Salomon Smith Barney -$11,115; Bear Stearns
Companies, Inc. - $4,042; Nomura Securities International, Inc. - $2,665;
Donaldson, Lufkin & Jenrette - $1,640; and NationsBanc - $3,280.
Activities of Goldman, Sachs & Co. and Its Affiliates and Other Accounts Managed
- --------------------------------------------------------------------------------
by Goldman Sachs. The involvement of Goldman, Sachs & Co. and its advisory
- -----------------
affiliates in the management of, or interest in, other accounts and other
activities of Goldman, Sachs & Co. may
B-10
<PAGE>
present conflicts of interest with respect to the Portfolios or impede their
investment activities.
Goldman, Sachs & Co. and its advisory affiliates have proprietary interests in,
and manage or advise, accounts or funds (including separate accounts and other
funds and collective investment vehicles) which have investment objectives
similar to those of the Portfolios and/or engage in transactions in the same
types of securities and instruments as the Portfolios. Goldman, Sachs & Co. and
its affiliates are major participants in the fixed income markets, in each case
on a proprietary basis and for the accounts of customers. As such, Goldman,
Sachs & Co. and its affiliates are actively engaged in transactions in the same
securities and instruments in which the Portfolios invest. Such activities
could affect the prices and availability of the securities and instruments in
which the Portfolios will invest, which could have an adverse impact on each
Portfolio's performance. Such transactions, particularly in respect of
proprietary accounts or customer accounts other than those included in GSAM and
its advisory affiliates' asset management activities, will be executed
independently of the Portfolios' transactions and thus at prices or rates that
may be more or less favorable. When GSAM and its advisory affiliates seek to
purchase or sell the same assets for their managed accounts, including a
Portfolio, the assets actually purchased or sold may be allocated among the
accounts on a basis determined in its good faith discretion to be equitable. In
some cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Portfolios.
From time to time, a Portfolio's activities may be restricted because of
regulatory restrictions applicable to Goldman, Sachs & Co. and its affiliates,
and/or their internal policies designed to comply with such restrictions. As a
result, there may be periods, for example, when GSAM will not initiate or
recommend certain types of transactions in certain securities or instruments
with respect to which GSAM and/or its affiliates are performing services or when
position limits have been reached.
In connection with its management of the Portfolios, GSAM may have access to
certain fundamental analysis and proprietary technical models developed by
Goldman, Sachs & Co. and other affiliates. GSAM will not be under any
obligation, however, to effect transactions on behalf of the Portfolios in
accordance with such analysis and models. In addition, neither Goldman, Sachs &
Co. nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Portfolios and it is not anticipated that GSAM
will have access to such information for the purpose of managing the Portfolios.
The proprietary activities or portfolio strategies of Goldman, Sachs & Co. and
its affiliates or the activities or
B-11
<PAGE>
strategies used for accounts managed by them or other customer accounts could
conflict with the transactions and strategies employed by GSAM in managing the
Portfolios.
The results of each Portfolio's investment activities may differ significantly
from the results achieved by Goldman, Sachs & Co. and its affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman,
Sachs & Co. and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results achieved
by the Portfolios. Moreover, it is possible that the Portfolios will sustain
losses during periods in which Goldman, Sachs & Co. and its affiliates achieve
significant profits on their trading for proprietary or other accounts. The
opposite result is also possible.
An investment policy committee which may include managing directors of Goldman,
Sachs & Co. and its affiliates may develop general policies regarding Portfolio
activities, but will not be involved in the day-to-day management of the
Portfolios. In such instances, those individuals may, as a result, obtain
information regarding the Portfolios' proposed investment activities which is
not generally available to the public. In addition, by virtue of their
affiliation with Goldman, Sachs & Co., any such member of an investment policy
committee will have direct or indirect interests in the activities of Goldman
Sachs and its affiliates in securities and investments similar to those in which
the Portfolios invest.
In addition, certain principals and certain of the employees of GSAM are also
principals or employees of Goldman, Sachs & Co. or their affiliated entities.
As a result, the performance by these principals and employees of their
obligations to such other entities may be a consideration of which investors in
the Portfolios should be aware.
GSAM may enter into transactions and invest in instruments on behalf of a
Portfolio in which customers of Goldman, Sachs & Co. serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of the Portfolios, and such party
may have no incentive to assure that the Portfolios obtain the best possible
prices or terms in connection with the transactions. Goldman, Sachs & Co. and
its affiliates may also create, write or issue derivative instruments for
customers of Goldman, Sachs & Co. or its affiliates, the underlying securities
or instruments of which may be those in which the Portfolios invest or which may
be based on the performance of a Portfolio. The Portfolios may, subject to
applicable law, purchase investments which are the subject of an underwriting or
other distribution by Goldman, Sachs & Co. or its affiliates and may also enter
into transactions with other clients of Goldman, Sachs & Co. or its affiliates
where such other
B-12
<PAGE>
clients have interests adverse to those of the Portfolios. At times, these
activities may cause departments of the Firm to give advice to clients that may
cause these clients to take actions adverse to the interests of the client. To
the extent affiliated transactions are permitted, the Portfolios will deal with
Goldman, Sachs & Co. and its affiliates on an arm's-length basis.
Each Portfolio will be required to establish business relationships with its
counterparties based on the Portfolio's own credit standing. Neither Goldman,
Sachs & Co. nor its affiliates will have any obligation to allow their credit to
be used in connection with a Portfolio's establishment of its business
relationships, nor is it expected that a Portfolio's counterparties will rely on
the credit of Goldman, Sachs & Co. or any of its affiliates in evaluating the
Fund's creditworthiness.
It is possible that a Portfolio's holdings will include securities of entities
for which Goldman, Sachs & Co. performs investment banking services as well as
securities of entities in which Goldman, Sachs & Co. makes a market. From time
to time, Goldman, Sachs & Co.'s activities may limit the Portfolios' flexibility
in purchases and sales of securities. When Goldman, Sachs & Co. is engaged in
an underwriting or other distribution of securities of an entity, GSAM may be
prohibited from purchasing or recommending the purchase of certain securities of
that entity for the Portfolios.
TRANSFER AGENT
Under its transfer agency agreement, Goldman, Sachs & Co. serves as transfer
agent and dividend disbursing agent for the Fund. Goldman, Sachs & Co. has
undertaken to the Fund to (a) process and provide confirmations for purchase and
redemption transactions, (b) answer customer inquiries regarding the current
yield of, and certain other matters (e.g., account status information)
pertaining to, the Fund, (c) establish and maintain separate accounts with
respect to each unitholder, (d) provide periodic statements showing account
balances and (e) provide for dividends or distributions to unitholders.
As compensation for the services rendered to the Fund as transfer agent,
Goldman, Sachs & Co. is entitled to a fee of $18 per year for each unitholder
account plus reimbursement for certain expenses.
For the last three fiscal years, the transfer agency fees accrued by each
Portfolio were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Money Market Portfolio * * *
Government Securities Portfolio $4,971 $4,032 $4,333
Mortgage Securities Portfolio $1,641 $1,263 $1,236
</TABLE>
* The transfer agent received no fees for the periods indicated above.
B-13
<PAGE>
ADMINISTRATOR
As stated in the Prospectus, Callahan Credit Union Financial Services Limited
Partnership (CUFSLP) acts as administrator for the Fund. In carrying out its
duties, CUFSLP has undertaken to (a) review the preparation of reports and proxy
statements to unitholders, the periodic updating of the Prospectus, this
Additional Statement and the Registration Statement and the preparation of all
other reports filed with the SEC, (b) periodically review the services performed
by the investment adviser, the custodian, the distributors and the transfer
agent, and make such reports and recommendations to the Trustees of the Fund
concerning the performance of such services as the Trustees reasonably request
or as CUFSLP deems appropriate, (c) negotiate changes to the terms and
provisions of the Fund's advisory agreement, the custodian agreement, the
transfer agency agreement and the distribution agreement with Goldman, Sachs &
Co., to the extent requested by the Trustees of the Fund, and (d) provide the
Fund with personnel to perform such executive, administrative and clerical
services as may be reasonably requested by the Trustees of the Fund.
In addition, CUFSLP has undertaken to: (a) provide facilities, equipment and
personnel to serve the needs of investors, including communications systems and
personnel to handle unitholder inquiries, (b) develop and monitor investor
programs for credit unions, (c) provide assistance in connection with the
processing of unit purchase and redemption orders as reasonably requested by the
transfer agent or the Fund, (d) inform Goldman, Sachs & Co. in connection with
the portfolio management of the Fund as to anticipated purchases and redemptions
by unitholders and new investors, (e) provide information and assistance in
connection with the registration of the Fund's units in accordance with state
securities requirements, (f) make available and distribute information
concerning the Fund to unitholders as requested by the Fund, (g) handle
unitholder problems and calls relating to administrative matters, (h) provide
advice and assistance concerning the regulatory requirements applicable to
credit unions that invest in the Fund, (i) provide assistance in connection with
the preparation of the Fund's periodic financial statements and annual audit as
reasonably requested by the Fund or the Fund's independent accountants, (j)
furnish stationery and office supplies, and (k) generally assist in the Fund's
operations.
For the last three fiscal years, the administration fees earned by CUFSLP were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Money Market Portfolio $159,195* $190,866* $244,221*
Government Securities Portfolio $590,533 $541,091 $533,777
Mortgage Securities Portfolio 194,922 $167,240 $153,910
</TABLE>
B-14
<PAGE>
____________________
* Waived additional administration fees in the amount of $636,779, $240,343,
and $251,230, respectively.
The administration agreement will remain in effect until March 31, 1999, and
will continue from year to year thereafter provided such continuance is
specifically approved at least annually (a) by the vote of a majority of the
Trustees and (b) by the vote of a majority of the Trustees of the Fund who are
not parties to the administration agreement or "interested persons" (as such
term is defined in the 1940 Act) of any party thereto (the "Disinterested
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. The administration agreement may be terminated with respect to a
Portfolio at any time, without the payment of any penalty, by a vote of a
majority of the Disinterested Trustees or by vote of the majority of the
outstanding units of the Portfolio (as defined under "Investment Restrictions")
on 60 days' written notice to CUFSLP and by CUFSLP on 60 days' written notice to
the Fund. The administration agreement provides that it may be amended by the
mutual consent of the Fund and CUFSLP, but the consent of the Fund must be
approved by vote of a majority of the Disinterested Trustees cast in person at a
meeting called for the purpose of voting on such amendment. The administration
agreement will terminate automatically if assigned (as defined in the 1940 Act).
The administration agreement provides that CUFSLP will not be liable for any
error in judgment or mistake of law or for any loss suffered by the Fund except
a loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties, under the agreement. The agreement
provides further that the Fund will indemnify CUFSLP against certain
liabilities, including liabilities under the federal and state securities laws
or, in lieu thereof, contribute to payment for resulting losses.
The forty credit unions listed below are the limited partners of CUFSLP, which
created Trust for Credit Unions in conjunction with Goldman, Sachs & Co. As of
June 30, 1998, these credit unions had total assets of $29.1 billion from 23
different states.
J. David Osborne, President
Larry Hoffman, Vice President-Finance
Anheuser-Busch Employees Credit Union
Larry Morgan, President
APCO Employees Credit Union
Douglas Ferraro, President
Bellco First Federal Credit Union
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Gary Oakland, President
T. Brad Canfield, Vice President
Accounting/Investments
Boeing Employees Credit Union
Eldon Arnold, President
Sandy Andrews, Sr. Vice President
Citizens Equity Federal Credit Union
Dean Nelson, President
Bryan Bennett, Vice President-Controller
City-County Federal Credit Union
Larry T. Wilson, President
Ralph Reardon, Chief Financial Officer
Coastal Federal Credit Union
Ron Unger, President
Tom Budd, Controller
Dearborn Federal Credit Union
Donald Hersman, President
Kendrick Smith, Portfolio Manager
Eastern Financial Credit Union
Thomas E. Sargent, President
Michael Osborne, Chief Financial Officer
First Technology Federal Credit Union
Wendell Sabastian, President
Brian Crawford, Executive Vice President
GTE Federal Credit Union
Stan Hollen, President
The Golden 1 Credit Union
Charles Cockburn, President
Hudson Valley Federal Credit Union
Paul Horgen, President
Bobbi Olson, Chief Financial Officer
IBM Mid America Employees Federal Credit Union
Bob Jansen, President
Inland Employees Federal Credit Union
Jean Yokum, President
Greg Manweiler, Vice President Finance
Langley Federal Credit Union
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Frank Berrish, President
LICU Corporate Federal Credit Union
Dennis Pierce, President
Dennis Mann, Senior Vice President
Members America Credit Union
Joseph Bressi, President
Montgomery County Teachers Federal Credit Union
Douglas M. Allman, President
NASA Federal Credit Union
Lindsay Alexander, President
Tim Duvall, Finance Division Manager
NIH Federal Credit Union
Brad Beal, President
Paul Parrish, Sr. Vice President
Nevada Federal Credit Union
Joseph S. Coey, President
New Mexico Educators Federal Credit Union
Michael J. Maslak, President
Kim Reedy, Chief Financial Officer
North Island Federal Credit Union
Rudy Hanley, President
Paul Sundermann, Chief Financial Officer
Orange County Teachers Federal Credit Union
Edgar F. Callahan, Chief Executive Officer
Andrew Hunter, President
Patelco Credit Union
John LaRosa, Chief Operating Officer
Police & Fire Federal Credit Union
Ludelle Morrow, President
Provident Central Credit Union
Jeffrey Farver, President
San Antonio Federal Credit Union
Doug Samuels, President
Space Coast Credit Union
Stephan Winninger, President
State Employees Credit Union
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Scott Winwood, Chief Financial Officer
Steel Works Community Federal Credit Union
Richard Rice, President
Teachers Credit Union
Betty Hobbs, President
Tennessee Teachers Credit Union
Robert Siravo, President
Travis Federal Credit Union
Gregory Blount, President
Tropical Federal Credit Union
Philip L. Hart, President
Tulsa Federal Employees Credit Union
Leonard Greene, President
Unified Federal Credit Union
E. Burton Eubanks, President
University Federal Credit Union
Frank Berrish, President
Visions Federal Credit Union
CUSTODIAN
State Street Bank and Trust Company ("State Street"), P.O. Box 1713, Boston,
Massachusetts 02105, is the custodian of the Fund's portfolio securities and
cash. State Street also maintains the Fund's accounting records. The Northern
Trust Company ("Northern") has been retained by State Street to serve as its
agent in connection with certain wire receipts and transfers of funds.
AUDITORS
Arthur Andersen LLP, independent public accountants 225 Franklin Street, Boston,
Massachusetts 02110, have been selected as auditors of the Fund. In addition to
audit services, Arthur Andersen LLP prepare the Fund's federal and state tax
returns, and provide consultation and assistance on accounting, internal control
and related matters. The financial statements of the Money Market Portfolio,
the Government Securities Portfolio and the Mortgage Securities Portfolio, which
are incorporated by reference into this Additional Statement (under "Financial
Statements") from the Fund's annual report to unitholders for the fiscal year
ended August 31, 1998 (the "Annual Report"), and the data set forth under
"Financial Highlights" in the Prospectus have been audited by Arthur Andersen
LLP, as indicated in their report with
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respect thereto, which is incorporated by reference in reliance upon the
authority of said firm as experts in giving said report.
AMORTIZED COST VALUATION
As stated in the Prospectus, the Money Market Portfolio seeks to maintain a net
asset value of $1.00 per unit and, in this connection, values its instruments on
the basis of amortized cost pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method values a security at its cost on the date of acquisition
and thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if it sold the
instrument. During such periods the yield to investors in the Portfolio may
differ somewhat from that obtained in a similar entity which uses available
indications as to market value to value its portfolio instruments. For example,
if the use of amortized cost resulted in a lower (higher) aggregate Portfolio
value on a particular day, a prospective investor in the Portfolio would be able
to obtain a somewhat higher (lower) yield and ownership interest than would
result from investment in such similar entity and existing investors would
receive less (more) investment income and ownership interest. In this
connection, the amortized cost method may result in dilution of unitholder
interests. Similar effects arise out of the rounding of the Portfolio's net
asset value per unit to the nearest one cent. However, the Fund expects that
the procedures and limitations referred to in the following paragraphs of this
section will tend to minimize the differences referred to above.
Under Rule 2a-7, the Fund's Trustees, in supervising the Fund's operations and
delegating special responsibilities involving portfolio management to Goldman,
Sachs & Co., are obligated, as a particular responsibility within the overall
duty of care owed to the unitholders, to establish procedures reasonably
designed, taking into account current market conditions and the Money Market
Portfolio's investment objective, to stabilize the net asset value of such
Portfolio, as computed for the purposes of purchases and redemptions, at $1.00
per unit. The Trustees' procedures include periodically monitoring the
difference (the "Market Value Difference") between the amortized cost value per
unit and the net asset value per unit based upon available indications of market
value, considering whether steps should be taken in the event such Market Value
Difference exceeds 1/2 of 1%, and the taking of such steps as they consider
appropriate (e.g., selling portfolio instruments to shorten average portfolio
maturity or to realize capital gains or losses, reducing or suspending
unitholder income accruals, redeeming units in kind, canceling units without
monetary consideration, or utilizing a net asset value per unit based upon
available indications of market value which under such
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circumstances would vary from $1.00) to eliminate or reduce to the extent
reasonably practicable any material dilution or other unfair results to
investors or existing unit holders which might arise from Market Value
Differences. Available indications of market value used by the Fund consist of
actual market quotations or appropriate substitutes which reflect current market
conditions and include (a) quotations or estimates of market value for
individual portfolio instruments and/or (b) values for individual portfolio
instruments derived from market quotations relating to varying maturities of a
class of money market instruments.
Rule 2a-7 requires that the Money Market Portfolio limit its investments to
those which Goldman, Sachs & Co., under guidelines established by the Fund's
Board of Trustees, determines to present minimal credit risks and which are
"Eligible Securities" as defined by the SEC and described in the Prospectus.
The Rule also calls for the Money Market Portfolio to maintain a dollar weighted
average portfolio maturity (not more than 90 days) appropriate to its objective
of maintaining a stable net asset value per unit and precludes the purchase of
any instrument deemed under such Rule to have a remaining maturity of more than
397 days.
Generally, the maturity of an instrument held by the Money Market Portfolio
shall be deemed to be the period remaining until the date noted on the face of
the instrument as the date on which the principal amount must be paid or, in the
case of an instrument called for redemption, the date on which the redemption
payment must be made. However, instruments having variable or floating interest
rates or demand features that satisfy certain regulatory requirements may be
deemed to have remaining maturities as follows: (a) a government security with a
variable rate of interest readjusted no less frequently than every thirteen
months may be deemed to have a maturity equal to the period remaining until the
next readjustment of the interest rate; (b) a government security with a
floating rate of interest readjusted no less frequently than every thirteen
months may be deemed to have a maturity equal to one day; (c) an instrument with
a variable rate of interest, the principal amount of which is scheduled on the
face of the instrument to be paid in thirteen months or less, may be deemed to
have a maturity equal to the earlier of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand; (d) an instrument with a variable rate
of interest, the principal amount of which is scheduled to be paid in more than
thirteen months, that is subject to a demand feature, may be deemed to have a
maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal amount can be
recovered through demand; (e) an instrument with a floating rate of interest,
the principal of which is scheduled on the face of the instrument to be paid in
thirteen months or less, may be deemed to have a maturity of one day; (f) an
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instrument with a floating rate of interest the principal amount of which is
scheduled to be paid in more than thirteen months, that is subject to a demand
feature, may be deemed to have a maturity equal to the period remaining until
the principal amount can be recovered through demand; (g) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where the agreement is subject to demand, the notice period applicable to a
demand for the repurchase of the securities; and (h) investment in another money
market fund may be treated as having a maturity equal to the period of time
within which the acquired money market fund is required to make payment upon
redemption, unless the acquired money market fund has agreed in writing to
provide redemption proceeds within a shorter time period, in which case the
maturity of such investment may be deemed to be the shorter period.
DESCRIPTION OF UNITS
As the Prospectus indicates, the Fund's Trust Agreement permits the Trustees to
issue an unlimited number of full and fractional units of beneficial interest of
one or more separate series representing interests in different investment
portfolios. Under the terms of the Trust Agreement, each unit of each series
has a par value of $.001, represents an equal proportionate interest in a
particular investment portfolio with each other unit and is entitled to such
dividends out of the income belonging to such investment portfolio as are
declared by the Trustees. Upon liquidation of an investment portfolio,
unitholders thereof are entitled to share pro rata in the net assets belonging
to that investment portfolio available for distribution. Units do not have
preemptive or conversion rights. Units when issued as described in the
Prospectus are fully paid and non-assessable, except as expressly set forth
below.
Any Trustee may be removed by the unitholders with or without cause at any time
by vote of those unitholders holding not less than two-thirds of the units then
outstanding, cast in person or by proxy at any meeting called for that purpose.
