<PAGE>
CUFUND
SHORT-TERM MATURITY PORTFOLIO
ADJUSTABLE-RATE PORTFOLIO
SUPPLEMENT DATED JANUARY 22, 1996, TO THE PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 28, 1995
This Supplement provides new and additional information regarding the
Short-Term Maturity Portfolio and Adjustable-Rate Portfolio (each a "Portfolio")
beyond that contained in the Prospectus and Statement of Additional Information
and should be retained and read in conjunction with such Prospectus and
Statement of Additional Information.
The address for the Adviser, SouthWest Corporate Federal Credit Union,
is now 7920 Belt Line Road, Suite 1100, Dallas, Texas 75240. In conjunction
with this change, shareholder inquiries should now be sent to this address.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
CUFUND
Investment Adviser:
SOUTHWEST CORPORATE FEDERAL CREDIT UNION
CUFUND (the "Trust") is a no-load mutual fund seeking to provide a convenient
and economical means of investing in one or more professionally managed
portfolios of securities. This Prospectus relates to the Shares of the
following fixed income portfolios (the "Portfolios"):
. SHORT-TERM MATURITY PORTFOLIO
. ADJUSTABLE RATE PORTFOLIO
The Trust's shares are offered exclusively to federal and state chartered
credit unions ("Shareholders").
This Prospectus and Statement of Additional Information sets forth concisely
the information about the Trust that a prospective investor should know before
investing. Investors are advised to read this Prospectus and Statement of
Additional Information and retain it for future reference.
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
ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INVESTMENT WILL NOT REPRESENT SHARES OR DEPOSITS OF AND WILL NOT BE
INSURED BY THE NATIONAL CREDIT UNION SHARE INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY. ONLY CREDIT UNIONS MAY INVEST IN CUFUND.
ALL INVESTMENTS OF CUFUND ARE PERMITTED BY THE FEDERAL CREDIT UNION ACT AND
NATIONAL CREDIT UNION ADMINISTRATION RULES AND REGULATIONS FOR NATURAL PERSON
CREDIT UNIONS. THE MERITS OF THESE SECURITIES HAVE NOT BEEN PASSED UPON BY THE
NATIONAL CREDIT UNION ADMINISTRATION NOR HAS THE NATIONAL CREDIT UNION
ADMINISTRATION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION.
NO AGENT OR OTHER OFFICIAL OF SOUTHWEST CORPORATE FEDERAL CREDIT UNION OR ANY
OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CUFUND.
THIS PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN
OFFERING BY CUFUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
SEPTEMBER 28, 1995
<PAGE>
2
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Summary..................................................................... 3
Annual Operating Expenses................................................... 4
Financial Highlights........................................................ 5
The Trust................................................................... 6
The Short-Term Maturity Portfolio........................................... 6
The Adjustable Rate Portfolio............................................... 7
Portfolio Management Policies............................................... 7
The Adviser................................................................. 8
The Administrator........................................................... 9
The Shareholder Servicing Agent............................................. 9
The Distributor............................................................. 9
Trustees and Officers of the Trust.......................................... 10
Purchase and Redemption of Shares........................................... 11
Dividends................................................................... 12
Determination of Net Asset Value............................................ 12
Performance................................................................. 12
Computation of Yield........................................................ 13
Calculation of Total Return................................................. 13
Federal Taxes............................................................... 13
State Taxes................................................................. 14
</TABLE>
<TABLE>
<S> <C>
General Information......................................................... 15
The Trust................................................................... 15
Description of Shares....................................................... 15
Shareholder Liability....................................................... 15
Limitation of Trustees' Liability........................................... 15
Investment Limitations...................................................... 16
Non-Fundamental Policies.................................................... 17
Voting Rights............................................................... 18
Reporting................................................................... 18
Shareholder Inquiries....................................................... 18
Portfolio Transactions...................................................... 18
5% Shareholders............................................................. 19
Counsel and Independent Accountant.......................................... 19
Custodian................................................................... 19
Description of Permitted Investments and Risk Factors....................... 20
Experts..................................................................... 23
Financial Statements........................................................ 23
Appendix.................................................................... A-1
</TABLE>
<PAGE>
SUMMARY
CUFUND (THE "TRUST") IS A NO-LOAD, DIVERSIFIED, OPEN-END MANAGEMENT
INVESTMENT COMPANY THAT PROVIDES A CONVENIENT WAY FOR FEDERAL AND STATE-
CHARTERED CREDIT UNIONS TO INVEST IN PROFESSIONALLY MANAGED PORTFOLIOS OF
SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE TRUST'S SHORT-
TERM MATURITY AND ADJUSTABLE RATE PORTFOLIOS (EACH, A "PORTFOLIO").
What is the Investment Objective? The Short-Term Maturity Portfolio seeks a
high level of income consistent with safety of capital. The Adjustable Rate
Portfolio seeks higher levels of current income while reducing principal
volatility. There is no assurance that either Portfolio will meet its
investment objective. See "Investment Objective" for each Portfolio.
What are the Permitted Investments? Each Portfolio's assets will be invested
exclusively in obligations that constitute authorized investments for federal
credit unions. When market conditions are favorable, the Short-Term Maturity
Portfolio will be predominantly invested in mortgage-backed securities. The
Adjustable Rate Portfolio will invest at least 65% of its assets in adjustable
rate securities.