The Trustees shall promptly call a meeting of unitholders for the purpose of
voting upon the question of removal of any Trustee when requested in writing to
do so by the holders of record of not less than 10% of the outstanding units.
Whenever ten or more unitholders of record who have been such for at least six
months preceding the date of application, and who hold in the aggregate either
units having a net asset value of at least $25,000 or at least 1% of the
outstanding units, whichever is less, shall apply to the Trustees in writing,
stating that they wish to communicate with other unitholders with a view to
obtaining signatures to a request for a unitholder meeting and include with such
application a form of communication and request which they wish to transmit, the
Trustees shall within five business days after receipt
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of such application either (1) afford to such applicants access to a list of the
names and addresses of all unitholders as recorded on the books of the Fund or
investment portfolio involved; or (2) inform such applicants as to the
approximate number of unitholders of record, and the approximate cost of mailing
to them the proposed form of communication and request and, upon receipt of the
material and the expenses of mailing, shall promptly mail such materials to all
unitholders unless a majority of the Trustees believe that in their opinion
either such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law. The Trustees shall thereafter comply with any
order entered by the SEC and the requirements of the 1940 Act and the Securities
Exchange Act of 1934.
In addition to Trustee election or removal as described in the Prospectus and as
further described herein, the Trust Agreement provides for unitholder voting
only (a) with respect to any contract as to which unitholder approval is
required by the 1940 Act, (b) with respect to any termination or reorganization
of the Fund or any Portfolio to the extent and as provided in the Trust
Agreement, (c) with respect to any amendment of the Trust Agreement (other than
amendments establishing and designating new investment portfolios, abolishing
investment portfolios, changing the name of the Fund or the name of any
investment portfolio, supplying any omission, curing any ambiguity or curing,
correcting or supplementing any provision thereof which is internally
inconsistent with any other provision thereof or which is defective or
inconsistent with the 1940 Act or with the requirements of the Internal Revenue
Code and applicable regulations for the Fund's obtaining the most favorable
treatment thereunder available to regulated investment companies), which
amendments require approval by a majority of the units entitled to vote, (d) to
the same extent as the stockholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Fund or
the unitholders, and (e) with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, the Trust Agreement, the By-Laws of the
Fund, any registration of the Fund with the SEC or any state, or as the Trustees
may consider necessary or desirable.
Under Massachusetts law, there is a possibility that unitholders of a business
trust could, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Trust Agreement contains an express
disclaimer of unitholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trustees or any officer. The
Trust Agreement provides for indemnification out of Fund property of any
unitholder charged or held personally liable for the obligations or
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liabilities of the Fund solely by reason of being or having been a unitholder of
the Fund and not because of such unitholder's acts or omissions or for some
other reason. The Trust Agreement also provides that the Fund shall, upon proper
and timely request, assume the defense of any charge made against any unitholder
as such for any obligation or liability of the Fund and satisfy any judgment
thereon. Thus, the risk of a unitholder incurring financial loss on account of
unitholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations.
The Trust Agreement provides that on any matter submitted to a vote of the
unitholders, all units entitled to vote, irrespective of investment portfolio,
shall be voted in the aggregate and not by investment portfolio except that (a)
as to any matter with respect to which a separate vote of any investment
portfolio is required by the 1940 Act or would be required under the
Massachusetts Business Corporation Law if the Fund were a Massachusetts business
corporation, such requirements as to a separate vote by the investment portfolio
shall apply in lieu of the aggregate voting as described above, (b) in the event
that the separate vote requirements referred to in (a) above apply with respect
to one or more investment portfolios, then subject to (c) below, the units of
all other investment portfolios shall vote as a single investment portfolio, and
(c) as to any matter which does not affect the interest of a particular
investment portfolio, only unitholders of the affected investment portfolio
shall be entitled to vote thereon.
Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Fund shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding units of each
investment portfolio affected by such matter. Rule 18f-2 further provides that
an investment portfolio shall be deemed to be affected by a matter unless the
interests of each investment portfolio in the matter are identical or the matter
does not affect any interest of the investment portfolio. Under the Rule, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of the outstanding units of such
investment portfolio. However, the Rule also provides that the ratification of
the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by unitholders of the Fund voting together in the aggregate without regard
to a particular investment portfolio.
As of October 31, 1998 the outstanding units of the Money Market Portfolio, the
Government Securities Portfolio and the Mortgage Securities Portfolio were
1,206,078,697.75, 68,613,544.148 and
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44,361,473.497, respectively. To the Fund's knowledge, as of such date, the only
entities which may have owned 5% or more of the outstanding units of the Money
Market Portfolio were: Orange County Teachers Federal Credit Union, P.O. Box
11547, Santa Ana, CA 92711 (8.29%) and Citizens Equity Federal Credit Union,
5700 N. Middle Road, Peoria, IL 61607 (9.08%). To the Fund's knowledge, as of
the same date, the only entities which may have owned 5% or more of the
outstanding units of the Government Securities Portfolio were: Bellco First
Federal Credit Union, Attn.: Kristina D. Tanksley, P.O. Box 6611, Englewood, CO
80155-6611 (7.29%), Boeing Employees Credit Union, 12770 Gateway Drive, Tukwila,
WA 98124-9750 (5.85%), First Technology Federal Credit Union, Attn.: Thomas
Sargent, P.O. Box 2100, Beaverton, OR 97075-2100, (6.24%), GTE Federal Credit
Union, PO Box 10550, Tampa, FL 33679 (6.72%), and Patelco Credit Union, 156
Second Street, San Francisco, CA 92711 (11.75%). To the Fund's knowledge, as of
the same date, the only entities which may have owned 5% or more of the
outstanding units of the Mortgage Securities Portfolio were: APCO Employees
Credit Union Attn.: Larry Morgan, 1608 7th Avenue North, Birmingham, AL 35203-
1987 (11.34%), Orange County Teachers Federal Credit Union, P.O. Box 11547,
Santa Ana, CA 92711, (5.66%), First Technology Federal Credit Union, 3855 S.W.
153rd Drive, Beaverton, OR 97006 (7.48%), Patelco Credit Union, 156 Second
Street, San Francisco, CA 94105 (18.08%) and Visions Federal Credit Union One
Credit Union Plaza, 24 McKinley Avenue, Endicott, NY 13760-5415 (5.08%).
ADJUSTABLE AND FIXED RATE MORTGAGE LOANS AND
MORTGAGE-RELATED SECURITIES
THE NATURE OF ADJUSTABLE AND FIXED RATE MORTGAGE LOANS
The following is a general description of the adjustable and fixed rate mortgage
loans which may be expected to underlie the mortgage-related securities in which
the Government Securities Portfolio, the Mortgage Securities Portfolio and, to a
lesser extent, the Money Market Portfolio invest. The actual mortgage loans
underlying any particular issue of mortgage-related securities may differ
materially from those described below.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs included in a mortgage pool will
generally provide for a fixed initial mortgage interest rate for a specified
period of time. Thereafter, the interest rates (the "Mortgage Interest Rates")
may be subject to periodic adjustment based on changes in the applicable index
rate (the "Index Rate"). The adjusted rate would be equal to the Index Rate
plus a gross margin, which is a fixed percentage spread over the Index Rate
established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some mortgagors may
find difficult to make. However, certain ARMs provide that the Mortgage
Interest Rate may not be adjusted to a rate above an
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applicable lifetime maximum rate or below an applicable lifetime minimum rate
for such ARM. Certain ARMs may also be subject to limitations on the maximum
amount by which the Mortgage Interest Rate may adjust for any single adjustment
period (the "Maximum Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may
provide instead or as well for limitations on changes in the monthly payment on
such ARMs. Limitations on monthly payments can result in monthly payments which
are more or less than the amount necessary to amortize a Negatively Amortizing
ARM by its maturity at the Mortgage Interest Rate in effect in any particular
month. In the event that a monthly payment is insufficient to pay the interest
accruing on a Negatively Amortizing ARM, any such excess interest is added to
the principal balance of the loan, causing negative amortization, and will be
repaid through future monthly payments. It may take borrowers under Negatively
Amortizing ARMs longer periods of time to accumulate equity and may increase the
likelihood of default by such borrowers. In the event that a monthly payment
exceeds the sum of the interest accrued at the applicable Mortgage Interest Rate
and the principal payment which would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
(or "accelerated amortization") further reduces the principal balance of the
ARM. Negatively Amortizing ARMs do not provide for the extension of their
original maturity to accommodate changes in their Mortgage Interest Rate. As a
result, unless there is a periodic recalculation of the payment amount (which
there generally is), the final payment may be substantially larger than the
other payments. These limitations on periodic increases in interest rates and on
changes in monthly payments protect borrowers from unlimited interest rate and
payment increase, but may result in increased credit exposure and prepayment
risks for lenders.
There are a number of indices which provide the basis for rate adjustments on
ARMs. Commonly utilized indices include the one-year, three-year and five-year
constant maturity Treasury rates, the three-month Treasury Bill rate, the 180-
day Treasury Bill rate, rates of longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Home Loan Bank Cost of Funds Index, tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. The degree of
volatility in the market value of the Portfolios will be influenced by the
length of the interest rate reset periods and the degree of volatility in the
applicable indices.
Fixed Rate Mortgage Loans. Generally, fixed rate mortgage loans eligible for
inclusion in a mortgage pool (the "Fixed Rate Mortgage
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Loans") will bear simple interest at fixed annual rates and have original terms
to maturity ranging from 5 to 40 years. Fixed Rate Mortgage Loans generally
provide for monthly payments of principal and interest in substantially equal
installments for the contractual term of the mortgage note in sufficient amounts
to amortize fully principal by maturity, although certain Fixed Rate Mortgage
Loans provide for a large final "balloon" payment upon maturity.
Legal Considerations of Mortgage Loans. The following is a discussion of
certain legal and regulatory aspects of the ARMs and Fixed Rate Mortgage Loans
expected to underlie the mortgage-related securities in which the Portfolios may
invest. These regulations may impair the ability of a mortgage lender to
enforce its rights under the mortgage documents. These regulations may
adversely affect the Portfolios' investments in both privately-issued mortgage-
related securities (in the case of the Mortgage Securities Portfolio) and
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities by delaying the receipt of payments derived from principal or
interest on mortgage loans affected by such regulations.
1. Foreclosure. A foreclosure of a defaulted mortgage loan may be
delayed due to compliance with statutory notice or service of process
provisions, difficulties in locating necessary parties or legal
challenges to the mortgagee's right to foreclose. Depending upon
market conditions, the ultimate proceeds of the sale of foreclosed
property may not equal the amounts owed on the mortgage loan.
Further, courts in some cases have imposed general equitable
principles upon foreclosure generally designed to relieve the borrower
from the legal effect of default and have required lenders to
undertake affirmative and expensive actions to determine the causes
for the default and the likelihood of loan reinstatement.
2. Rights of Redemption. In some states, after foreclosure of a mortgage
loan, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property, which right may diminish the
mortgagee's ability to sell the property.
3. Legislative Limitations. In addition to anti-deficiency and related
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief
to debtors, may interfere with or affect the ability of a secured
mortgage lender to enforce its security interest. For example, a
bankruptcy court may grant the debtor a reasonable time to cure any
default on a mortgage loan, including a payment default. The court in
certain instances, may also reduce the monthly
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payments due under such mortgage loan, change the rate of interest,
reduce the principal balance of the loan to the then-current appraised
value of the related mortgage property and alter the mortgage loan
repayment schedule and grant priority to certain liens over the lien
of the mortgage loan. If a court relieves a borrower's obligation to
repay amounts otherwise due on a mortgage loan, the mortgage loan
servicer will not be required to advance such amounts, and any loss in
respect thereof will be borne by the holders of securities backed by
such loans. In addition, numerous federal and state consumer
protection laws impose penalties for failure to comply with specific
requirements in connection with origination and servicing of mortgage
loans.
4. "Due-on-Sale" Provisions. Fixed rate mortgage loans may contain a so-
called "due-on-sale" clause permitting acceleration of the maturity of
the mortgage loan if the borrower transfers the property. The Garn-
St. Germain Depository Institutions Act of 1982 sets forth nine
specific instances in which no mortgage lender covered by that Act may
exercise a "due-on-sale" clause upon a transfer of property. The
inability to enforce a "due-on-sale" clause or the lack of such a
clause in mortgage loan documents may result in a mortgage loan being
assumed by a purchaser of the property that bears an interest rate
below the current market rate.
5. Usury Laws. Some states prohibit charging interest on mortgage loans
in excess of statutory limits. If such limits are exceeded,
substantial penalties may be incurred and, in some cases,
enforceability of the obligation to pay principal and interest may be
affected.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
The investment characteristics of adjustable and fixed rate mortgage-related
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal of mortgage-related
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans. These differences can result in significantly greater price and
yield volatility than is the case with traditional fixed income securities. In
general, if a Portfolio purchases mortgage-related securities at a premium, a
faster than expected prepayment rate will reduce both the market value and the
yield to maturity from those which were anticipated. A prepayment
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rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Portfolio purchases
mortgage-related securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity
and market value.
Prepayments on a pool of mortgage loans are influenced by changes in current
interest rates and a variety of economic, geographic, social and other factors
(such as changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' equity in the mortgage properties and servicing decisions). The
timing and level of prepayments cannot be predicted. Generally, however,
prepayments on mortgage loans will increase during a period of falling mortgage
interest rates and decrease during a period of rising mortgage interest rates.
Accordingly, the amounts of prepayments available for reinvestment by a
Portfolio are likely to be greater during a period of declining mortgage
interest rates. If general interest rates decline, such prepayments are likely
to be reinvested at lower interest rates than the Portfolio was earning on the
mortgage-related securities that were prepaid.
The rate of interest on mortgage-related securities is normally lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-related securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-related securities and this delay reduced the effective yield to
the holder of such securities.
The issuers of certain mortgage-backed obligations may elect to have the pool of
mortgage loans (or indirect interests in mortgage loans) underlying the
securities treated as a real estate mortgage investment conduit ("REMIC"), which
are subject to special federal income tax rules. A description of the types of
mortgage-related securities in which the Portfolios may invest is provided
below. The descriptions are general and summary in nature, and do not detail
every possible variation of the types of securities that are permissible for the
Portfolios.
1. Private Mortgage Pass-Through Securities
General Characteristics. The Mortgage Securities Portfolio may invest in
privately-issued mortgage pass-through securities ("Mortgage Pass-Throughs")
which represent participation interests in pools of private
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mortgage loans conveyed to the issuing trust and generally serviced for the
trust by the originator. For federal income tax purposes, such trusts are
generally treated as grantor trusts or REMICs and, in either case, are generally
not subject to any significant amount of federal income tax at the entity level.
Mortgage Pass-Throughs (whether fixed or adjustable rate) provide for monthly
payments that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
Each mortgage pool underlying Mortgage Pass-Throughs will consist of mortgage
loans evidenced by promissory notes secured by first mortgages or first deeds of
trust or other similar security instruments creating a first lien on the
mortgaged properties (the "Mortgaged Properties"). The Mortgaged Properties
will consist of residential properties upon which are located detached
individual dwelling units, individual condominiums, townhouses, duplexes,
triplexes, fourplexes, rowhouses, manufactured homes, individual units in
planned unit developments and other attached dwelling units, vacation homes,
second homes, residential investment properties, multi-family units or
properties with mixed residential and commercial uses. A trust fund with
respect to which a REMIC election has been made may include regular interests in
other REMICs which in turn will ultimately evidence interests in mortgage loans.
The seller or servicer of the underlying mortgage obligations will generally
make representations and warranties to certificate holders as to certain
characteristics of the mortgage loans and as to the accuracy of certain
information furnished to the trustee in respect of each such mortgage loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the related certificate holders in a mortgage loan, the
seller or servicer generally will be obligated either to cure the breach in all
material respects, to repurchase the mortgage loan or, if the related agreement
so provides, to substitute in its place a mortgage loan pursuant to the
conditions set forth therein. Such a repurchase or substitution obligation
generally constitutes the sole remedy available to the related certificate
holders or the trustee for the material breach of any such representation or
warranty by the seller or servicer.
Description of Certificates. Mortgage Pass-Throughs may be issued in one or
more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
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Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index. Subclasses of certificates
as to which a REMIC election has been made may have the features and structures
described below under the caption "Multiple Class Pass-Through Securities and
Collateralized Mortgage Obligations."
Generally, each registered holder of a certificate will be entitled to receive
its pro rata share of monthly distributions of all or a portion of principal of
the underlying mortgage loans or of interest on the principal balances thereof,
which accrues at the applicable mortgage pass-through rate, or both. The
difference between the mortgage interest rate and the related mortgage pass-
through rate (less the amount, if any, of retained yield) with respect to each
mortgage loan will generally be paid to the servicer as a servicing fee. Since
certain adjustable rate mortgage loans included in a mortgage pool may provide
for deferred interest (i.e., negative amortization), the amount of interest
actually paid by a mortgagor in any month may be less than the amount of
interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to the principal balance of the related mortgage loan and will be
distributed pro rata to certificate holders as principal of such mortgage loan
when paid by the mortgagor in subsequent monthly payments or at maturity.
Ratings. The ratings assigned by an NRSRO to Mortgage Pass-Throughs address the
likelihood of the receipt of all distributions on the underlying mortgage loans
by the related certificate holders under the agreements pursuant to which such
certificates are issued. A rating agency's ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates, and
the extent to which the payment stream on such mortgage pool is adequate to make
payments required by such certificates. A rating agency's ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans. In addition, the rating assigned by
a rating agency to a certificate does not address the remote possibility that,
in the event of the insolvency of the issuer of certificates where a
subordinated interest was retained, the issuance and sale of the senior
certificates may be recharacterized as a financing and that, as a
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result of such recharacterization, payments on such certificates may be
affected.
Types of Credit Support. Mortgage pools created by non-governmental issuers
generally offer a higher yield than government and government-related pools
because of the absence of direct or indirect government or agency payment
guarantees. To lessen the effect of failures by obligors on underlying assets
to make payments, Mortgage Pass-Throughs may contain elements of credit support.
Such credit support falls into two classes: liquidity protection and protection
against ultimate default by an obligor on the underlying mortgages. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pools of mortgages, the provision of a reserve fund, or a
combination thereof, to ensure, subject to certain limitations, that scheduled
payments on the underlying pool are made in a timely fashion. Protection
against ultimate default ensures ultimate payment of the obligations on at least
a portion of the mortgages in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained from third parties,
through various means of structuring the transaction or through a combination of
such approaches.
In addition, one or more classes of certificates of Mortgage Pass-Throughs may
be subordinate certificates which provide that the rights of the subordinate
certificate holders to receive any or a specified portion of distributions with
respect to the underlying mortgage loans may be subordinated to the rights of
the senior certificate holders. If so structured, the subordination feature may
be enhanced by distributing to the senior certificate holders on certain
distribution dates, as payment of principal, a specified percentage (which
generally declines over time) of all principal prepayments received during the
preceding prepayment period ("shifting interest credit enhancement"). This will
have the effect of accelerating the amortization of the senior certificates
while increasing the interest in the trust fund evidenced by the subordinate
certificates. Increasing the interest of the subordinate certificates relative
to that of the senior certificate is intended to preserve the availability of
the subordination provided by the subordinate certificates. In addition,
because the senior certificate holders in a shifting interest credit enhancement
structure are entitled to receive a percentage of principal prepayments which is
greater than their proportionate interest in the trust fund, the rate of
principal prepayments on the mortgage loans will have an even greater effect on
the rate of principal payments and the amount of interest payments on, and the
yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior certificate
holders to receive current distributions from the mortgage pool, a reserve fund
may be established relating to such certificates (the "Reserve Fund"). The
Reserve Fund may be created with an initial
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cash deposit by the originator or servicer and augmented by the retention of
distributions otherwise available to the subordinate certificate holders or by
excess servicing fees until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, is intended to enhance the
likelihood of timely receipt by senior certificate holders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificate holders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated
amount is reduced to zero, senior certificate holders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in the Reserve Fund will generally be used to offset the
amount of any losses realized with respect to the mortgage loans ("Realized
Losses"). Realized Losses remaining after application of such amounts will
generally be applied to reduce the ownership interest of the subordinate
certificates in the mortgage pool. If the subordinated amount has been reduced
to zero, Realized Losses generally will be allocated pro rata among all
certificate holders in proportion to their respective outstanding interests in
the mortgage pool.
As an alternative, or in addition to the credit enhancement afforded by
subordination, credit enhancement for Mortgage Pass-Throughs may be provided by
mortgage insurance, hazard insurance, by the deposit of cash, certificates of
deposit, letters of credit, a limited guaranty or by such other methods as are
acceptable to a rating agency. In certain circumstances, such as where credit
enhancement is provided by guarantees or a letter of credit, the security is
subject to credit risk because of its exposure to an external credit enhancement
provider.
Voluntary Advances. Generally, in the event of delinquencies in payments on the
mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees to
make advances of cash for the benefit of certificate holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
Optional Termination. Generally, the servicer may, at its option with respect
to any certificates, repurchase all of the underlying mortgage loans remaining
outstanding at such time as the aggregate outstanding principal
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balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
2. Government Mortgage-Related Securities
As stated in the Prospectus, certain mortgage-related securities acquired by the
Portfolios will be issued or guaranteed by the U.S. Government or one of its
agencies, instrumentalities or sponsored enterprises including but not limited
to the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC") ("Government Mortgage-Related Securities"). GNMA securities are
backed by the full faith and credit of the U.S. Government, which means that the
U.S. Government guarantees that the interest and principal will be paid when
due. FNMA securities and FHLMC securities are not backed by the full faith and
credit of the U.S. Government; however, because of their ability to borrow from
the U.S. Treasury, they are generally viewed by the market as high quality
securities with minimal credit risks. There are several types of guaranteed
mortgage-related securities currently available, including guaranteed mortgage
pass-through certificates and multiple-class securities, which include
guaranteed REMIC pass-through certificates. The Portfolios will be permitted to
invest in other types of Government Mortgage-Related Securities that may be
available in the future to the extent such investment is consistent with their
respective investment policies and objectives.
GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of the
United States. GNMA is authorized to guarantee the timely payment of the
principal of and interest on certificates that are based on and backed by a pool
of mortgage loans insured by the Federal Housing Administration ("FHA Loans"),
or guaranteed by the Veterans Administration ("VA Loans"), or by pools of other
eligible mortgage loans. In order to meet its obligations under any guaranty,
GNMA is authorized to borrow from the United States Treasury in an unlimited
amount.
FNMA Certificates. FNMA is a stockholder-owned corporation chartered under an
act of the United States Congress. Each FNMA Certificate is issued and
guaranteed by and represents an undivided interest in a pool of mortgage loans
(a "Pool") formed by FNMA. Each Pool consists of residential mortgage loans
("Mortgage Loans") either previously owned by FNMA or purchased by it in
connection with the formation of the Pool. The Mortgage Loans may be either
conventional Mortgage Loans (i.e., not insured or guaranteed by any U.S.
Government agency) or Mortgage Loans that are either insured by the Federal
Housing Administration ("FHA") or guaranteed by the Veterans Administration
("VA"). The lenders originating and servicing the Mortgage Loans are subject to
certain eligibility requirements established by FNMA.
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FNMA has certain contractual responsibilities. With respect to each Pool, FNMA
is obligated to distribute scheduled monthly installments of principal and
interest after FNMA's servicing and guaranty fee, whether or not received, to
certificate holders. FNMA is also obligated to distribute to holders of
certificates an amount equal to the full principal balance of any foreclosed
Mortgage Loan, whether or not such principal balance is actually recovered. The
obligations of FNMA under its guaranty of the FNMA Certificates are obligations
solely of FNMA.
FHLMC Certificates. FHLMC is a corporate instrumentality of the United States.
The principal activity of FHLMC currently is the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and their resale in the form of mortgage securities, primarily
FHLMC Certificates. A FHLMC Certificate represents a pro rata interest in a
group of mortgage loans or participation in mortgage loans (a "FHLMC Certificate
group") purchased by FHLMC.
FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest at the rate provided for by such Certificate (whether or not
received on the underlying loans). FHLMC also guarantees to each registered
certificate holder ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. The obligations of FHLMC under its
guaranty of FHLMC Certificates are obligations solely of FHLMC.
The mortgage loans underlying the FHLMC Certificates will consist of adjustable
rate or fixed rate mortgage loans with original terms of maturity of between ten
and thirty years. Substantially all of these mortgage loans are secured by
first liens on one- to four-family residential properties or multi-family
projects. Each mortgage loan must meet the applicable standards set forth in
the law creating FHLMC. A FHLMC Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and participation comprising another FHLMC Certificate group.
3. Multiple Class Pass-Through Securities and Collateralized Mortgage
Obligations
As stated, the Government Securities Portfolio and the Mortgage Securities
Portfolio may also invest in multiple class mortgage-related securities,
including collateralized mortgage obligations and REMIC pass-through or
participation certificates (collectively, "CMOs"). These multiple class
securities may be issued by U.S. Government, its agencies, instrumentalities or
sponsored enterprises, including FNMA and FHLMC or, in the case of the Mortgage
Securities Portfolio, by trusts formed by private originators of, or investors
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in, mortgage loans. In general, CMOs represent direct ownership interests in a
pool of residential mortgage loans or mortgage pass-through securities (the
"Mortgage Assets"), the payments on which are used to make payments on the CMOs.
Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The Portfolios may not purchase
residual interests.
Each class of a CMO, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Principal prepayments on the Mortgage Assets underlying
a CMO may cause some or all of the classes of the CMO to be retired
substantially earlier than its final distribution dates.
The principal of and interest on the Mortgage Assets may be allocated among the
several classes of a CMO in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of the
CMO in the order of their respective final distribution dates. Thus, no payment
of principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final scheduled distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of CMOs may be issued in the parallel pay or sequential pay
structures. These securities include accrual certificates (also known as "Z-
Bonds"), which do not accrue interest at a specified rate until all other
certificates having an earlier final scheduled distribution date have been
retired and such Z-Bonds are converted thereafter to an interest-paying
security, and planned amortization class ("PAC") certificates, which are
parallel pay CMOs which generally require that specified amounts of principal be
applied on each payment date to one or more classes of a CMO (the "PAC
Certificates"), even though all other principal payments and prepayments of the
Mortgage Assets are then required to be applied to one or more other classes of
the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These
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tranches tend to have market prices and yields that are much more volatile than
the PAC classes.
FNMA CMOs are issued and guaranteed as to timely distribution of principal and
interest by FNMA. That is to say, FNMA will be obligated to distribute on a
timely basis to holders of FNMA CMO Certificates required installments of
principal and interest and to distribute the principal balance of each class of
CMO in full, whether or not sufficient funds are otherwise available.
For FHLMC CMOs, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates ("Pcs"). Pcs represent undivided
interests in specified level payment, residential mortgages or participations
therein purchased by FHLMC and placed in a Pc pool. With respect to principal
payments on Pcs, FHLMC generally guarantees ultimate collection of all principal
of the related mortgage loans without offset or deduction but the receipt of the
required payments may be delayed. FHLMC also guarantees timely payment of
principal on certain Pcs, referred to as "Gold Pcs."
OTHER INVESTMENT PRACTICES
Lending of Portfolio Securities
The Government Securities Portfolio and the Mortgage Securities Portfolio may
seek to increase their income by lending portfolio securities to institutions,
such as banks and broker-dealers. These loans will be continuously and fully
collateralized (with a perfected first priority) by cash, cash equivalents or
Government Securities in an amount at least equal to the market value of the
securities loaned. Each Portfolio will have the right to call a loan and obtain
the securities loaned at any time on five days' notice. A Portfolio may lend
its securities only pursuant to a written loan and security agreement with the
borrower and must receive written confirmation of any loan. Any investments
purchased with the cash (as well as other cash received in connection with the
loan) must be permissible for federally-chartered credit unions and must mature
no later than the maturity of the transaction. For the duration of a loan, each
Portfolio will continue to receive the equivalent of the interest paid by the
issuer on the securities loaned and will also receive compensation from
investment of the collateral. Each Portfolio will not have the right to vote any
securities having voting rights during the existence of the loan, but each
Portfolio will call the loan in anticipation of an important vote to be taken
among holders of the securities or the giving or withholding of their consent on
a material matter affecting the investment. As with other extensions of credit,
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by Goldman, Sachs
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& Co. to be of good standing, and when, in its judgment, the consideration which
can be earned currently from securities loans of this type justifies the
attendant risk. If Goldman, Sachs & Co. determines to make securities loans, it
is expected that during the current fiscal year such loans will not exceed 5% of
a Portfolio's net assets.
INVERSE FLOATING RATE SECURITIES
The Government Securities Portfolio and the Mortgage Securities Portfolio may,
to the extent permitted by the National Credit Union Administration ("NCUA"),
invest in leveraged inverse floating rate debt instruments ("inverse floaters").
The interest rate on an inverse floater resets in the opposite direction from
the market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of a
Portfolio's 15% limitation on investments in such securities.
INVESTMENT RESTRICTIONS
As the Prospectus states, the Fund may only invest in obligations authorized
under the Federal Credit Union Act. This restriction may not be changed without
the approval of the holders of a majority of the outstanding units of each
affected Portfolio as described below. In addition, the Fund has adopted the
following enumerated fundamental investment restrictions, none of which may be
changed with respect to a Portfolio without the approval of the holders of a
majority of the outstanding units of the Portfolio as described below. The Fund
may not:
(1) Invest any one Portfolio in the instruments of issuers conducting
their principal business activity in the same industry if immediately after
such investment the value of such Portfolio's investments in such industry
would exceed 25% of the value of its total assets; provided that there is
no limitation with respect to or arising out of (a) in the case of the
Mortgage Securities Portfolio, investments in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or
repurchase agreements by such Portfolio of securities collateralized by
such obligations; or (b) in the case of the Government Securities
Portfolio, investments in obligations issued or guaranteed by the U.S.
Government or its agencies or instumentalities, repurchase agreements by
such Portfolio of securities collateralized by such obligations or by
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cash, certificates of deposit, bankers' acceptances and bank repurchase
agreements; or (c) in the case of the Money Market Portfolio, investments
in obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, repurchase agreements by such Portfolio of securities
collateralized by such obligations or by cash, certificates of deposit,
bankers' acceptances, bank repurchase agreements and other obligations
issued or guaranteed by banks (except commercial paper); and provided
further that during normal market conditions the Mortgage Securities
Portfolio intends to invest at least 25% of the value of its total assets
in mortgage-related securities. Note: The current position of the staff of
the SEC is that only the Money Market Portfolio may reserve freedom of
action to concentrate in bank obligations and that the exclusion with
respect to bank instruments referred to above may only be applied to
instruments of domestic banks. For this purpose, the staff also takes the
position that foreign branches of domestic banks may, if certain conditions
are met, be treated as domestic banks. The Fund intends to consider only
obligations of domestic banks (as construed to include foreign branches of
domestic banks to the extent they satisfy the above-referenced conditions)
to be within this exclusion until such time, if ever, that the SEC staff
modifies its position.
(2) Invest any one Portfolio in the instruments of any one issuer, other
than the U.S. Government, its agencies or instrumentalities, if immediately
after such investment, more than 5% of the value of such Portfolio's total
assets would be invested in the instruments of such issuer, except that (a)
up to 25% of the value of the total assets of the Money Market Portfolio
and Government Securities Portfolio may be invested in repurchase
agreements, certificates of deposit, bankers' acceptances, time deposits
and federal funds without regard to such 5% limitation; (b) up to 25% of
the value of the total assets of the Mortgage Securities Portfolio may be
invested without regard to such 5% limit; and (c) such 5% limitation shall
not apply to repurchase agreements collateralized by obligations of the
U.S. Government, its agencies or instrumentalities.
(3) Make loans, except through (a) the purchase of debt obligations in
accordance with each Portfolio's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions in accordance with the investment objectives of each
Portfolio, (c) the lending of federal funds to qualified financial
institutions in accordance with the investment objectives of each Portfolio
and (d) the lending of securities in accordance with the investment
objective of the Government Securities Portfolio and the Mortgage
Securities Portfolio.
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(4) Borrow money, except as a temporary measure, and then only in amounts
not exceeding one-third of the value of the Portfolio's net assets.
(5) Mortgage, pledge or hypothecate any assets except to secure permitted
borrowings.
(6) Purchase or sell real estate, but this restriction shall not prevent
the Fund from investing directly or indirectly in portfolio instruments
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
(7) Purchase or sell commodities or commodity contracts.
(8) Purchase any voting securities except of investment companies (closed-
end investment companies in the case of the Money Market Portfolio and
Government Securities Portfolio) solely to the extent permitted by the 1940
Act, or invest in companies for the purpose of exercising control or
management. Subject to certain exceptions, the 1940 Act contains a
prohibition against the Fund's investing more than 5% of its total assets
in the securities of another investment company, investing more than 10% of
its assets in securities of such investment company and all other
investment companies or purchasing more than 3% of the total outstanding
voting stock of another investment company.
(9) Act as an underwriter of securities.
(10) Issue senior securities as defined in the 1940 Act except insofar as
the Fund may be deemed to have issued a senior security by reason of (a)
borrowing of money to the extent permitted herein or (b) purchasing
securities on a when-issued or delayed delivery basis.
(11) Purchase any security for the Money Market Portfolio that is
restricted as to disposition under federal securities laws (foreign
securities traded only in foreign markets are not regarded as restricted).
(12) Purchase any security on margin (except for delayed delivery or when-
issued transactions or such short-term credits as are necessary for the
clearance of transactions).
(13) Make short sales of securities or maintain a short position.
(14) Write, purchase or sell puts, calls or combinations thereof.
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Investment Restriction No. (2) above is intended to incorporate the
diversification requirements of the 1940 Act and the rules thereunder. Pursuant
to SEC Rule 2a-7, which establishes separate diversification requirements for
money market funds, the Money Market Portfolio currently may not invest more
than 5% of its total assets in the securities of any one issuer other than U.S.
Government securities, repurchase agreements collateralized by such obligations
and securities subject to a guarantee or unconditional demand feature (as
defined by SEC Rule 2a-7). The Portfolio may, however, invest up to 25% of its
total assets in the First Tier Securities of a single issuer for a period of up
to three business days after the purchase thereof, although the Portfolio may
not make more than one such investment at any time. Investment by the Money
Market Portfolio in guarantees and demand features is subject to further
diversification requirements. Subject to certain exceptions, immediately after
the acquisition of a guarantee or demand feature or a security subject to a
guarantee or demand feature, the Money Market Portfolio, with respect to 75% of
its total assets, may not have invested more than 10% of its total assets in
securities issued by or subject to guarantees and demand features from the same
person. Adherence by the Money Market Portfolio to the requirements of SEC Rule
2a-7, which are not fundamental and may be changed in the future without
shareholder vote, is considered to be adherence to the requirements of
Investment Restriction No. 2 above.
"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Portfolio's net asset value. "U.S. Government securities"
shall mean securities issued or guaranteed by the U.S. Government or any of its
agencies, authorities or instrumentalities.
For purposes of the foregoing limitations, any limitation which involves a
maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Portfolio of the
Fund.
Borrowings by the Fund (if any) are not for investment leverage purposes but are
solely for extraordinary or emergency purposes or to facilitate management of
the Portfolios by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments is deemed to be disadvantageous or not
possible. If due to market fluctuations or other reasons the total assets of a
Portfolio fall below 300% of its borrowings, the Fund will promptly reduce the
borrowings of such Portfolio in accordance with the 1940 Act. No purchases of
securities will be made if borrowings exceed 5% of the value of the applicable
Portfolio's assets.
The prohibition against short sales and short positions does not include
transactions sometimes referred to as "short sales against the
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box" where the Fund contemporaneously owns or has the right to obtain at no
added cost securities identical to those sold short.
As used in the Prospectus and this Additional Statement with respect to a change
in investment objective or fundamental investment restrictions, the approval of
an investment advisory agreement or the approval of a distribution agreement,
the term "majority of the outstanding units" of either the Fund or a particular
Portfolio of the Fund means the vote of the lesser of (i) 67% or more of the
units of the Fund or such Portfolio present at a meeting, if the holders of more
than 50% of the outstanding units of the Fund or such Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding units of the Fund
or such Portfolio.
As stated in the Prospectus, investments purchased by the Portfolios before
January 1, 1998 (the effective date of recent amendments to the Rules and
Regulations of the NCUA) will be governed by the Rules and Regulations in effect
when purchased, and the Portfolios may continue to hold such investments after
such date subject to compliance with such former Rules and Regulations. Among
other things, prior to January 1, 1998 a Portfolio could also purchase a
stripped mortgage-backed security to reduce the interest rate risk of its
holdings.
CALCULATION OF PERFORMANCE QUOTATIONS
From time to time, quotation of the Money Market Portfolio's "yield" and
"effective yield," and the yields and the total return of the Government
Securities Portfolio and the Mortgage Securities Portfolio, may be quoted in
advertisements or communications to unitholders. These advertisements and
communications may be part of marketing activities conducted by either or both
of the Fund's distributors on behalf of the Portfolios. These performance
figures are calculated in the following manner.
MONEY MARKET PORTFOLIO
Yield--the net annualized yield based on a specified seven-calendar day period
- -----
calculated at simple interest rates. Yield is calculated by determining the net
change, exclusive of capital changes, in the value of a hypothetical preexisting
account having a balance of one unit at the beginning of the period and dividing
the difference by the value of the account at the beginning of the base period
to obtain the base period return. The yield is annualized by multiplying the
base period return by 365/7. The yield figure is stated to the nearest
hundredth of one percent.
Effective Yield--the net annualized yield for a specified seven-calendar day
- ---------------
period assuming a reinvestment of dividends (compounding). Effective yield is
calculated by the same method as yield except the yield figure is compounded by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the
B-41
<PAGE>
result, according to the following formula: Effective Yield = [(Base Period
Return + 1)to the three hundred sixty fifth power divided by seven]-1
For the seven-day period ended August 31, 1998, the yield and the effective
yield for the Money Market Portfolio were:
<TABLE>
<CAPTION>
7-Day Period
Ended August 31, 1998
---------------------------------------------------------
With Fee Waivers and Without Fee Waivers and
Expense Expense Reimbursements
Reimbursements
--------------------- ----------------------------
<S> <C> <C>
Yield 5.52% 5.33%
Effective Yield 5.67% 5.48%
</TABLE>
Government Securities Portfolio and Mortgage Securities Portfolio
Yield--The yield of the Government Securities Portfolio and the Mortgage
- -----
Securities Portfolio is calculated by dividing the net investment income per
unit (as described below) earned by such Portfolio during a 30-day period by the
maximum offering price per unit on the last day of the period and annualizing
the result on a semi-annual basis by adding one to the quotient, raising the sum
to the power of six, subtracting one from the result and then doubling the
difference. The Portfolio's net investment income per unit earned during the
period is based on the average daily number of units outstanding during the
period entitled to receive dividends and includes dividends and interest earned
during the period minus expenses accrued for the period, net of reimbursements.
This calculation can be expressed as follows:
a-b
Yield = 2[(--- + 1)/to the sixth power/- 1]
cd
Where:
a= dividends and interest earned during the period.
b= expenses accrued for the period (net of fee waivers)
c= the average daily number of units outstanding during the period that
were entitled to receive dividends.
d= maximum offering price per unit on the last day of the period.
Except as noted below, interest earned on debt obligations held by the
Government Securities Portfolio and the Mortgage Securities Portfolio is
calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations
B-42
<PAGE>
purchased during the month, the purchase price (plus actual accrued interest)
and dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by the Portfolio. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
With respect to mortgage-related obligations which are expected to be subject to
monthly payments of principal and interest ("pay downs"), (a) gain or loss
attributable to actual monthly pay downs are accounted for as an increase or
decrease to interest income during the period; and (b) the Portfolio may elect
either (i) to amortize the discount and premium on the remaining security, based
on the cost of the security, to the weighted average maturity date, if such
information is available, or to the remaining term of the security, if any, if
the weighted average maturity date is not available, or (ii) not to amortize
discount or premium on the remaining security.
Total Return--The Government Securities Portfolio and the Mortgage Securities
- ------------
Portfolio compute average annual total return by determining the average annual
compounded rates of return during specified periods that equate the initial
amount invested to the ending redeemable value of such investment. This is done
by dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 and raising the quotient to a power equal to one divided by the number
of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
ERV/to the first power divided by n/
T = [(-----)- 1]
P
Where:
T = average annual total return
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
The Government Securities Portfolio and the Mortgage Securities Portfolio
compute their cumulative total return by determining the
B-43
<PAGE>
cumulative rate of return during a specified period that likewise equates the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating cumulative total return is as follows:
ERV
T = [(---- - 1)]
P
Under the methods prescribed by the SEC, standardized calculations of average
annual total return assume the reinvestment of all dividends and capital gains
distributions on the reinvestment dates during the period (although a Portfolio
may also publish non-standardized calculations without this assumption).
Calculations of aggregate total return also assume the reinvestment of all
dividends and capital gains distributions on the reinvestment date during the
period. The ending redeemable value (variable "ERV" in each formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the period covered by
the computations. Year-to-year total return is calculated in a similar manner.
B-44
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE FIGURES
Value of $1,000 Investment
--------------------------
Year Ending 8/31/98 Five Year ending 8/31/98
------------------- -------------------------
Without Fee Without Fee
With Fee Waiver Waiver and/or With Fee Waiver Waiver and/or
30-Day Period and/or expense expense and/or expense expense
Ending 8/31/98 reimbursement reimbursement reimbursement reimbursement
<S> <C> <C> <C> <C> <C>
GOVERNMENT
SECURITIES
PORTFOLIO
Yield 5.49% N/A N/A N/A N/A
Ending $1,056.00 $1,056.00 $1,301.50 $1,301.20
Redeemable
Value at
8/31/98
Average N/A 5.60% 5.60% 5.41% 5.41%
Annual
Total Return
Cumulative N/A 5.60% 5.60% 30.15% 30.12%
Total Return
MORTGAGE
SECURITIES
PORTFOLIO
Yield 5.91% N/A N/A N/A N/A
Ending N/A $1,081.00 $1,081.00 $1,346.90 $1,345.80
Redeemable
Value at
8/31/98
Average N/A 8.10% 8.10% 6.13% 6.12%
Annual
Total Return
Cumulative N/A 8.10% 8.10% 34.69% 34.58%
Total Return
Commencement of
---------------
Operations through
------------------
8/31/98
-------
Without Fee
With Fee Waiver Waiver and/or
and/or expense expense
reimbursement reimbursement
<S> <C> <C>
GOVERNMENT
SECURITIES
PORTFOLIO
Yield N/A N/A
Ending $1,459.90 $1,450.10
Redeemable
Value at
8/31/98
Average 5.43% 5.34%
Annual
Total Return
Cumulative 45.99% 45.01%
Total Return
MORTGAGE
SECURITIES
PORTFOLIO
Yield N/A N/A
Ending $1,431.40 $1,429.40
Redeemable
Value at
8/31/98
Average 6.27% 6.24%
Annual
Total Return
Cumulative 43.14% 42.94%
Total Return
</TABLE>
* For the periods from July 10, 1991 and October 9, 1992, (commencement of
operations for the Government Securities Portfolio and the Mortgage
Securities Portfolio, respectively) to August 31, 1998.
B-45
<PAGE>
In addition, the Money Market Portfolio may quote from time to time its total
return in accordance with SEC regulations.
ALL PORTFOLIOS
Each of the Portfolios may also quote from time to time distribution rates in
reports to unitholders and in sales literature. The distribution rate for a
specified period is calculated by dividing the total distribution per share by
the maximum offering price on the last day of the period and then annualizing
such amount.
For the thirty-day period ended August 31, 1998, the distribution rate of each
of the following Portfolios was:
<TABLE>
<CAPTION>
30-Day Period Ended 30-Day Period Ended
August 31, 1998, With August 31, 1998 Without
Portfolio Expense Reimbursement Expense Reimbursement
--------- --------------------- ---------------------
<S> <C> <C>
Government Securities 5.87% 5.87%
Mortgage Securities 5.96% 5.96%
</TABLE>
From time to time the Portfolios' comparative performance may be advertised as
measured by various independent sources, including, but not limited to, Lipper
Analytical Services, Inc., Barron's, The Wall Street Journal, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Business Week,
Financial World and Forbes. In addition, the Fund may from time to time
advertise the Portfolios' performance relative to certain indices and benchmark
investments, including (a) the Lehman Brothers Government/Corporate Bond Index,
(b) Lehman Brothers Government Index, (c) Lehman Brothers ARM Index, (d) Lehman
Brothers 1-2 year Government Index, (e) Lehman Brothers 1-3 year Government
Index,(f) Merrill Lynch 1-2.99 Year Treasury Index, (g) Merrill Lynch 2-Year
Treasury Curve Index, (h) the Salomon Brothers Treasury Yield Curve Rate of
Return Index, (i) the Payden & Rygel 2-Year Treasury Note Index, (j) 1-3 Year
U.S. Treasury Notes, (k) constant maturity U.S. Treasury yield indices, (l) the
Consumer Price Index, (m) the London Interbank Offered Rate, (n) other taxable
investments such as certificates of deposit, money market mutual funds,
repurchase agreements and commercial paper, and (o) historical data concerning
the relative performance of adjustable and fixed-rate mortgage loans.
The composition of the securities in such indices and the characteristics of
such benchmark investments are not identical to, and in some cases are very
different from, those of the Fund's Portfolios. These indices and averages are
generally unmanaged and the items included in the calculations of such indices
and averages may not be identical to the formulas used by the Fund to calculate
its performance figures.
B-46
<PAGE>
From time to time advertisements or communications to unitholders may summarize
the substance of information contained in unitholder reports (including the
investment composition of the Portfolios), as well as the views of Goldman,
Sachs & Co. as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Portfolios (such as the
supply and demand of mortgage-related securities and the relative performance of
different types of mortgage loans and mortgage-related securities as affected by
prepayment rates and other factors).
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic market views to suggest
periodic tactical modifications to current asset allocation strategies. Such
advertisements and information may include other material which highlight or
summarize the services provided in support of an asset allocation program.
In addition, advertisements or unitholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
such Portfolio. Such advertisements or communications may include symbols,
headlines or other material which highlight or summarize the information
discussed in more detail therein.
Performance data is based on historical results and is not intended to indicate
future performance. Yield, total return and distribution rates will vary based
on changes in market conditions, the level of interest rates, and Portfolio
expenses. The value of units of the Government Securities Portfolio and
Mortgage Securities Portfolio will fluctuate, and an investor's units may be
worth more or less than their original cost upon redemption.
OTHER INFORMATION
The Prospectus and this Additional Statement do not contain all the information
included in the Registration Statement filed with the SEC under the 1933 Act
with respect to the securities offered by the Prospectus. Certain portions of
the Registration Statement have been omitted from the Prospectus and this
Additional Statement pursuant to the rules and regulations of the SEC.
The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C. Statements contained in
the Prospectus or in this Additional Statement as to the
B-47
<PAGE>
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference. Capitalized terms, to the extent
not otherwise defined herein, shall have the meanings as assigned to them in the
Prospectus.
FINANCIAL STATEMENTS
The financial statements and related report of Arthur Andersen LLP, independent
public accountants, contained in the Portfolios' 1998 Annual Report are hereby
incorporated by reference. No other parts of the 1998 Annual Report are
incorporated by reference herein. A copy of the Annual Report accompanies or has
preceded this Additional Statement and may be obtained without charge by writing
to Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606, or Callahan
Credit Union Financial Services Limited Partnership, 1001 Connecticut Ave.,
N.W., Suite 1001, Washington, DC 20036-5504, or by calling Goldman, Sachs & Co.
at (800) 342-5828 (800-DIAL-TCU) or Callahan Financial Services, Inc. at
(800)237-5678.
B-48
<PAGE>
DESCRIPTION OF SECURITIES RATINGS*
A. LONG-TERM RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than with Aaa securities.
Moody's applies numerical modifiers l, 2, and 3 in the Aa category. The
modifier 1 indicates that the obligation ranks in the higher end of the Aa
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of the Aa category.
STANDARD & POOR'S RATINGS GROUP
AAA: An obligation rated AAA has the highest rating assigned by S&P. This
rating indicates the obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
Plus (+) or Minus (-): The AA rating may be modified by the addition of a plus
or minus sign to show relative standing within the AA category.
__________________________
* The ratings systems described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. and Standard
& Poor's Ratings Group at the date of this Additional Statement for the
securities listed. Ratings are generally given to securities at the time
of issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated
do not necessarily represent ratings which will be given to these
securities throughout the period they are held by a Portfolio.
B-49
<PAGE>
DUFF & PHELPS, INC.
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
Duff & Phelps applies modifiers plus (+) and minus (-) in the AA category for
long-term debt securities. The modifier '+' indicates that the security ranks
in the higher end of the AA category and the modifier '-' indicates that the
issue ranks in the lower end of the AA category.
FITCH IBCA, INC.
AAA: Highest credit quality. 'AAA' ratings denote the lowest expectation of
investment risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very high credit quality. 'AA' ratings denote a very low expectation of
investment risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
Fitch IBCA applies plus (+) and minus (-) modifiers in the AA category to
indicate the relative position of a credit within the rating category. The
modifier AA+ indicates that the security ranks at the higher end of the AA
category than a security rated AA or AA-.
THOMSON BANKWATCH, INC.
AAA: The highest category; indicates the ability to repay principal and
interest on a timely basis is extremely high.
AA: The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
Ratings in the Long-Term Debt categories may include a plus (+) or minus (-)
designation which indicates where within the respective category the issue is
placed.
B-50
<PAGE>
B. SHORT-TERM RATINGS
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations not having an original maturity in excess of
one year, unless explicitly noted.
Prime-1: Issuers (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2: Issuers (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
Standard & Poor's short-term debt rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1: A short-term obligation rated 'A-1' is the highest category. The
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
A-2: A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
B-51
<PAGE>
conditions than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is satisfactory.
DUFF & PHELPS CREDIT RATING CO.
Duff & Phelps' short-term debt ratings apply to all obligations with maturities
under one year.
Duff 1: High Grade. Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 2: Good Grade. Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
Duff & Phelps applies a plus and minus rating scale, Duff 1+, Duff 1 and Duff
1-, in the Duff 1 top grade category for commercial paper and short term debt.
The rating Duff 1+ indicates that the security has the highest certainty of
timely payment; short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is outstanding and safety is just
below risk-free U.S. Treasury short-term obligations. The rating Duff 1-
indicates a high certainty of timely payment; liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
FITCH IBCA, INC.
Fitch IBCA's short-term ratings apply to debt obligations that have a time
horizon of less than 12 months for most obligations.
F-1: Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added '+' to denote any
exceptionally strong credit feature.
F-2: Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
THOMSON BANKWATCH, INC.
The TBW short-term ratings assess the likelihood of an untimely payment of
principal and interest of debt instruments with original maturities of one year
or less.
TBW-1: The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
B-52
<PAGE>
TBW-2: The second highest category; indicates that while the degree
of safety regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high a for issues rated TBW-1.
B-53
<PAGE>
APPENDIX A
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
The performance of various types of securities (taxable money market
funds, U.S. Treasury securities, adjustable rate mortgage securities,
government securities) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
Volatility of total return of various market indices (i.e. Lehman
Government Bond Index, S&P 500, IBC/Donoghue's Money Fund Average/All
Taxable Index) over varying periods of time.
Credit Ratings of domestic government bonds in various countries.
Price volatility comparisons of types of securities over different
periods of time.
Price and yield comparisons of a particular security over different
periods of time.
In addition, the Trust may from time to time include rankings of Goldman, Sachs
& Co.'s research department by publications such as the Institutional Investor
and the Wall Street Journal in advertisements.
B-54
<PAGE>
-------------------------------------
TRUST
for Credit Unions
-------------------------------------
ANNUAL REPORT
-------------------------
AUGUST 31, 1998
<PAGE>
Dear TCU Investor,
We would like to thank you for your continued support of the Trust for Credit
Unions (TCU)--thank you especially to those credit unions who selected TCU as a
new investment option for their credit union's portfolio.
As the strong momentum of credit union liquidity carried through most of this
fiscal year, the TCU portfolio assets increased significantly. The TCU
Portfolios assets rose over 54%, ending fiscal year 1998 at over $2.1 billion,
thus reaching their highest levels since April 1993. In conjunction with
increased credit union liquidity, asset levels increased as TCU delivered
another year of strong performance. The Portfolios offered competitive yields
and performance relative to other investment alternatives in the market.
In addition to performance, the TCU Portfolios have brought new service
features to you this year:
. SHAREHOLDER SERVICE
New statements: Monthly shareholder statements were redesigned and
enhanced to provide additional and consolidated information for your TCU
account.
Order Deadline: The TCU Money Market Portfolio ("MMP") deadline for
transaction orders was extended. The new cut-off time for MMP
transactions is 3:00 p.m. (EST).
. LEADERSHIP
Police & Fire Federal Credit Union of Pennsylvania, a $786 million
financial institution, became the fortieth credit union partner in
CUFSLP. CUFSLP, the Callahan Credit Union Financial Services Limited
Partnership, as administrator of TCU, brings credit union leadership and
oversight to the ongoing development and operation of TCU.
Again, thank you for selecting the Trust for Credit Unions. We look forward
to meeting your credit union's investment needs in the coming year.
Sincerely,
/s/ Charles W. Filson /s/ Gordon Linke
Charles W. Filson Gordon Linke
President Vice President
Callahan Financial Services, Inc. Goldman Sachs Asset Management
and Trust for Credit Unions and Trust for Credit Unions
September 30, 1998
<PAGE>
THE ECONOMY: THE FEDERAL RESERVE REMAINS ON HOLD
Throughout the period under review, the U.S. economy remained resilient in
the wake of Asia's financial crisis.
Early on, subdued inflationary pressures, in combination with a slower pace
of economic growth, kept the Federal Reserve Board (the "Fed") from tightening
monetary policy. The onset of Asian market turbulence in October strengthened
the likelihood that the Fed would continue to pursue this course of non-action.
Officials indicated that they wanted to await stabilization in the world
markets, then assess the potential damage to the U.S. economy, before making
any tightening moves.
As the period progressed, it became clear that the strength of the U.S.
equity market would diffuse the impact of the Asian crisis on U.S. growth.
Additionally, Asian currency devaluations helped to control U.S. inflationary
pressures and further served to keep the Fed on hold. By period end, however,
Asia's market turmoil had spread to other world markets. For the first time in
months, an easing of monetary policy became an option as the Fed's near-term
focus shifted from the pace of U.S. economic activity to the health of the
global financial system.
THE BOND MARKET: BOND MARKETS FLUCTUATED ALONG WITH INVESTOR CONFIDENCE
For most of the review period, markets vacillated in response to investor
optimism that the Asian ordeal was well in hand and investor fears that global
contagion was threatening. The result was a 12-month period punctuated by
market sell-offs and rallies.
At period end, this touch-and-go global anxiety culminated in a powerful
Treasury rally. The catalyst for the rally included investors' wholesale
preference for Treasuries--exacerbated by the ruble devaluation and Russia's
defacto default--and technical imbalances (forced liquidations by heavily
leveraged players combined with seasonal supply pressures). In August alone,
the long bond rallied 46 basis points, while shorter securities rallied 70
basis points.
OUTLOOK
On the U.S. front, indications are that the U.S. economy retains forward
momentum. Although consumer confidence and spending have recently registered
declines, the fundamental supports for spending growth still appear intact.
However, although real GDP growth should remain firm for the rest of 1998, we
now expect it will be less than what was initially anticipated and will
decelerate in 1999.
One key factor behind this view is the fact that Asia's turmoil has now
spread into the Western hemisphere. Latin America, in particular, poses the
greatest risk to the U.S. growth outlook. Approximately 20% of all U.S. exports
go to Latin America, and U.S. trade links with this region are tighter than
those with Asia. Therefore, should growth in Latin America substantially
weaken, the end result could be a negative one for the U.S. economy.
Another key factor is the U.S. stock market's recent sharp sell-off. Even if,
as we expect, the market rebounds, its heightened volatility is apt to dampen
growth in consumer and capital spending. As of this writing, the Federal
Reserve Board has cut short-term rates by a quarter of a point, to 5.25%. By
year-end 1999, we expect that this target could fall between 4.50% and 5.00%.
The prospect of this much Fed easing potentially means that the bond market
rally has not yet run its course.
2
<PAGE>
TCU MONEY MARKET PORTFOLIO
OBJECTIVE
The objective of the TCU Money Market Portfolio ("MMP") is to maximize
current income to the extent consistent with the preservation of capital and
maintenance of liquidity through investments in high-quality money market
instruments authorized under the Federal Credit Union Act.
PERFORMANCE REVIEW
For the 12-month period ended August 31, 1998, the MMP had an average annual
total return of 5.67%, outperforming the IBC Financial Data All-Taxable Money
Market Index total return of 5.16%. As of August 31, 1998, the Portfolio had a
seven-day current yield of 5.52% and an effective yield of 5.67%./1/
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
During the third quarter, international turmoil caused the short-term yield
curve to move from flat to inverted. An initial broad based flight to quality
caused the prices of government securities to increase and interest rates to
fall. During this time period, TCU maintained a neutral weighted average
maturity of 35-45 days. Subsequent market expectations that the Fed would
intervene caused the short term yield curve to invert further. In line with
market expectations, the Federal Open Market Committee lowered the federal
funds rate by 25 basis points at its September meeting in an attempt to
stabilize financial markets and guard against recession. In anticipation of
the Fed ease, TCU bought three- and six-month securities to extend the
weighted average maturity of the Portfolio to a longer range of 45 to 50 days.
Over the 12-month period ended August 31, 1998, some sector reallocations
occurred:
. We substantially increased the Portfolio's position in repurchase
agreements; conversely, we substantially decreased the Portfolio's
position in bankers acceptances & CDs. This shift occurred since term
repurchase agreements offered relative value versus bankers' acceptances
and CDs.
. We moderately increased the Portfolio's positions in variable rate
obligations--which offered relative value in the existing yield curve
environment--and bank notes, and moderately decreased the Portfolio's
position in time deposits.
- ---------------------
/1/ Please note that an investment in the Portfolio is not insured or
guaranteed by the National Credit Union Share Insurance Fund, National
Credit Union Administration or any other government agency. Although the
Portfolio seeks to preserve the value of your investment of $1.00 per
unit, it is possible to lose money by investing in the Portfolio.
3
<PAGE>
PORTFOLIO COMPOSITION AS OF AUGUST 31, 1998*
[PIE CHART]
Medium Term Notes.............................. 0.9%
Repurchase Agreements.......................... 54.2%
Bank Notes..................................... 16.6%
Bankers' Acceptances & CDs..................... 10.8%
Variable Rate Notes............................ 14.9%
Time Deposits.................................. 2.6%
* These percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
Looking Forward
As the international crisis intensifies and with no evidence to suggest that
it will subside in the near future, we feel that the Fed will continue to lower
interest rates over the next three to six months. We will be extremely cautious
going forward as we carefully monitor both international and domestic
developments. In an attempt to protect against further easing, we will continue
to maintain the weighted average maturity of the Portfolio in the 45-50 day
range by extending when the short-term yield curve is attractively priced in
relation to our expectations of Fed movements.
4
<PAGE>
TCU GOVERNMENT SECURITIES PORTFOLIO
OBJECTIVE
The TCU Government Securities Portfolio ("GSP") seeks a high level of current
income, consistent with low volatility of principal, by investing in
obligations authorized under the Federal Credit Union Act. The Portfolio
invests primarily in adjustable rate mortgage securities (ARMs) issued by the
U.S. government, its agencies or instrumentalities. Of course, an investment in
the Portfolio is neither insured nor guaranteed by the U.S. government. The
GSP's maximum duration is equal to that of a two-year U.S. Treasury security,
and its target duration is to be no shorter than that of a six-month U.S.
Treasury security and no longer than that of a one-year U.S. Treasury security.
As of August 31, 1998, its actual duration was 0.74 years, nearly the same as
the duration of a nine-month Treasury security at 0.75 years.
PERFORMANCE REVIEW
For the 12-month period ended August 31, 1998, the total return of the GSP
was 5.60%, slightly underperforming the 5.86% total return for the nine-month
Treasury average. (The nine-month Treasury return is calculated by averaging
the returns of the six-month Treasury bill and the one-year Treasury bill.)
The Portfolio's net asset value (NAV) fell during the review period, closing
at $9.79, down $0.05 from its level a year earlier. As of August 31, 1998, the
Portfolio's 30-day distribution rate was 5.87% and its SEC 30-day yield was
5.49%.
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
Throughout the period under review, low interest rates and a persistently
flat yield curve encouraged ARM prepayment activity as borrowers sought to lock
in attractive long-term fixed-rate financing. As a result, spreads widened as
investors demanded greater compensation for accepting the sector's heightened
prepayment risk. In response, we gradually reduced the Portfolio's exposure to
ARMs and CMOs as mortgages became less attractive over the course of the year.
Portfolio holdings continued to be concentrated in securities with good cash
flow stability; for example, less prepayment-sensitive seasoned ARMs, short-
duration sequential and floating rate CMOs, and discount coupon 15-year and
balloon pass-throughs. The Portfolio's cash balance was invested at the repo
rate, which was attractive from a relative standpoint as Treasury rates fell.
5
<PAGE>
PORTFOLIO COMPOSITION AS OF AUGUST 31, 1998*
[PIE CHART]
Repos/Cash Equivalents......................... 10.0%
ARMs........................................... 66.9%
Agency Debentures.............................. 6.5%
U.S. Treasuries................................ 12.0%
Sequentials.................................... 0.5%
Floaters....................................... 0.8%
Fixed Rate Mortgage Pass-Throughs.............. 3.3%
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
Looking Forward
In light of the mortgage market's recent cheapening, we expect to increase
our exposure to ARMs and CMOs. However, given recent volatility and continued
uncertainty, we will do so opportunistically. More specifically, we intend to
continue our focus on seasoned ARMs that were originated prior to 1993.
Seasoned issues offer a greater degree of prepayment protection than those of
new origination, in large part because seasoned borrowers are typically less
responsive to potential refinancing opportunities and also have less economic
incentive due to lower loan balances.
6
<PAGE>
TCU MORTGAGE SECURITIES PORTFOLIO
OBJECTIVE
The TCU Mortgage Securities Portfolio ("MSP") seeks a high level of current
income, consistent with relatively low volatility of principal, by investing in
obligations authorized under the Federal Credit Union Act. The Portfolio
invests in adjustable rate and fixed rate mortgage securities issued by the
U.S. government, its agencies or instrumentalities and in mortgage securities
rated AA or better by nationally recognized rating agencies. Of course, an
investment in the Portfolio is neither insured nor guaranteed by the U.S.
government. The MSP invests in obligations authorized under the Federal Credit
Union Act with a maximum duration not to exceed that of a three-year U.S.
Treasury security and a target duration equal to that of its benchmark, the
two-year U.S. Treasury security. As of August 31, 1998, the Portfolio's actual
duration was 1.74 years, in line with its benchmark.
PERFORMANCE REVIEW
The Portfolio's total return for the 12 months ended August 31, 1998, was
8.10%, outperforming the 7.26% return for the two-year U.S. Treasury note. Much
of the outperformance was attributable to the Portfolio's term structure, which
benefited from the flattening of the yield curve during the period.
As of August 31, 1998, the Portfolio's net asset value (NAV) was $9.90, up
$0.15 from a year earlier. The Portfolio's 30-day distribution rate and 30-day
SEC yield were 5.96% and 5.91%, respectively, as of the end of the period.
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
Over the 12-month period under review, mortgages detracted from incremental
performance. This was primarily due to an acceleration in the Treasury market
rally that occurred in the final months of the period in response to a global
flight to quality. With regard to specific issues, we emphasized structures
with attractive convexity characteristics--for example, 15-year collateral in
the pass-through subsector, and floaters, planned amortization classes (PACs)
and sequentials in the collateralized mortgage obligation (CMO) subsector.
With regard to the adjustable rate mortgage (ARM) market, both the flat yield
curve and the absolute level of interest rates encouraged ARM prepayment
activity as borrowers sought to lock in attractive fixed-rate financing. As a
result, spreads widened as investors demanded greater compensation for
accepting the sector's heightened prepayment risk. Throughout the period, we
focused primarily on AAA- and AA-rated non-agency ARMs; these securities
typically have limited cap risk due to their shorter average lives, and limited
prepayment exposure due to their seasoning and lower dollar prices.
7
<PAGE>
PORTFOLIO COMPOSITION AS OF AUGUST 31, 1998*
[PIE CHART]
TAC............................................ 1.1%
U.S. Treasuries................................ 13.2%
Agency Debentures.............................. 5.1%
ARMs........................................... 15.3%
Fixed Rate Mortgage Pass-Throughs.............. 10.6%
Sequentials.................................... 8.0%
PACs........................................... 43.2%
Floaters....................................... 2.3%
Support........................................ 1.2%
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflect portfolio holdings as a percentage of net assets.
Looking Forward
At today's levels, we believe mortgages offer better value than they did a
year ago. However, we believe volatility is likely to persist, at least in the
near term. As a result, we intend to exercise caution in our security selection
process.
TCU PORTFOLIO DISTRIBUTION POLICY
As required by tax law, all mutual funds, including the three TCU Portfolios,
must distribute substantially all of the taxable income they generate each
year.
For the TCU Money Market Portfolio, substantially all of the net investment
income and net short-term capital gains will be declared as a dividend on a
daily basis and paid monthly. If the Portfolio were to realize any net long-
term capital gains, they would be distributed at calendar year-end.
For the TCU Government Securities Portfolio and the TCU Mortgage Securities
Portfolio, the Portfolios pay monthly dividends based on the income each
Portfolio is expected to generate during the month. The amount of the dividend
will reflect changes in interest rates (i.e., as interest rates increase,
dividends will increase and as interest rates decline, dividends will be
reduced). In addition, because these TCU Portfolios invest in mortgage
securities that are subject to prepayments, we cannot precisely predict the
amount of principal and interest that a Portfolio will receive. Therefore, at
times, a Portfolio may distribute amounts above or below current income levels.
Any excess income, overdistributions or net capital gains generated will be
paid out in a special distribution or adjusted at calendar year-end.
8
<PAGE>
We appreciate your confidence in the TCU Portfolios and we look forward to
continuing to serve your investment needs in the future.
Goldman Sachs Money Market Portfolio Management Team
Goldman Sachs U.S. Fixed Income Investment Management Team
9
<PAGE>
TRUST FOR CREDIT UNIONS
PERFORMANCE COMPARISON
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended August 31, 1998. Each of
the two Trust for Credit Union portfolios is compared to its benchmarks
assuming the following initial investment:
<TABLE>
<CAPTION>
INITIAL
PORTFOLIO INVESTMENT COMPARE TO:
- --------------------- ---------- ------------------------------------------------
<S> <C> <C>
Government Securities $10,000 Lehman Brothers Mutual Fund Adjustable Rate
("GSP"): Mortgage Index ("Lehman ARM Index")(c); Lehman
Brothers Mutual Fund Short (1-2) Government
Index ("Lehman 1-2 Gov't Index"); 1-Year U.S.
Treasury Bill ("1-year T-Bill"); 6-Month U.S.
Treasury Bill ("6-month T-Bill").
Mortgage Securities $10,000 Lehman ARM Index; Lehman Brothers Mutual Fund
("MSP"): Short (1-3) Government Index ("Lehman 1-3 Gov't
Index"); 2-Year U.S. Treasury Note ("2-year T-
Note").
</TABLE>
All performance data shown represents past performance and should not be
considered indicative of future performance, which will fluctuate as market
conditions change. The investment return and principal value of an investment
will fluctuate with changes in market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Government Securities Portfolio
-------------------------------
Lehman ARM Lehman 1-2 1-year 6-Month
GSP (Index (c)) Gov't Index T-Bill (q) T-Bill
--- --------- ----------- --------- ------
August 1, 1991(b) $10,000 N/A* $10,000 $10,000 $10,000
August 31, 1991 $10,057 N/A* $10,125 $10,083 $10,060
January 1, 1992 $10,313
August 31, 1992 $10,730 $10,818 $11,061 $10,776 $10,617
August 31, 1993 $11,166 $11,496 $11,610 $11,187 $10,985
August 31, 1994 $11,427 $11,587 $11,878 $11,485 $11,369
August 31, 1995 $12,092 $12,540 $12,713 $12,228 $12,054
August 31, 1996 $12,851 $13,348 $13,393 $12,890 $12,706
August 31, 1997 $13,763 $14,411 $14,298 $13,712 $13,424
August 31, 1998 $14,533 $15,351 $15,277 $14,543 $14,183
Mortgage Securities Portfolio
-----------------------------
Lehman Lehman 1-3
MSP ARM Index Gov't Index 2-year T-Bill
--- --------- ----------- -------------
November 1, 1992(b) $10,000 $10,000 $10,000 $10,000
August 31, 1993 $10,651 $10,657 $10,522 $10,527
August 31, 1994 $10,757 $10,741 $10,701 $10,681
August 31, 1995 $11,640 $11,625 $11,494 $11,488
August 31, 1996 $12,301 $12,373 $12,095 $12,047
August 31, 1997 $13,272 $13,359 $12,945 $12,885
August 31, 1998 $14,347 $14,231 $13,891 $13,820
(a) The Government Securities and Mortgage Securities Portfolios commenced
operations July 10, 1991 and October 9, 1992, respectively.
(b) For comparative purposes, initial investments are assumed to be made on the
first day of the month following each portfolio's inception.
(c) The calculation of the Lehman ARM Index was initiated for the month ended
January 31, 1992. For comparative purposes in this graph, an initial
investment for this index is assumed on January 1, 1992, at a value equal
to the Government Securities Portfolio's investment at such date.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Unitholders and Trustees of
Trust for Credit Unions:
We have audited the accompanying statements of assets and liabilities of
Trust for Credit Unions (a Massachusetts business trust comprising the Money
Market Portfolio, the Government Securities Portfolio, and the Mortgage
Securities Portfolio), including the statements of investments as of August 31,
1998, the related statements of operations for the year then ended and the
statements of changes in net assets and financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting the Trust for Credit
Unions as of August 31, 1998, the results of their operations for the year then
ended, and the changes in their net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 9, 1998
11
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MONEY MARKET PORTFOLIO
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
--------- -------- -------- ---------
<S> <C> <C> <C>
BANK NOTES (16.6%)
BankBoston, N.A.
$ 20,000 5.58% 10/08/98 $ 20,000
5,000 5.76 03/31/99 5,000
5,000 5.74 04/15/99 4,999
FCC National Bank
5,000 5.65 03/03/99 4,999
First Union National Bank
13,000 5.56 09/21/98 13,000
20,000 5.57 10/20/98 20,000
Greenwood Trust Co.
15,000 5.60 09/09/98 15,000
20,000 5.60 09/23/98 20,000
10,000 5.59 11/23/98 10,000
Huntington National Bank
3,000 5.82 11/13/98 3,000
NationsBank, N.A.
15,000 5.58 10/26/98 15,000
PNC Bank, N.A.
10,000 5.71 04/26/99 9,996
Wachovia Bank, N.A.
20,000 5.57 09/01/98 20,000
--------
Total Bank Notes................................ $160,994
--------
BANKERS' ACCEPTANCE(a) (0.5%)
Key Bank National Association
$ 5,000 5.49% 09/21/98 $ 4,985
--------
CERTIFICATES OF DEPOSIT (10.3%)
Bank of America National Trust and Savings
Association
$ 5,000 5.63% 02/26/99 $ 4,998
Bankers Trust Co.
10,000 5.72 03/30/99 9,998
Crestar Bank
25,000 5.58 10/07/98 25,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
--------- -------- -------- ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT--(CONTINUED)
Mellon Bank, N.A.
$ 20,000 5.57% 10/05/98 $ 20,000
NationsBank, N.A.
15,000 5.57 09/01/98 15,000
Northern Trust Co.
25,000 5.56 09/09/98 25,000
--------
Total Certificates of Deposit................... $ 99,996
--------
MEDIUM TERM NOTES (0.9%)
Bank of New York
$ 4,000 5.57% 03/17/99 $ 3,998
BankBoston, N.A.
5,000 6.67 04/09/99 5,028
--------
Total Medium Term Notes......................... $ 9,026
--------
TIME DEPOSIT (2.6%)
American Express Centurion Bank
$ 25,000 5.56% 09/08/98 $ 25,000
--------
VARIABLE RATE DEMAND NOTES(b) (14.9%)
Bank One
$ 5,000 5.67% 09/21/98 $ 5,000
Comerica Bank
10,000 5.55 09/11/98 10,000
10,000 5.55 06/10/99 9,995
10,000 5.52 07/19/99 9,995
First Tennessee Bank, N.A.
5,000 5.57 04/23/99 4,998
15,000 5.55 06/09/99 14,993
First USA Bank
5,000 5.99 02/01/99 5,007
Key Bank National Association
15,000 5.56 02/22/99 14,996
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MONEY MARKET PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
--------- -------- -------- ---------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES(b)--(CONTINUED)
PNC Bank, N.A.
$ 15,000 5.54% 07/01/99 $ 14,991
10,000 5.52 07/27/99 9,993
Southtrust Bank, N.A.
5,000 5.57 04/21/99 4,998
10,000 5.55 09/08/99 10,000
US Bank, N.A.
10,000 5.66 03/17/99 10,003
5,000 5.53 06/16/99 4,998
15,000 5.58 08/31/99 14,997
--------
Total Variable Rate Demand Notes.............. $144,964
--------
REPURCHASE AGREEMENTS (54.1%)
Goldman Sachs & Co., dated 8/21/98,
repurchase price $101,390 (FHLMC:
$38,496, 6.116-7.000%, 7/1/08-2/1/28)
(FNMA: $63,504, 6.500%, 10/1/24)
$100,000 5.56% 11/19/98 $100,000
Joint Account I
126,800 5.82 09/01/98 126,800
Joint Account II
175,000 5.85 09/01/98 175,000
JP Morgan, Inc., dated 6/9/98,
repurchase price $76,056 (GNMA:
$76,794, 8.50-9.00%, 10/15/16-1/15/28)
75,000 5.57 09/08/98 75,000
JP Morgan, Inc., dated 7/14/98,
repurchase price $50,703 (GNMA:
$51,065, 8.50-9.00%, 11/15/19-11/15/27)
50,000 5.56 10/13/98 50,000
--------
Total Repurchase Agreements................... $526,800
--------
Total Investments............................. $971,765(c)
========
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
(a) The rate disclosed for this security represents the yield to maturity.
(b) Variable rate securities. Coupon rates disclosed are those which are in
effect at August 31, 1998.
(c) The amount stated also represents aggregate cost for federal income tax
purposes.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (71.3%)
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(a) (21.3%)
$ 1,345 7.13% 08/01/17 $ 1,381
968 7.54 04/01/18 999
5,801 7.54 05/01/18 5,949
2,070 7.34 07/01/18 2,128
4,359 8.16 11/01/18 4,534
15,367 7.56 11/01/19 15,926
5,842 7.36 11/01/21 6,012
3,757 7.36 02/01/22 3,847
19,649 7.65 02/01/22 20,503
16,982 7.70 04/01/22 17,594
2,999 6.95 11/01/22 3,019
1,543 7.22 11/01/22 1,573
9,052 7.53 11/01/22 9,360
7,297 7.67 06/01/24 7,567
4,943 8.13 10/01/25 5,141
2,313 7.21 02/01/28 2,360
3,984 7.21 04/01/28 4,068
10,082 6.17 06/01/29 10,139
1,930 7.15 07/01/29 1,983
9,997 6.17 01/01/30 10,053
5,473 7.35 05/01/31 5,664
--------
Total Adjustable Rate FHLMC....................... $139,800
--------
Adjustable Rate Federal National Mortgage Association
(FNMA)(a) (33.8%)
$ 2,847 6.86% 10/01/13 $ 2,905
2,672 6.59 03/01/17 2,720
1,593 7.49 11/01/17 1,629
11,646 7.27 12/01/17 11,958
1,158 7.04 06/01/18 1,182
3,659 7.10 08/01/18 3,748
3,082 7.50 09/01/18 3,163
5,967 7.59 09/01/18 6,246
1,083 7.29 11/01/18 1,108
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Adjustable Rate FNMA--(Continued)
$ 1,851 7.25% 05/01/19 $ 1,894
17,435 7.22 06/01/19 17,846
1,713 7.20 07/01/19 1,769
5,666 7.00 12/01/19 5,685
3,255 7.64 03/01/20 3,365
1,193 7.43 05/01/20 1,220
10,265 6.43 12/25/20 10,307
26,541 7.60 01/01/21 27,619
12,369 7.24 04/01/21 12,740
25,469 7.44 09/01/21 26,283
1,485 7.09 10/01/21 1,507
3,338 7.61 11/01/21 3,473
1,739 7.51 02/01/22 1,790
27,090 7.51 09/01/22 28,056
14,398 7.44 09/01/25 14,817
1,819 7.09 10/01/25 1,880
6,757 6.15 11/01/26 6,795
3,769 7.18 07/01/27 3,895
2,860 7.20 10/01/27 2,945
12,551 6.15 02/01/31 12,621
--------
Total Adjustable Rate FNMA........................ $221,166
--------
Adjustable Rate Government National Mortgage Association (GNMA)(a) (11.6%)
$ 9,906 6.88% 04/20/22 $ 10,177
10,955 6.88 04/20/22 11,176
11,028 7.00 10/20/22 11,223
6,617 6.88 02/20/23 6,739
7,689 6.88 04/20/23 7,838
4,385 7.00 12/20/23 4,459
9,000 5.50 09/20/27 9,166
14,866 5.50 05/20/28 14,935
--------
Total Adjustable Rate GNMA........................ $ 75,713
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
GOVERNMENT SECURITIES PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Fixed Rate FHLMC (1.0%)
$ 6,749 7.00% 01/01/00 $ 6,842
--------
Fixed Rate FNMA (1.3%)
$ 8,487 6.00% 06/01/04 $ 8,497
--------
Fixed Rate GNMA (1.0%)
$ 5,829 9.00% 12/15/17 $ 6,254
--------
Collateralized Mortgage Obligations (CMOs)(1.3%)
Regular Floater CMOs(a) (0.7%)
FHLMC REMIC Trust 1009, Class D
$ 1,701 6.29% 10/15/20 $ 1,715
FHLMC REMIC Trust 1698, Class FA
2,966 6.49 03/15/09 3,095
--------
Total Regular Floater CMOs........................ $ 4,810
--------
Sequential Fixed Rate CMOs (0.6%)
FNMA REMIC Trust 1990-24, Class E
$ 2,034 9.00% 03/25/20 $ 2,103
FNMA REMIC Trust G92-43, Class D
1,505 7.50 01/25/03 1,503
--------
Total Sequential Fixed Rate CMOs.................. $ 3,606
--------
Total CMOs........................................ $ 8,416
--------
Total Mortgage Backed Obligations (cost
$468,679)........................................ $466,688
--------
AGENCY DEBENTURES (6.4%)
Federal Home Loan Bank
$ 7,000 5.76% 03/23/01 $ 7,061
Federal National Mortgage Association
4,000 5.44 01/29/01 3,992
20,700 5.63 03/15/01 20,907
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
AGENCY DEBENTURES--(CONTINUED)
Sri Lanka Aid(a)
$10,000 5.99% 11/01/24 $ 10,062
--------
Total Agency Debentures
(cost $41,686)................................... $ 42,022
--------
U.S. TREASURY OBLIGATIONS (12.0%)
U.S. Treasury Notes
$ 4,300 6.00% 08/15/99 $ 4,334
73,100 5.63 11/30/00 74,093
--------
Total U.S. Treasury Obligations (cost $77,701).... $ 78,427
--------
REPURCHASE AGREEMENT (12.6%)
Joint Account II(b)
$82,300 5.85% 09/01/98 $ 82,300
--------
Total Repurchase Agreement (cost $82,300)......... $ 82,300
--------
Total Investments
(cost $670,366(c))............................... $669,437
========
- -------------------------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost....................................... $ 1,838
Gross unrealized loss for investments in which cost
exceeds value...................................... (2,771)
--------
Net unrealized loss ................................ $ (933)
========
- -------------------------------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
(a) Variable rate securities. Coupon rates disclosed are those which are in
effect at August 31, 1998.
(b) A portion of this security is being segregated as collateral for an
extended settlement security.
(c) The aggregate cost for federal income tax purposes is $670,370.
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MORTGAGE SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (81.4%)
Adjustable Rate Federal National Mortgage Association (FNMA)(a) (4.2%)
$17,694 7.60% 01/01/21 $18,413
-------
FHLMC Gold 15-yr Fixed (4.2%)
$ 1,126 6.50% 04/01/13 $ 1,140
1,970 6.50 04/01/13 1,995
1,974 6.50 04/01/13 2,000
1,963 6.50 05/01/13 1,988
949 6.50 05/01/13 961
998 6.50 06/01/13 1,011
1,004 6.50 07/01/13 1,017
4,006 6.50 07/01/13 4,057
1,490 6.50 07/01/13 1,509
3,018 6.50 07/01/13 3,056
-------
Total FHLMC Gold 15-yr Fixed...................... $18,734
-------
FHLMC Gold 30-yr Fixed (1.1%)
$ 3,438 8.50% 05/01/28 $ 3,586
1,297 8.50 05/01/28 1,353
-------
Total FHLMC Gold 30-yr Fixed...................... $ 4,939
-------
Fixed Rate Federal National Mortgage Association (FNMA) (1.5%)
$ 2,254 6.00% 09/01/07 $ 2,256
1,108 6.00 10/01/08 1,111
2,440 6.00 06/01/09 2,446
977 6.00 11/01/09 979
-------
Total Fixed Rate FNMA............................. $ 6,792
-------
Fixed Rate Government National Mortgage Association (GNMA) (3.7%)
$ 15 8.50% 07/15/09 $ 16
20 8.50 07/15/09 21
21 8.50 09/15/09 22
18 8.50 12/15/09 19
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Fixed Rate GNMA--(Continued)
$ 245 8.50% 01/15/10 $ 257
368 8.50 01/15/10 386
444 8.50 01/15/10 465
281 8.50 02/15/10 295
283 8.50 02/15/10 297
221 8.50 02/15/10 231
236 8.50 02/15/10 247
88 8.50 02/15/10 92
54 8.50 03/15/10 57
726 8.50 03/15/10 762
369 8.50 04/15/10 388
41 8.50 04/15/10 43
150 8.50 05/15/10 157
15 8.50 05/15/10 16
190 8.50 05/15/10 200
343 8.50 06/15/10 360
525 8.50 06/15/10 552
178 8.50 06/15/10 187
339 8.50 06/15/10 355
224 8.50 07/15/10 235
275 8.50 08/15/10 289
244 8.50 10/15/10 256
1,001 8.50 11/15/10 1,051
633 8.50 12/15/10 665
628 8.50 12/15/10 660
802 8.50 09/15/11 835
755 8.50 10/15/11 786
799 8.50 03/15/12 841
936 8.50 07/15/12 974
3,886 9.00 12/15/17 4,169
-------
Total Fixed Rate GNMA............................. $16,186
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MORTGAGE SECURITIES PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Collateralized Mortgage Obligations (66.7%)
Adjustable Rate CMOs(a) (10.9%)
Citicorp Mortgage Securities, Inc. Series 1992-17, Class A
$ 4,531 5.20% 10/25/22 $ 4,672
CMC Securities Corp. II Series 1993-I, Class A2
1,872 6.88 09/25/23 1,874
Imperial Savings Association Series 1988-3, Class A
1,280 7.42 01/25/18 1,275
Independent National Mortgage Corp. Series 1994-W, Class A1
1,295 8.03 12/25/24 1,304
Merrill Lynch Mortgage Investors, Inc. Series 1994-I, Class A1
3,234 8.01 01/25/05 3,346
Prudential Home Mortgage Series 1992-8, Class A1
562 8.03 04/25/22 562
Resolution Trust Corp. Series 1992-04, Class B2
4,500 7.56 07/25/28 4,530
Resolution Trust Corp. Series 1992-11, Class B2
10,201 7.26 10/25/24 10,123
Resolution Trust Corp. Series 1994-1, Class M3
4,829 7.96 09/25/29 4,930
Resolution Trust Corp. Series 1995-1, Class A3
6,842 7.17 10/25/28 6,936
Resolution Trust Corp. Series 1995-1, Class M3
2,027 7.23 10/25/28 2,048
Ryland Mortgage Securities Corp. Series 1989-FN1,
Class A
732 7.49 11/01/18 735
Ryland Mortgage Securities Corp. Series 1991-B1, Class 1
828 7.29 03/25/20 828
Ryland Mortgage Securities Corp. Series 1992-3, Class A2
219 7.35 06/25/20 219
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Adjustable Rate CMOs--(Continued)
Salomon Brothers Mortgage Securities Series 1990-3A, Class 1
$ 937 6.76% 11/25/20 $ 935
Salomon Brothers Mortgage Securities Series 1994-20, Class A
3,104 8.19 08/01/24 3,147
Saxon Mortgage Securities Corp. Series 1994-11, Class A
936 8.03 12/25/24 947
-------
Total Adjustable Rate CMOs........................ $48,411
-------
Planned Amortization Class (PAC) CMOs (43.3%)
Chemical Mortgage Securities, Inc. Series 1994-1, Class A1
$4,051 6.25% 01/25/09 $ 4,069
CMC Securities Corp. IV Series 1997-2, Class IA13
1,238 6.60 11/25/27 1,246
Countrywide Funding Corp. Series 1993-9, Class A3
3,000 6.50 01/25/09 3,061
Countrywide Funding Corp. Series 1993-11, Class A9
10,750 6.25 02/25/09 11,032
Countrywide Funding Corp. Series 1994-13, Class A4
10,097 6.50 06/25/09 10,147
Countrywide Home Loans Series 1998-11, Class A10
13,172 6.25 08/25/28 13,300
Countrywide Mortgage Backed Securities, Inc. Series 1994-I, Class A4
7,215 6.25 07/25/09 7,213
FHLMC Series 15, Class H
5,000 6.50 06/25/19 5,116
FHLMC Series 1556, Class G
5,000 6.35 10/15/10 5,114
FHLMC Series 1645, Class ZA
723 5.50 04/15/05 722
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MORTGAGE SECURITIES PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Planned Amortization Class (PAC) CMOs--(Continued)
FHLMC Series 1985, Class PC
$18,000 6.35% 05/17/18 $ 18,428
FHLMC Series 1987, Class L
10,000 6.20 08/25/22 10,202
FHLMC Series 2055, Class OD
15,000 6.00 01/15/12 15,260
FNMA REMIC Trust 1997-84, Class PA
14,000 5.90 11/25/21 14,114
FNMA REMIC Trust 1997-84, Class PB
7,000 5.50 01/25/08 6,948
FNMA REMIC Trust X-188B, Class ZA
6,597 5.75 09/25/10 6,580
GE Capital Mortgage Services, Inc.
Series 1994-07, Class A6
1,194 5.50 02/25/09 1,189
GE Capital Mortgage Services, Inc.
Series 1994-13, Class A1
1,674 6.50 04/25/24 1,682
GE Capital Mortgage Services, Inc.
Series 1994-15, Class A8
5,362 6.00 04/25/09 5,341
GE Capital Mortgage Services, Inc.
Series 1997-8, Class A13
13,722 7.25 10/25/27 14,006
Housing Securities, Inc. Series 1993-E, Class E8
3,405 10.00 02/25/08 3,533
Norwest Asset Securities Corp.
Series 1998-17, Class A2
17,053 6.25 08/25/28 17,206
Paine Webber Mortgage Acceptance Corp. Series 1993-6,
Class A3
6,213 6.90 08/25/08 6,290
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Planned Amortization Class (PAC) CMOs--(Continued)
PNC Mortgage Securities Corp.
Series 1998-2, Class 5A2
$ 5,108 6.63% 03/25/28 $ 5,179
Prudential Home Mortgage Securities Series 1993-54,
Class A4
4,436 6.50 01/25/24 4,471
--------
Total PAC CMOs.................................... $191,449
--------
Regular Floater CMOs(a) (2.3%)
CMC Securities Corp. III Series 1994-A, Class A17
$ 4,867 6.84% 02/25/24 $ 5,002
Countrywide Funding Corp. Series 1993-10, Class A9
4,931 6.69 01/25/24 5,153
--------
Total Regular Floater CMOs........................ $ 10,155
--------
Sequential Fixed Rate CMOs (7.9%)
Bear Stearns Secured Investors Trust Series 1987-2,
Class D
$ 1,518 9.95% 10/20/18 $ 1,582
CMC Securities Corp. Series 1993-C, Class C3
2,256 9.55 04/25/08 2,324
Collateralized Mortgage Obligation Trust Series 64,
Class Z
9,083 9.00 11/20/20 9,711
FHLMC Series 1293, Class Z
2,499 7.50 07/15/99 2,525
FNMA REMIC Trust Series 1988-12, Class A
2,675 10.00 02/25/18 2,959
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
MORTGAGE SECURITIES PORTFOLIO--(CONTINUED)
STATEMENT OF INVESTMENTS
AUGUST 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--(CONTINUED)
Sequential Fixed Rate CMOs--(Continued)
FNMA REMIC Trust Series 1989-59, Class H
$ 1,586 7.75% 10/25/18 $ 1,585
Norwest Asset Securities Corp.
Series 1997-5, Class A5
8,025 7.00 04/25/12 8,274
Salomon Brothers Mortgage Securities Series 1984-2,
Class Z
5,633 10.00 12/01/14 5,885
--------
Total Sequential Fixed Rate CMOs.................. $ 34,845
--------
Support CMO (1.2%)
Countrywide Mortgage Backed Securities, Inc. Series
1993-A, Class A9
$ 5,379 6.50% 10/25/08 $ 5,408
--------
Targeted Amortization Class (TAC) CMO (1.1%)
Paine Webber Mortgage Acceptance Corp. Series 1994-6,
Class A7
$ 5,000 6.00% 04/25/09 $ 5,038
--------
Total CMOs........................................ $295,306
--------
Total Mortgage Backed Obligations (cost
$357,441)........................................ $360,370
--------
AGENCY DEBENTURES (5.0%)
Federal Home Loan Bank
$ 5,500 5.76% 03/23/01 $ 5,548
Federal National Mortgage Association
16,300 5.63 03/15/01 16,463
--------
Total Agency Debentures
(cost $21,781)................................... $ 22,011
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (13.3%)
U.S. Treasury Notes
$14,400 5.63% 11/30/00 $ 14,596
19,100 6.63 07/31/01 19,918
U.S. Treasury Principal Only Stripped Securities(b)
33,310 5.12 11/15/04 24,342
--------
Total U.S. Treasury Obligations (cost $57,912).... $ 58,856
--------
REPURCHASE AGREEMENT (2.5%)
Joint Account II
$11,200 5.85% 09/01/98 $ 11,200
--------
Total Repurchase Agreement (cost $11,200)......... $ 11,200
--------
Total Investments
(cost $448,334(c))............................... $452,437
========
- -------------------------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost....................................... $ 4,971
Gross unrealized loss for investments in which cost
exceeds value...................................... (868)
--------
Net unrealized gain................................. $ 4,103
========
- -------------------------------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
(a) Variable rate security. Coupon rate disclosed is that which is in effect at
August 31, 1998.
(b) The interest rate disclosed for the security represents effective yield to
maturity.
(c) The amount stated also represents aggregate cost for federal income tax
purposes.
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 1998
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investment in securities, at value
(identified cost $971,765,293,
$670,366,424, $448,334,331,
respectively)........................ $971,765,293 $669,436,734 $452,437,485
Cash.................................. 48,831 64,945 80,003
Receivables:
Investment securities sold........... -- 3,919,272 12,332,624
Interest............................. 5,925,075 5,563,220 2,946,420
Other assets.......................... 5,971 40,069 935
------------ ------------ ------------
Total assets...................... 977,745,170 679,024,240 467,797,467
------------ ------------ ------------
LIABILITIES
Payables:
Investment securities purchased...... -- 20,607,533 23,228,144
Fund units repurchased............... -- 1,000,000 148,500
Dividends............................ 4,782,326 2,539,024 1,726,579
Advisory fees........................ 52,106 111,427 75,022
Administration fees.................. 17,368 55,714 18,755
Accrued expenses and other
liabilities.......................... 36,594 58,000 50,671
------------ ------------ ------------
Total liabilities................. 4,888,394 24,371,698 25,247,671
------------ ------------ ------------
NET ASSETS
Paid-in capital....................... 972,856,776 675,112,823 446,672,853
Accumulated distributions in excess of
net investment income................ -- (1,343,152) (608,717)
Accumulated net realized loss on
investment transactions.............. -- (18,187,439) (7,617,494)
Net unrealized gain (loss) on
investments.......................... -- (929,690) 4,103,154
------------ ------------ ------------
Net assets........................ $972,856,776 $654,652,542 $442,549,796
============ ============ ============
Net asset value & public offering
price per unit (net assets/units
outstanding)......................... $1.00 $9.79 $9.90
============ ============ ============
UNITS OUTSTANDING
Total units outstanding, $0.001 par
value (unlimited number of
units authorized).................... 972,856,776 66,893,980 44,704,857
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income..................... $44,828,905 $36,483,752 $26,294,156
----------- ----------- -----------
EXPENSES:
Advisory fees....................... 1,343,962 1,181,065 779,686
Administration fees................. 795,974 590,533 194,922
Custodian fees...................... 115,141 108,656 83,374
Professional fees................... 52,441 69,574 58,664
Trustees' fees...................... 25,799 25,701 16,299
Other expenses...................... 40,784 54,438 51,489
----------- ----------- -----------
Total expenses...................... 2,374,101 2,029,967 1,184,434
Less--Fee waivers.................... (1,503,156) -- --
----------- ----------- -----------
Net expenses........................ 870,945 2,029,967 1,184,434
----------- ----------- -----------
NET INVESTMENT INCOME................ 43,957,960 34,453,785 25,109,722
NET REALIZED GAIN ON INVESTMENT
TRANSACTIONS........................ -- 276,048 2,639,413
NET CHANGE IN UNREALIZED GAIN (LOSS)
ON INVESTMENTS...................... -- (2,665,524) 2,780,412
----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... $43,957,960 $32,064,309 $30,529,547
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income........... $ 43,957,960 $ 34,453,785 $ 25,109,722
Net realized gain from
investment transactions........ -- 276,048 2,639,413
Net change in unrealized gain
(loss) on investments.......... -- (2,665,524) 2,780,412
--------------- ------------ ------------
Net increase in net assets
resulting from operations...... 43,957,960 32,064,309 30,529,547
--------------- ------------ ------------
DISTRIBUTIONS TO UNITHOLDERS:
From net investment income...... (43,957,960) (34,453,785) (24,417,759)
In excess of net investment
income......................... -- (762,530) --
--------------- ------------ ------------
Total distributions to
Unitholders.................... (43,957,960) (35,216,315) (24,417,759)
--------------- ------------ ------------
FROM UNIT TRANSACTIONS:
Proceeds from sales of units.... 7,453,527,751 286,851,659 123,443,287
Reinvestment of dividends and
distributions.................. 20,341,734 8,074,557 5,950,306
Cost of units repurchased....... (6,942,217,385) (201,763,429) (43,270,804)
--------------- ------------ ------------
Net increase in net assets re-
sulting from unit transactions. 531,652,100 93,162,787 86,122,789
--------------- ------------ ------------
Total Increase.................. 531,652,100 90,010,781 92,234,577
NET ASSETS:
Beginning of year............... 441,204,676 564,641,761 350,315,219
--------------- ------------ ------------
End of year..................... $ 972,856,776 $654,652,542 $442,549,796
=============== ============ ============
ACCUMULATED DISTRIBUTIONS IN EX-
CESS OF NET INVESTMENT INCOME... $ -- $ (1,343,152) $ (608,717)
=============== ============ ============
SUMMARY OF UNIT TRANSACTIONS:
Units sold...................... 7,453,527,751 29,195,793 12,565,758
Reinvestment of dividends and
distributions.................. 20,341,734 822,455 605,881
Units repurchased............... (6,942,217,385) (20,521,732) (4,391,995)
--------------- ------------ ------------
Increase in units outstanding... 531,652,100 9,496,516 8,779,644
=============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
MONEY GOVERNMENT MORTGAGE
MARKET SECURITIES SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income........... $ 22,889,935 $ 32,571,231 $ 21,988,908
Net realized gain (loss) on
investment transactions........ -- (1,471,081) 901,649
Net change in unrealized gain on
investments.................... -- 5,778,256 2,440,462
--------------- ------------ ------------
Net increase in net assets
resulting from operations...... 22,889,935 36,878,406 25,331,019
--------------- ------------ ------------
DISTRIBUTION TO UNITHOLDERS:
From net investment income...... (22,889,935) (32,571,231) (21,988,908)
In excess of net investment
income......................... -- (184,815) (35,416)
--------------- ------------ ------------
Total distributions to
unitholders.................... (22,889,935) (32,756,046) (22,024,324)
--------------- ------------ ------------
FROM UNIT TRANSACTIONS:
Proceeds from sales of units.... 4,961,231,607 107,339,190 39,341,948
Reinvestment of dividends and
distributions.................. 11,661,004 6,072,657 4,572,906
Cost of units repurchased....... (4,958,397,761) (88,594,881) (29,452,760)
--------------- ------------ ------------
Net increase in net assets
resulting from unit
transactions................... 14,494,850 24,816,966 14,462,094
--------------- ------------ ------------
Total Increase.................. 14,494,850 28,939,326 17,768,789
NET ASSETS:
Beginning of year............... 426,709,826 535,702,435 332,546,430
--------------- ------------ ------------
End of year..................... $ 441,204,676 $564,641,761 $350,315,219
=============== ============ ============
ACCUMULATED UNDISTRIBUTED
(DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME............... $ -- $ (580,622) $ (1,300,680)
=============== ============ ============
SUMMARY OF UNIT TRANSACTIONS:
Units sold...................... 4,961,231,607 10,921,160 4,039,134
Reinvestment of dividends and
distributions.................. 11,661,004 618,333 469,421
Units repurchased............... (4,958,397,761) (9,016,857) (3,026,928)
--------------- ------------ ------------
Increase in units outstanding... 14,494,850 2,522,636 1,481,627
=============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
TRUST FOR CREDIT UNIONS
---------
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(b) UNITHOLDERS
------------------------- ----------------------------
RATIO OF
NET
FROM RATIO OF INVEST-
NET IN NET NET NET MENT
ASSET NET FROM EXCESS REAL- ASSET EXPENSES INCOME
VALUE AT NET REALIZED NET OF NET IZED VALUE TO TO
BEGIN- INVEST- GAIN ON INVEST- INVEST- GAIN ON AT AVERAGE AVERAGE
NING OF MENT INVEST- MENT MENT INVEST- END OF TOTAL NET NET
PERIOD INCOME MENTS INCOME INCOME MENTS PERIOD RETURN(a) ASSETS ASSETS
-------- ------------ ------------ -------- -------- -------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:8/31/98.. $1.00 $0.0552 $ -- $(0.0552) $ -- $ -- $1.00 5.67% 0.11% 5.52%
8/31/97......... 1.00 0.0530 -- (0.0530) -- -- 1.00 5.43 0.18 5.31
8/31/96......... 1.00 0.0539 -- (0.0539) -- -- 1.00 5.51 0.19 5.37
8/31/95......... 1.00 0.0555 -- (0.0553) -- -- 1.00 5.56 0.20 5.55
8/31/94......... 1.00 0.0329 0.0002 (0.0342) (0.0001) (0.0002) 1.00 3.50 0.25 3.29
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
-------------------
RATIO OF
NET
NET RATIO OF INVESTMENT
ASSETS EXPENSES INCOME
AT END TO TO
OF AVERAGE AVERAGE
PERIOD NET NET
(000'S) ASSETS ASSETS
-------- -------- ----------
<S> <C> <C> <C>
Year ended:8/31/98.. $972,857 0.30% 5.33%
8/31/97......... 441,205 0.33 5.16
8/31/96......... 426,710 0.31 5.25
8/31/95......... 382,096 0.33 5.42
8/31/94......... 216,989 0.34 3.20
</TABLE>
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Calculated based on average shares outstanding methodology.
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
TRUST FOR CREDIT UNIONS
---------
GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS UNITHOLDERS
----------------------- ------------------
RATIO OF
NET
NET RATIO OF INVEST-
NET REALIZED IN NET NET MENT
ASSET AND FROM EXCESS ASSET EXPENSES INCOME
VALUE AT NET UNREALIZED NET OF NET VALUE TO TO
BEGIN- INVEST- GAIN (LOSS) INVEST- INVEST- AT AVERAGE AVERAGE
NING OF MENT ON INVEST- MENT MENT END OF TOTAL NET NET
PERIOD INCOME MENTS(a) INCOME INCOME PERIOD RETURN(b) ASSETS ASSETS
-------- ---------- ------------ -------- -------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/98......... $9.84 $ 0.5764 $ (0.0400) $(0.5764) $(0.0100) $9.79 5.60% 0.34% 5.83%
8/31/97......... 9.76 0.5911 0.0829 (0.5911) (0.0029) 9.84 7.09 0.34 6.02
8/31/96......... 9.76 0.6024 (0.0055) (0.5969) -- 9.76 6.26 0.35 6.16
8/31/95......... 9.78 0.5515 (0.0011) (0.5582) (0.0122) 9.76 5.82 0.34 5.65
8/31/94......... 9.97 0.4286 (0.1974) (0.4212) -- 9.78 2.33 0.35 4.25
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES OR EXPENSE
REIMBURSEMENTS
-------------------
RATIO OF
NET
NET RATIO OF INVESTMENT
PORT- ASSETS EXPENSES INCOME
FOLIO AT END TO TO
TURN- OF AVERAGE AVERAGE
OVER PERIOD NET NET
RATE(c) (000'S) ASSETS ASSETS
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Year ended:
8/31/98......... 93.77% $654,653 0.34% 5.83%
8/31/97......... 88.02 564,642 0.34 6.02
8/31/96......... 149.66 535,702 0.35 6.16
8/31/95......... 70.58 529,659 0.34 5.65
8/31/94......... 42.27 594,331 0.37 4.23
</TABLE>
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
TRUST FOR CREDIT UNIONS
---------
MORTGAGE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS UNITHOLDERS
--------------------- -------------------------------------
NET IN
NET REALIZED IN EXCESS NET
ASSET AND FROM EXCESS OF NET ASSET
VALUE AT NET UNREALIZED NET OF NET REALIZED VALUE
BEGIN- INVEST- GAIN (LOSS) INVEST- INVEST- GAIN ON FROM AT
NING OF MENT ON INVEST- MENT MENT INVEST- PAID-IN END OF TOTAL
PERIOD INCOME MENTS(a) INCOME INCOME MENTS CAPITAL PERIOD RETURN(b)
-------- ---------- ------------ -------- -------- -------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/98......... $9.75 $ 0.6395 $ 0.1272 $(0.6167) $ -- $ -- $ -- $9.90 8.10%
8/31/97......... 9.65 0.6399 0.1011 (0.6399) (0.0011) -- -- 9.75 7.89
8/31/96......... 9.74 0.6604 (0.1195) (0.6309) -- -- -- 9.65 5.67
8/31/95......... 9.62 0.6075 0.1539 (0.6075) (0.0175) -- (0.0164) 9.74 8.20
8/31/94......... 10.13 0.5533 (0.4530) (0.5719) (0.0340) (0.0044) -- 9.62 1.00
<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER
OF FEES
-------------------
RATIO OF
NET RATIO OF
RATIO OF INVEST- NET
NET MENT NET RATIO OF INVESTMENT
EXPENSES INCOME PORT- ASSETS EXPENSES INCOME
TO TO FOLIO AT END TO TO
AVERAGE AVERAGE TURN- OF AVERAGE AVERAGE
NET NET OVER PERIOD NET NET
ASSETS ASSETS RATE(c) (000'S) ASSETS ASSETS
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended:
8/31/98......... 0.30% 6.44% 108.76% $442,550 0.30% 6.44%
8/31/97......... 0.30 6.57 106.10 350,315 0.30 6.57
8/31/96......... 0.28 6.64 163.42 332,546 0.30 6.62
8/31/95......... 0.26 6.36 130.98 264,409 0.32 6.30
8/31/94......... 0.28 5.66 188.58 283,886 0.29 5.65
</TABLE>
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
1.ORGANIZATION
Trust for Credit Unions (the "Fund") is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company consisting of three diversified portfolios: the
Money Market Portfolio, Government Securities Portfolio and Mortgage Securities
Portfolio. Units of the Fund are offered for sale solely to state and federally
chartered credit unions.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund which are in conformity with those generally accepted in the investment
company industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that may affect the reported amounts.
A.Investment Valuation
For the Government Securities Portfolio and Mortgage Securities Portfolio,
investments in mortgage backed, asset backed, and U.S. Treasury obligations for
which accurate market quotations are readily available are valued on the basis
of quotations furnished by a pricing service or provided by dealers in such
securities. Portfolio securities for which accurate market quotations are not
readily available are valued based on yield equivalents, a pricing matrix or
other sources, under valuation procedures established by the Fund's Board of
Trustees. Securities of the Money Market Portfolio and short-term debt
obligations maturing in sixty days or less for the Government Securities
Portfolio and Mortgage Securities Portfolio are valued at amortized cost, which
approximates market value. Under this method, all investments purchased at a
discount or premium are valued by amortizing the difference between the
original purchase price and maturity value of the issue over the period to
maturity.
B.Security Transactions and Investment Income
Security transactions are recorded on the trade date. Realized gains and
losses on sales of portfolio securities are calculated on the identified cost
basis. For the Money Market Portfolio, interest income is determined on the
basis of interest accrued, premium amortized and discount earned. The Mortgage
Securities Portfolio amortizes market discounts and premiums on certain
mortgage backed securities and treasury obligations.
For the Government Securities Portfolio and Mortgage Securities Portfolio,
premiums on interest-only securities and on collateralized mortgage obligations
with nominal principal amounts are amortized on an
27
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1998
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
effective yield basis over the expected life of the respective securities,
taking into account actual principal prepayment experience and estimates of
future principal prepayments. Certain mortgage security paydown gains and
losses are taxable as ordinary income. Such paydown gains and losses increase
or decrease taxable ordinary income available for distribution and are
classified as interest income in the accompanying Statements of Operations.
Original issue discounts on debt securities are amortized to interest income
over the life of the security with a corresponding increase in the cost basis
of that security.
C.Mortgage Dollar Rolls
The Government Securities and Mortgage Securities Portfolios may enter into
mortgage "dollar rolls" in which the portfolios sell securities in the current
month for delivery and simultaneously contract with the same counterparty to
repurchase similar (same type, coupon and maturity) but not identical
securities on a specified future date. The portfolios will segregate and
maintain cash or liquid debt securities in an amount equal to the forward
purchase price until the settlement date. For financial reporting and tax
reporting purposes, the portfolios treat mortgage dollar rolls as two separate
transactions: one involving the purchase of a security and a separate
transaction involving a sale.
D.Federal Taxes
It is each portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
each year substantially all investment company taxable income to its
unitholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to unitholders for financial reporting
purposes is determined in accordance with income tax rules and is based upon
the best available information. Therefore, in the accompanying financial
statements, the source of a portfolio's distributions may be shown as (i) from
net investment income, (ii) in excess of net investment income, (iii) from net
realized gains on investment transactions, (iv) in excess of net realized gains
on investment transactions, and/or (v) from capital.
As of each portfolio's most recent tax year-end, the following portfolios had
approximately the following amounts of capital loss carryforward for U.S.
federal tax purposes:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT YEARS OF EXPIRATION
------------------------ ------------------------------- -------------------
<S> <C> <C>
Government Securities... $18,324,000 1999 - 2005
Mortgage Securities..... 7,333,000 2002 - 2004
</TABLE>
These amounts are available to be carried forward to offset future capital
gains of the corresponding portfolios to the extent permitted by applicable
laws or regulations.
28
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1998
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
E.Expenses
Expenses incurred by the Fund that do not specifically relate to an
individual portfolio of the Fund are generally allocated to the portfolios
based on each portfolio's relative average net assets for the period.
3.AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser pursuant to
an Advisory Agreement with the Fund. Under the Advisory Agreement, Goldman
Sachs, subject to the general supervision of the Fund's Trustees, manages the
Fund's portfolios and provides certain administrative services for the Fund. As
compensation for services rendered under the Advisory Agreement and the
assumption of the expenses related thereto, Goldman Sachs is entitled to a fee,
computed daily and payable monthly, at the following annual rates as a
percentage of each respective portfolio's average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO ASSET LEVELS FEE
----------------------------------------- ---------------------------- -----
<S> <C> <C>
Money Market............................. up to $300 million 0.20%
in excess of $300 million 0.15%
Government Securities.................... all 0.20%
Mortgage Securities...................... all 0.20%
</TABLE>
Effective July 1, 1997, Goldman Sachs voluntarily agreed to limit its
advisory fee with respect to the Money Market Portfolio to .06% of average
daily net assets; prior thereto, Goldman Sachs voluntarily agreed to limit its
advisory fee to .12% of the first $250 million, .10% of the next $250 million,
.09% of the next $250 million and .08% over $750 million of the portfolio's
average daily net assets. For the year ended August 31, 1998, Goldman Sachs
waived advisory fees amounting to $866,377.
29
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1998
3.AGREEMENTS--(CONTINUED)
Callahan Credit Union Financial Services Limited Partnership ("CUFSLP")
serves as the Fund's administrator pursuant to an Administration Agreement.
Callahan Financial Services, Inc. serves as a general partner to CUFSLP, and 40
major credit unions are limited partners. Under the Administration Agreement,
CUFSLP, subject to the general supervision of the Fund's Trustees, provides
certain administrative services to the Fund. As compensation for services
rendered under the Administration Agreement, CUFSLP is entitled to the
following fees, computed daily and payable monthly, at the following annual
rates as a percentage of each respective portfolio's average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO FEE
------------------------------------------------ -----
<S> <C>
Money Market.................................... 0.10%
Government Securities........................... 0.10%
Mortgage Securities............................. 0.05%
</TABLE>
Effective July 1, 1997, CUFSLP voluntarily agreed to limit its administration
fee with respect to the Money Market Portfolio to .02% of average daily net
assets; prior thereto, CUFSLP voluntarily agreed to limit its administration
fee to .05% of the first $500 million, .04% of the next $250 million and .03%
over $750 million of the portfolio's average daily net assets. For the year
ended August 31, 1998, CUFSLP waived administration fees amounting to $636,779.
CUFSLP has agreed that to the extent the total annualized expenses (excluding
interest, taxes, brokerage and extraordinary expenses) (the "Expenses") of the
Money Market Portfolio exceed .20% of the average daily net assets of the Money
Market Portfolio, CUFSLP will either reduce the administration fees otherwise
payable or pay such Expenses of the Money Market Portfolio. For the year ended
August 31, 1998, no expenses were required to be reimbursed by CUFSLP under
this agreement.
CUFSLP and Goldman Sachs have each voluntarily agreed to limit the other
annualized ordinary expenses (excluding advisory, administration, interest,
taxes, brokerage and extraordinary expenses) of the Government Securities
Portfolio such that CUFSLP will reimburse expenses that exceed .05% up to .10%
of the Government Securities Portfolio's average daily net assets, and Goldman
Sachs will reimburse expenses that exceed .10% up to .15% of the Government
Securities Portfolio's average daily net assets. For the year ended August 31,
1998, no expenses were required to be reimbursed by CUFSLP and Goldman Sachs
under this agreement.
30
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1998
3.AGREEMENTS--(CONTINUED)
Callahan Financial Services, Inc. and Goldman Sachs serve as exclusive
distributors of units of the Fund. For the year ended August 31, 1998, neither
received any compensation for this service. Goldman Sachs also serves as
Transfer Agent of the Fund for a fee.
4.INVESTMENT TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
Government Securities Portfolio and Mortgage Securities Portfolio for the year
ended August 31, 1998 were as follows ($ in thousands):
<TABLE>
<CAPTION>
GOVERNMENT MORTGAGE
SECURITIES SECURITIES
PORTFOLIO PORTFOLIO
---------- ----------
<S> <C> <C>
Purchases of U.S. Government and agency obligations...... $557,865 $257,652
Purchases (excluding U.S. Government and agency obliga-
tions).................................................. -- 256,613
Sales or maturities of U.S. Government and agency obliga-
tions................................................... 527,127 183,915
Sales or maturities (excluding U.S. Government and agency
obligations)............................................ -- 227,207
</TABLE>
5.REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping in the customer-only account of State Street
Bank and Trust Company, the Fund's custodian, or at subcustodians. GSAM
monitors the market value of the underlying securities by pricing them daily.
31
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1998
6.JOINT REPURCHASE AGREEMENT ACCOUNTS
The Portfolios, together with other registered investment companies having
advisory agreements with GSAM, transfer uninvested cash balances into joint
accounts, the daily aggregate balances of which are invested in repurchase
agreements. The underlying securities for the repurchase agreements include
U.S. Treasury obligations and mortgage-related securities issued by the U.S.
Government, its agencies or instrumentalities.
As of August 31, 1998, the Money Market Portfolio had a 2.39% undivided
interest in the repurchase agreements in the following joint account which
equaled $5,299,500,000 in principal amount. As of August 31, 1998, the
repurchase agreements in this joint account, along with the corresponding
underlying securities (including the type of security, market value, interest
rate and maturity date), were as follows ($ in thousands):
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
JOINT ACCOUNT I AMOUNT RATE DATE COST
--------------- --------- -------- -------- ----------
<S> <C> <C> <C> <C>
Bear Stearns Companies, Inc., dated
8/31/98, repurchase price $400,065
(U.S. Treasury Interest only
Stripped Securities: $408,461,
5/15/03-5/15/07)................... $400,000 5.81% 9/1/98 $ 400,000
BZW Securities, dated 8/31/98,
repurchase price $800,129 (U.S.
Treasury Interest only Stripped
Securities: $22,245, 11/15/98-
8/15/05) (U.S. Treasury Notes:
$772,701, 4.750-9.125%, 9/30/98-
5/15/05) (U.S. Treasury Principal
Stripped Securities: $21,055,
11/15/98-8/15/05).................. 800,000 5.80 9/1/98 800,000
Credit Suisse First Boston Corp.,
dated 8/31/98, repurchase price
$800,129 (U.S. Treasury Interest
only Stripped Securities: $481,626,
11/15/98-5/15/08) (U.S. Treasury
Principal only Stripped Securities:
$151,863, 11/15/98-2/15/03) (U.S.
Treasury Stripped Securities:
$192,555, 11/15/04-8/15/05)........ 800,000 5.81 9/1/98 800,000
Deutsche Bank, dated 8/31/98,
repurchase price $800,129 (U.S.
Treasury Notes: $816,001, 6.125-
7.750%, 7/15/99-3/31/02)........... 800,000 5.80 9/1/98 800,000
Donaldson Lufkin & Jenrette, Inc.,
dated 8/31/98, repurchase price
$700,113 (U.S. Treasury Bill:
$6,288, 9/3/98) (U.S. Treasury
Interest only Stripped Securities:
$692,955, 11/15/98-2/15/08) (U.S.
Treasury Note: $7,233, 7.75%,
12/31/99) (U.S. Treasury Principal
only Stripped Securities: $7,524,
2/15/99-5/15/05)................... 700,000 5.80 9/1/98 700,000
Goldman, Sachs & Co., dated 8/31/98,
repurchase price $125,021 (U.S.
Treasury Notes: $127,522, 5.250-
5.875%, 8/31/99-8/15/03)........... 125,000 6.05 9/1/98 125,000
Morgan Stanley Dean Witter & Co.,
dated 8/31/98, repurchase price
$450,074 (U.S. Treasury Bonds:
$3,029, 9.375-10.750%, 2/15/03-
2/15/06) (U.S. Treasury Interest
only Stripped Securities: $37,451,
5/15/01-2/15/08) (U.S. Treasury
Notes: $388,898, 5.500-7.750%,
4/30/99-5/31/03) (U.S. Treasury
Principal only Stripped Securities: 200,000 5.90 9/1/98 200,000
$32,479, 11/15/00-5/15/05)......... 250,000 5.93 9/1/98 250,000
Salomon-Smith Barney, Inc., dated
8/31/98, repurchase price $700,113
(U.S. Treasury Interest only
Stripped Securities: $638,692,
2/15/04-2/15/07) (U.S. Treasury
Principal only Stripped Securities:
$76,162, 11/15/01)................. 700,000 5.80 9/1/98 700,000
Warburg Dillon Read, dated 8/31/98,
repurchase price $524,584 (U.S.
Treasury Bill: $50,485, 11/5/98)
(U.S. Treasury Bond: $39,484,
10.750%, 2/15/03) (U.S. Treasury
Inflation Index Notes: $387,185,
3.375-3.625%, 7/15/02-1/15/08)
(U.S. Treasury Note: $58,085,
4.750-6.625%, 9/30/98-7/31/01)..... 524,500 5.79 9/1/98 524,500
----------
Total Joint Repurchase Agreement
Account............................ $5,299,500
==========
</TABLE>
32
<PAGE>
TRUST FOR CREDIT UNIONS
---------------
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1998
6.JOINT REPURCHASE AGREEMENT ACCOUNTS--(CONTINUED)
As of August 31, 1998, the Money Market Portfolio, Government Securities
Portfolio and the Mortgage Securities Portfolio had a 12.82%, 6.03% and 0.82%
undivided interest, respectively, in the repurchase agreements in the following
joint account, which equaled $1,365,000,000 in principal amount. As of August
31, 1998, the repurchase agreements in this joint account, along with the
corresponding underlying securities (including the type of security, market
value, interest rate and maturity date), were as follows ($ in thousands):
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
JOINT ACCOUNT II AMOUNT RATE DATE COST
---------------- --------- -------- -------- ----------
<S> <C> <C> <C> <C>
Bear Stearns Companies, Inc., dated
8/31/98, repurchase price $300,049
(FHLMC: $211,246, 6.50-7.50%, 12/1/22-
11/1/27) (FNMA: $97,844, 6.50-7.50%,
8/1//25-8/1/28)....................... $300,000 5.85% 9/1/98 $ 300,000
Donaldson Lufkin & Jenrette, Inc.,
dated 8/31/98, repurchase price
$200,033 (FHLMC Gold: $69,048, 7.00%,
8/1/24-2/1/28) (FNMA: $134,993, 5.50-
7.00%, 2/1/09-8/1/28)................. 200,000 5.85 9/1/98 200,000
NationsBank, dated 8/31/98, repurchase
price $400,065 (FNMA: $408,043, 6.50%,
11/1/12).............................. 400,000 5.85 9/1/98 400,000
Nomura Securities Inc., dated 8/31/98,
repurchase price $325,053 (FHLB:
$31,053, 6.05-6.50%, 1/21/99-5/13/08)
(FNMA: $225,458, 5.50-8.50%, 7/1/99-
8/1/28) (FMAC: $54,894, 5.00-9.00%,
12/1/98-8/1/28) (SLMA: $20,090, 5.73%,
2/04/00).............................. 325,000 5.85 9/1/98 325,000
Salomon Brothers, Inc, dated 8/31/98,
repurchase price $140,023 (FHLMC Gold:
$14,253, 7.00-9.00%, 4/1/24-12/1/27)
(FNMA: $128,641, 6.00-8.50%, 11/1//00-
8/1/28)............................... 140,000 5.83 9/1/98 140,000
----------
Total Joint Repurchase Agreement
Account.............................. $1,365,000
==========
</TABLE>
7.OTHER MATTERS
Pursuant to an SEC exemptive order, the Money Market Portfolio may enter into
certain principal transactions, including repurchase agreements with Goldman
Sachs or its affiliates, subject to certain limitations as follows: 25% of
eligible security transactions, as defined, and 10% of repurchase agreement
transactions on an annual basis.
33
<PAGE>
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by the Trust for Credit Unions Prospectus which
contains facts concerning the Fund's objectives and policies, management,
expenses and other information.
<PAGE>
[LOGO]
Goldman
Sachs
TCUANN98
- -----------------------------
TRUST
for Credit Unions
- -----------------------------
TRUSTEES
Robert M. Coen, Chairman
John T. Collins, Vice-Chairman
Gene R. Artemenko
James C. Barr
Edgar F. Callahan
Thomas S. Condit
Douglas C. Grip
Rudolf J. Hanley
Betty G. Hobbs
Wendell A. Sebastian
OFFICERS
Charles W. Filson, President
James A. Fitzpatrick, Vice President
Gordon Linke, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Philip Giuca, Assistant Treasurer
Michael J. Richman, Secretary
Elizabeth Anderson, Assistant Secretary
Deborah A. Farrell, Assistant Secretary
Steven E. Hartstein, Assistant Secretary
Howard B. Surloff, Assistant Secretary
Kaysie Uniacke, Assistant Secretary
ADMINISTRATOR
Callahan Credit Union Financial Services
Limited Partnership
INVESTMENT ADVISOR
Goldman Sachs Asset Management,
a separate operating division
of Goldman, Sachs & Co.
TRANSFER AGENT
Goldman, Sachs & Co.
DISTRIBUTORS
Callahan Financial Services, Inc.
Goldman, Sachs & Co.
INDEPENDENT AUDITORS
Arthur Andersen
225 Franklin Street
Boston, MA 02110
<PAGE>
PART C
------
OTHER INFORMATION
-----------------
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
(a) Financial Statements
Included in the Money Market Portfolio, Government Securities Portfolio and
Mortgage Securities Portfolio Prospectus:
Financial Highlights for Trust for Credit Unions Portfolios comprising (1)
the Money Market Portfolio for the ten years ended August 31, 1989, 1990,
1991, 1992, 1993, 1994, 1995, 1996, 1997 and 1998; (2) for the Government
Securities Portfolio for the seven years ended August 31, 1992, 1993, 1994,
1995, 1996, 1997 and 1998 and for the period July 10, 1991 (Commencement of
Operations) to August 31, 1991; (3) for the Mortgage Securities Portfolio
for the five years ended August 31, 1994, 1995, 1996, 1997 and 1998 and
for the period October 9, 1992 (Commencement of Operations) to August 31,
1993.
Included or incorporated by reference into the Additional Statement for the
Money Market Portfolio, Government Securities Portfolio and Mortgage Securities
Portfolio.
Report of Independent Public Accountants on the Registrant's Annual Report
to Unitholders for year ended August 31, 1998.
Statement of Investments for the Money Market Portfolio, August 31,
1998.
Statement of Investments for the Government Securities Portfolio, August
31, 1998.
Statement of Investments for the Mortgage Securities Portfolio, August 31,
1998.
Statements of Assets and Liabilities for the Money Market Portfolio, the
Government Securities Portfolio and the Mortgage Securities Portfolio,
August 31, 1998.
Statements of Operations for the Money Market Portfolio, the Government
Securities Portfolio and the Mortgage Securities Portfolio, for the year
ended August 31, 1998.
Statement of Changes in Net Assets for the Money Market Portfolio for the
years ended August 31, 1998 and 1997.
<PAGE>
Statement of Changes in Net Assets for the Government Securities Portfolio
for the years ended August 31, 1998 and 1997.
Statement of Changes in Net Assets for the Mortgage Securities Portfolio,
for the years ended August 31, 1998 and August 31, 1997.
Financial Highlights for the Money Market Portfolio for the years ended
August 31, 1998, 1997, 1996, 1995 and 1994.
Financial Highlights for the Government Securities Portfolio for the years
ended August 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992 and for the
period July 10, 1991 (Commencement of Operations) to August 31, 1991.
Financial Highlights for the Mortgage Securities Portfolio for the years
ended August 31, 1998, 1997, 1996, 1995 and 1994 and for the period October
9, 1992 (Commencement of Operations) to August 31, 1993.
Notes to Financial Statements.
All other financial statements, schedules and historical financial
information have been omitted as the subject matter is not required, not
present, or not present in amounts sufficient to require submission.
(b) Exhibits
The following exhibits are incorporated herein by reference to the Registrant's
Registration Statement on Form N-1A to Post-Effective Amendment No. 20:
1. Agreement and Declaration of Trust, dated September 24, 1987, as
amended and restated through December 1, 1987, of the Registrant.
(Accession No. 0000950130-95-002603)
1(a). Amendment No. 1 to the Amended and Restated Agreement and Declaration
of Trust dated April 20, 1988. (Accession No. 0000950130-95-002603)
1(b). Amendment No. 2 to the Amended and Restated Agreement and Declaration
of Trust dated September 21, 1992. (Accession No. 0000950130-95-002603)
1(c). Amendment No. 3 to the Amended and Restated Agreement and Declaration
of Trust to Establish and Designate Units of the Target Maturity
Portfolio (1996). (Accession No. 0000950130-95-002603)
<PAGE>
1(d). Amendment No. 4 to the Amended and Restated Agreement and Declaration
of Trust to Establish and Designate Units of the Target Maturity
Portfolio (Feb 97), Target Maturity Portfolio (May 97), Target Maturity
Portfolio (Aug 97) and Target Maturity Portfolio (Nov 97). (Accession
No. 0000950130-95-002603)
1(e). Amendment No. 5 to the Amended and Restated Agreement and Declaration
of Trust to abolish or liquidate a Series of Units (Target Maturity
Portfolio 1996) dated June 28, 1996. (Accession No. 0000950130-96-
004149)
1(f). Amendment No. 6 to the Amended and Restated Agreement and Declaration
of Trust to abolish or liquidate a Series of Units (Target Maturity
Portfolio (Feb 97)). (Accession No. 0000950130-97-005715)
1(g). Amendment No. 7 to the Amended and Restated Agreement and Declaration
of Trust to abolish or liquidate a Series of Units (Target Maturity
Portfolio (May 97)). (Accession No. 0000950130-97-005715)
2. By-laws of the Registrant. (Accession No. 0000950130-95-002603)
(2)(a). Amendment No. 1 dated March 18, 1991 to the By-laws of the Registrant.
(Accession No. 0000950130-96-004149)
(2)(b). Amendment No. 2 dated June 13, 1997 to the By-laws of the Registrant.
(Accession No. 0000950130-97-005715)
3. Not applicable.
4. Not applicable
5. Advisory Agreement between Registrant and Goldman, Sachs & Co. dated
June 20, 1991. (Accession No. 0000950130-95-002603)
5(a). Addendum No. 1 to the Advisory Agreement between the Registrant and
Goldman Sachs & Co. dated October 6, 1992. (Accession No. 0000950130-
95-002603)
5(b). Addendum No. 2 to the Advisory Agreement between Registrant and
Goldman, Sachs & Co. Dated June 30, 1993 (Accession No. 0000950130-95-
002603)
5(c). Addendum No. 3 to the Advisory agreement between Registrant and
Goldman, Sachs & Co. dated December 23, 1993.(Accession No. 0000950130-
95-002603)
5(d). Addendum No. 4 to the Advisory Agreement between the Registrant and
Goldman, Sachs & Co. dated January 1, 1994. (Accession No. 0000950130-
95-002603)
<PAGE>
6. Distribution Agreement between Registrant and Callahan Financial
Services, Inc. dated May 10, 1988.
(Accession No. 0000950130-95-002603)
6(a). Amendment No. 1 to Distribution Agreement between Registrant and
Callahan Financial Services, Inc. dated February 28, 1989. (Accession
No. 0000950130-95-002603)
6(b). Distribution Agreement between Registrant and Goldman, Sachs & Co.
dated February 28, 1989. (Accession No. 0000950130-95-002603)
7. Not applicable.
8. Custodian Agreement between Registrant and State Street Bank and Trust
Company dated May 10, 1988 (Accession No. 0000950130-95-002603)
8(a). Amendment to the Custodian Agreement between Registrant and State
Street Bank and Trust Company dated September 18, 1989. (Accession No.
0000950130-95-002603)
8(b). Transfer Agency Agreement between Registrant and Goldman, Sachs & Co.
dated May 10, 1988. (Accession No. 0000950130-95-002603)
8(c). Amendment No. 1 to Transfer Agency Agreement between Registrant and
Goldman, Sachs & Co. dated February 28, 1989. (Accession No.
0000950130-95-002603)
9. Revised and Restated Administration Agreement between Registrant and
Callahan Credit Union Financial Services Limited Partnership dated
March 31, 1993. (Accession No. 0000950130-95-002603)
9(a). Addendum No.1 to the Revised and Restated Administration Agreement
between Registrant and Callahan Credit Union Financial Services Limited
Partnership dated June 30, 1993. (Accession No. 0000950130-95-002603)
9(b). Addendum No. 2 to the Revised and Restated Administration Agreement
between Registrant and Callahan Credit Union Financial Services Limited
Partnership dated January 1, 1994.(Accession No. 0000950130-95-002603)
9(c). Addendum No. 3 to the Revised and Restated Administration Agreement
between Registrant and Callahan Credit Union Financial Services Limited
Partnership dated July 1, 1995. (Accession No. 0000950130-95-002603)
<PAGE>
10. Opinion of Hale and Dorr dated December 18, 1997 (Accession No.
0000950130-97-005715)
12. Not applicable.
13. Subscription Agreement dated April 28, 1988.
(Accession No. 0000950130-95-002603)
14. Not applicable.
15. Not applicable.
16. Not applicable.
18. Not applicable
The following exhibits relating to Trust for Credit Unions are filed herewith
electronically pursuant to EDGAR rules:
11. Consent of Arthur Andersen LLP
17. Certified copy of Resolution of Board of Trustees authorizing
signatures of officers pursuant to Powers of Attorney.
17(a). Powers of Attorney dated September 28, 1998 on behalf of Messrs.
Artemenko, Barr, Callahan, Coen, Collins, Condit, Grip, Hanley,
Sebastian, Cole, Filson, Fitzpatrick, Giuca, Linke, Mosior, Perlowski,
Richman, Surloff and Hartstein and on behalf of Mmes. Hobbs, Marcel,
Mucker, Anderson, Farrell and Uniacke.
27. Financial Data Schedules
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See Items 28 and 29(a) below.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
Title of Class RECORD HOLDERS
- -------------- --------------
<S> <C>
Money Market Portfolio Units 136
Government Securities Portfolio Units 89
Mortgage Securities Portfolio Units 39
</TABLE>
INFORMATION SUPPLIED AS OF OCTOBER 31, 1998
<PAGE>
ITEM 27. INDEMNIFICATION.
---------------
Article VI of the Registrant's Agreement and Declaration of Trust provides for
indemnification of the Registrant's trustees and officers under certain
circumstances.
Paragraph 7 of the Advisory Agreement between the Registrant and Goldman, Sachs
& Co. provides for indemnification of Goldman, Sachs & Co. or, in lieu thereof,
contribution by the Registrant under certain circumstances.
Paragraph 7 of the Revised and Restated Administration Agreement between the
Registrant and Callahan Credit Union Financial Services Limited Partnership
provides for indemnification of Callahan Credit Union Services Limited
Partnership or, in lieu thereof, contribution by the Registrant under certain
circumstances.
Paragraph 6 of the Distribution Agreements between the Registrant and Callahan
Financial Services, Inc. and the Registrant and Goldman, Sachs & Co. provide for
indemnification of Callahan Financial Services, Inc. and Goldman, Sachs & Co.
or, in lieu thereof, contribution by the Registrant under certain circumstances.
Insofar as indemnification by the Registrant for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by final adjudication of such issue.
Mutual fund and directors and officers liability policies purchased by the
Registrant insure Registrant and its trustees, partners, officers and employees,
subject to the policies' coverage limit and exclusions and varying deductibles,
against loss resulting from claims by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty to the extent
permitted by Section 17(i) of the Investment Company Act of 1940.
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-
38157, respectively) the texts of which are hereby incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------
CALLAHAN FINANCIAL SERVICES, INC.
(a) Callahan Financial Services, Inc., a Delaware Corporation, does not act as
principal underwriter, depositor or investment adviser for any other
investment company.
(b) Set forth below is certain information pertaining to the directors and
officers of Callahan Financial Services, Inc.
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES WITH POSITIONS &
NAME AND PRINCIPAL CALLAHAN FINANCIAL OFFICES WITH
BUSINESS ADDRESS SERVICES, INC. REGISTRANT
- ---------------- -------------- ----------
<S> <C> <C>
Charles W. Filson Director and Vice President
Callahan Financial Services, President
Inc.
1001 Connecticut Avenue, N.W.
Suite 1022
Washington, D.C. 20036-5504
Judith Sandberg President None
Callahan Financial
Services, Inc.
1001 Connecticut Avenue, N.W.
Suite 1022
Washington, D.C. 20036-5504
</TABLE>
(c) Not applicable
GOLDMAN, SACHS & CO.
(a) Goldman, Sachs & Co., or an affiliate thereof, also serves as investment
adviser and distributor of the units of Trust for Credit Unions and for shares
of Goldman Sachs Trust and Goldman Sachs Variable Insurance Trust. Goldman,
------------------------------------------
Sachs & Co. or an affiliate or division thereof, currently serves as
administrator
<PAGE>
and distributor to the units or shares of The Benchmark Funds and the Commerce
Funds.
(b) Set forth below is certain information pertaining to the Managing Directors
of Goldman, Sachs & Co., Registrant's principal underwriter, who are members of
Goldman, Sachs & Co's. Executive Committee. None of the members of the
executive committee holds a position or office with the registrant.
GOLDMAN SACHS EXECUTIVE COMMITTEE
Name and Principal
Business Address Position
- ---------------- --------
Jon Corzine (1) Chairman and Chief Executive Officer
Robert J. Hurst (1) Vice Chairman
Henry M. Paulson Jr. (1) President and Chief Operating Officer
John A. Thain (1)(3)
John L. Thornton (3)
Roy J. Zuckerberg (2) Vice Chairman
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Agreement and Declaration of Trust, By-laws and minute books of the
Registrant and certain investment adviser records are in the physical possession
of Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606. All other
accounts, books and other documents required to be maintained under Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are in the physical possession of State Street Bank and Trust Company, P.O. Box
1713, Boston, Massachusetts 02105.
ITEM 31. MANAGEMENT SERVICES.
-------------------
Not Applicable.
ITEM 32. UNDERTAKINGS.
------------
(a) The Annual Report also contains performance information and is available to
any recipient of the Prospectus upon request and without charge by writing to
either Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606-6303 or
Callahan Credit Union Financial Services Limited Partnership c/o Callahan
Financial Services, Inc., 1001 Connecticut Ave., N.W., Suite 1022, Washington,
D.C. 20036-5504.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Post-Effective Amendment No.
20 to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and State of New York on the 16th day of
November 1998.
TRUST FOR CREDIT UNIONS
By: Michael J. Richman
--------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1993, this Post-Effective
Amendment No. 20 to the Registration Statement has been signed below by the
following persons in the capacities indicated on November 16, 1998.
NAME TITLE
---- -----
Robert M. Coen Chairman and Trustee
- ------------------------
Robert M. Coen
John T. Collins Vice Chairman and Trustee
- ------------------------
John T. Collins
Charles Filson President
- -------------------------
Charles Filson
John M. Perlowski Treasurer
- ------------------------
John M. Perlowski
Gene R. Artemenko Trustee
- ------------------------
Gene R. Artemenko
James C. Barr Trustee
- ------------------------
James C. Barr
Edgar F. Callahan Trustee
- ------------------------
Edgar F. Callahan
Thomas S. Condit Trustee
- ------------------------
Thomas S. Condit
Douglas C. Grip Trustee
- ------------------------
Douglas C. Grip
<PAGE>
Rudy J. Hanley Trustee
- -----------------------
Rudy J. Hanley
Betty G. Hobbs Trustee
- -----------------------
Betty G. Hobbs
Wendell A. Sebastian Trustee
- ------------------------
Wendell A. Sebastian
*By Michael J. Richman
------------------
Michael J. Richman
Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS
11. Consent of Arthur Andersen LLP
17. Certified copy of Resolution of Board of Trustees authorizing signatures
of officers pursuant to Powers of Attorney
17(a) Powers of Attorney dated September 28, 1998 on behalf of Messrs.
Artemenko, Barr, Callahan, Coen, Collins, Condit, Grip, Hanley,
Sebastian, Cole, Filson, Fitzpatrick, Giuca, Linke, Mosior, Perlowski,
Richman, Surloff and Hartstein and on behalf of Mmes. Hobbs, Marcel,
Mucker, Anderson, Farrell and Uniacke.
27. Financial Data Schedules
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
for Trust for Credit Unions dated October 9, 1998 (and to all references to our
firm) included or incorporated by reference in Post-Effective Amendment No. 20
and Amendment No. 22 to Registration Statement File Nos. 33-18781 and 811-5407,
respectively.
Arthur Andersen LLP
Boston, Massachusetts
November 12, 1998
<PAGE>
CERTIFICATE
-----------
The undersigned Secretary of Trust for Credit Unions (the "Trust") hereby
certifies that the Board of Trustees of the Trust duly adopted the following
resolution at a meeting of the Board held on September 28, 1998:
RESOLVED, that the Powers of Attorney as presented to this meeting
appointing Elizabeth Anderson, Jesse Cole, Deborah A. Farrell, Charles Filson,
James A. Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon Linke, Anne
Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Howard B. Surloff and Kaysie Uniacke as attorneys-in-fact for the Trustees and
for the President and Treasurer with regard to filings of amendments to the
Trust for Credit Union's Registration Statement with the Securities and Exchange
Commission be, and it hereby is, approved.
Dated: November 4, 1998
Michael J. Richman
---------------------------
Michael J. Richman, Secretary
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Gene R. Artemenko, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Gene R. Artemenko
----------------------------
Gene R. Artemenko
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, James C. Barr, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ James C. Barr
------------------------
James C. Barr
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Edgar F. Callahan, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Edgar F. Callahan
---------------------------------
Edgar F. Callahan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Robert M. Coen, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Robert M. Coen
---------------------------------
Robert M. Coen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John T. Collins, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ John T. Collins
---------------------------------
John T. Collins
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Thomas S. Condit, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Thomas S. Condit
---------------------------------
Thomas S. Condit
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Douglas Grip, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Douglas Grip
---------------------------------
Douglas Grip
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Rudolf J. Hanley, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Rudolf J. Hanley
---------------------------------
Rudolf J. Hanley
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Betty G. Hobbs, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, her
attorneys-in-fact, each with power of substitution, for her in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or her substitute or substitutes, may do or
cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Betty G. Hobbs
---------------------------------
Betty G. Hobbs
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Wendell A. Sebastian,
hereby constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman, Howard B. Surloff and Kaysie Uniacke, jointly and severally, his
attorneys-in-fact, each with power of substitution, for him in any and all
capacities to sign the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940 of Trust for Credit Unions and any and
all amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue thereof.
Dated: September 28, 1998
/s/ Wendell A. Sebastian
---------------------------------
Wendell A. Sebastian
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Elizabeth Anderson, hereby
constitutes and appoints Jesse Cole, Deborah Farrell, Charles Filson, James
Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon Linke, Anne Marcel, John
W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard B.
Surloff and Kaysie Uniacke, jointly and severally, her attorneys-in-fact, each
with power of substitution, for her in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or her substitute or substitutes, may do or cause to be done by virtue
thereof.
Dated: September 28, 1998
/s/ Elizabeth Anderson
---------------------------------
Elizabeth Anderson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Jesse Cole, hereby
constitutes and appoints Elizabeth Anderson, Deborah Farrell, Charles Filson,
James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon Linke, Anne Marcel,
John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard B.
Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ Jesse Cole
---------------------------------
Jesse Cole
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Deborah A. Farrell, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Charles Filson, James
Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon Linke, Anne Marcel, John
W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard B.
Surloff and Kaysie Uniacke, jointly and severally, her attorneys-in-fact, each
with power of substitution, for her in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or her substitute or substitutes, may do or cause to be done by virtue
thereof.
Dated: September 28, 1998
/s/ Deborah A. Farrell
---------------------------------
Deborah A. Farrell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Charles Filson, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell, James
Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon Linke, Anne Marcel, John
W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard B.
Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ Charles Filson
---------------------------------
Charles Filson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, James Fitzpatrick, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, Philip Giuca, Steven E. Hartstein, Gordon Linke, Anne Marcel,
John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard B.
Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ James Fitzpatrick
---------------------------------
James Fitzpatrick
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Philip Giuca, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Steven E. Hartstein, Gordon Linke, Anne
Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Howard B. Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-
fact, each with power of substitution, for him in any and all capacities to sign
the Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ Philip Giuca
---------------------------------
Philip Giuca
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Steven E. Hartstein, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Gordon Linke, Anne Marcel, John
W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard B.
Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ Steven E. Hartstein
---------------------------------
Steven E. Hartstein
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Gordon Linke, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Anne
Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Howard B. Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-
fact, each with power of substitution, for him in any and all capacities to sign
the Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ Gordon Linke
---------------------------------
Gordon Linke
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Anne Marcel, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman,
Howard B. Surloff and Kaysie Uniacke, jointly and severally, her attorneys-in-
fact, each with power of substitution, for her in any and all capacities to sign
the Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or her substitute or substitutes, may do or cause to be done by virtue
thereof.
Dated: September 28, 1998
/s/ Anne Marcel
---------------------------------
Anne Marcel
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John W. Mosior, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, Nancy L. Mucker, John Perlowski, Michael J. Richman, Howard
B. Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-fact,
each with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ John W. Mosior
---------------------------------
John W. Mosior
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Nancy L. Mucker, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, John Perlowski, Michael J. Richman, Howard
B. Surloff and Kaysie Uniacke, jointly and severally, her attorneys-in-fact,
each with power of substitution, for her in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or her substitute or substitutes, may do or cause to be done by virtue
thereof.
Dated: September 28, 1998
/s/ Nancy L. Mucker
---------------------------------
Nancy L. Mucker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, John Perlowski, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, Michael J. Richman, Howard
B. Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-fact,
each with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ John Perlowski
---------------------------------
John Perlowski
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Michael J. Richman, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Howard B.
Surloff and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ Michael J. Richman
---------------------------------
Michael J. Richman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Howard B. Surloff, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman and Kaysie Uniacke, jointly and severally, his attorneys-in-fact, each
with power of substitution, for him in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.
Dated: September 28, 1998
/s/ Howard B. Surloff
---------------------------------
Howard B. Surloff
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned, Kaysie Uniacke, hereby
constitutes and appoints Elizabeth Anderson, Jesse Cole, Deborah Farrell,
Charles Filson, James Fitzpatrick, Philip Giuca, Steven E. Hartstein, Gordon
Linke, Anne Marcel, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J.
Richman and Howard B. Surloff, jointly and severally, her attorneys-in-fact,
each with power of substitution, for her in any and all capacities to sign the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 of Trust for Credit Unions and any and all amendments to
such Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or her substitute or substitutes, may do or cause to be done by virtue
thereof.
Dated: September 28, 1998
/s/ Kaysie Uniacke
---------------------------------
Kaysie Uniacke
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TRUST
FOR CREDIT UNIONS ANNUAL REPORT DATED AUGUST 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<NAME> TRUST FOR CREDIT UNIONS MORTGAGE SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 448,334,331
<INVESTMENTS-AT-VALUE> 452,437,485
<RECEIVABLES> 15,279,044
<ASSETS-OTHER> 80,938
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467,797,467
<PAYABLE-FOR-SECURITIES> 23,228,144
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,019,527
<TOTAL-LIABILITIES> 25,247,671
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 446,672,853
<SHARES-COMMON-STOCK> 44,704,857
<SHARES-COMMON-PRIOR> 35,925,213
<ACCUMULATED-NII-CURRENT> (608,717)
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<ACCUMULATED-NET-GAINS> (7,617,494)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,103,154
<NET-ASSETS> 442,549,796
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,294,156
<OTHER-INCOME> 0
<EXPENSES-NET> (1,184,434)
<NET-INVESTMENT-INCOME> 25,109,722
<REALIZED-GAINS-CURRENT> 2,639,413
<APPREC-INCREASE-CURRENT> 2,780,412
<NET-CHANGE-FROM-OPS> 30,529,547
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,417,759)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,565,758
<NUMBER-OF-SHARES-REDEEMED> (4,391,995)
<SHARES-REINVESTED> 605,881
<NET-CHANGE-IN-ASSETS> 92,234,577
<ACCUMULATED-NII-PRIOR> (1,300,680)
<ACCUMULATED-GAINS-PRIOR> (10,256,907)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,184,434
<AVERAGE-NET-ASSETS> 389,844,441
<PER-SHARE-NAV-BEGIN> 9.75
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> (0.62)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TRUST
FOR CREDIT UNIONS ANNUAL REPORT DATED AUGUST 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<NAME> TRUST FOR CREDIT UNIONS GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 670,366,424
<INVESTMENTS-AT-VALUE> 669,436,734
<RECEIVABLES> 9,482,492
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 679,024,240
<PAYABLE-FOR-SECURITIES> 20,607,533
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,764,165
<TOTAL-LIABILITIES> 24,371,698
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<PAID-IN-CAPITAL-COMMON> 675,112,823
<SHARES-COMMON-STOCK> 66,893,980
<SHARES-COMMON-PRIOR> 57,397,464
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<NUMBER-OF-SHARES-REDEEMED> (20,521,732)
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<GROSS-EXPENSE> 2,029,967
<AVERAGE-NET-ASSETS> 590,525,236
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<PER-SHARE-NII> 0.58
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TRUST
FOR CREDIT UNIONS ANNUAL REPORT DATED AUGUST 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<NAME> TRUST FOR CREDIT UNIONS MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
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<TOTAL-LIABILITIES> 4,888,394
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</TABLE>