What are the Risks Involved with an Investment in the Portfolios? Each
Portfolio's investments are subject to market and interest rate fluctuations
which may affect the value of the Portfolio's shares. In addition, the
mortgage-backed securities that the Portfolios may invest in are subject to the
risk of prepayment during periods of declining interest rates, which may affect
the Portfolios' ability to lock-in longer term rates during such periods. See
"Investment Policies" for each Portfolio and the "Description of Permitted
Investments and Risk Factors."
Who is the Adviser? Southwest Corporate Federal Credit Union serves as the
Adviser of the Trust and is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of .32% of the average daily net assets of each
Portfolio. The Adviser has voluntarily agreed to waive its fee and reimburse
the Trust for other expenses to the extent necessary to limit the operating
expenses of each Portfolio to .39%. The Adviser reserves the right, in its sole
discretion, to terminate this voluntary waiver at any time. See "The Adviser."
Who is the Administrator? SEI Financial Management Corporation serves as the
Administrator of the Trust under an Administration Agreement and is entitled to
an annual fee that is based on the greater of (i) $214,000, or (ii) .09% of the
average daily net assets of the Trust up to $750 million, and .0725% of the
average daily net assets of the Trust when such amount exceeds $750 million.
See "The Administrator."
Who is the Shareholder Servicing Agent? SEI Financial Management Corporation
acts as the transfer agent, dividend disbursing agent, and shareholder
servicing agent for the Trust under the Administration Agreement. See "The
Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as the exclusive
distributor of the Trust's shares. No compensation is paid to the Distributor
for distribution services. See "The Distributor."
How are Shares Purchased and Redeemed? Purchases and redemptions may be made
through the Distributor on a day on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Day"). A
Purchase Order will be effective as of the day received by the Distributor if
the Distributor receives the order prior to 4:00 p.m., Eastern time and the
Custodian receives federal funds before 12:00 p.m., Eastern time on the next
Business Day. Redemption Orders must be placed prior to 4:00 p.m., Eastern time
on any Business Day for the order to be accepted that day. See "Purchase and
Redemption of Shares."
How are Dividends Paid? Substantially all of the net investment income
(exclusive of capital gains) of each Portfolio is declared daily and
distributed in the form of monthly dividends to Shareholders. Any capital gain
is distributed at least annually. Distributions are paid in additional shares
unless the Shareholder elects to take the payment in cash. See "Dividends."
3
<PAGE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
SHORT-TERM ADJUSTABLE
MATURITY RATE
PORTFOLIO PORTFOLIO
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<S> <C> <C>
Advisory Fees (after fee waivers)(1)(2)................... .19% .20%
Other Expenses(3)......................................... .20% .19%
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Total Operating Expenses(2)............................... .39% .39%
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</TABLE>
(1) The Adviser has agreed to voluntarily waive its fee in an amount that
operates to limit net operating expenses of each Portfolio to not more
than .39% of average daily net assets. The Adviser reserves the right, in
its sole discretion, to terminate this voluntary waiver at any time.
Absent the waiver of advisory fees, Advisory Fees and Total Operating
Expenses, as a percentage of average net assets, would have been .32% and
.51%, respectively, for the Short Term Maturity Portfolio and .32% and
.51%, respectively, for the Adjustable Rate Portfolio. Additional
information may be found under "The Adviser" and "The Administrator."
(2) The Advisory Fees and Total Operating Expenses set forth above have been
restated from historical figures to reflect an estimate of current
expenses.
(3) Administration fees are calculated at an annual rate which is the greater
of: (i) $214,000 or (ii) .09% of the average daily net assets of the Trust
up to $750 million, and .0725% of the average daily net assets of the
Trust exceeding $750 million. See "The Administrator."
EXAMPLE
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<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS. 10 YRS.
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<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment in either Portfolio assuming 5%
annual return and redemption at the end of each
time period...................................... $4.00 $13.00 $22.00 $49.00
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</TABLE>
The example is based upon the total operating expenses of each Portfolio as
set forth in the "Annual Operating Expenses" table above. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following information on Financial Highlights has been audited by Arthur
Andersen LLP, independent public accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto which appear in this Prospectus and Statement of
Additional Information. Additional information about the performance of the
Portfolios, including management's discussion of the Portfolios' performance,
is contained in the Trust's annual report to Shareholders, which may be
obtained upon request without charge by contacting the Trust's Administrator.
<TABLE>
<CAPTION>
ADJUSTABLE RATE PORTFOLIO SHORT-TERM MATURITY PORTFOLIO
----------------------------------- -----------------------------------
06/01/94 06/01/93 06/15/92(1) 06/01/94 06/01/93 06/15/92(1)
TO 05/31/95 TO 05/31/94 TO 05/31/93 TO 05/31/95 TO 05/31/94 TO 05/31/93
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... 9.96 10.02 10.00 9.59 10.00 10.00
- -------------------------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income.. 0.53 0.37 0.38 0.50 0.41 0.44
Net Gains on Investment
Securities............ (0.02) (0.06) 0.02 0.14 (0.38) 0.01
- -------------------------------------------------------------------------------------------------
Total from Investment
Operations........... 0.51 0.31 0.40 0.64 0.03 0.45
- -------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net
Investment Income..... (0.53) (0.37) (0.38) (0.50) (0.41) (0.45)
Capital Gain
Distributions......... -- -- -- -- (0.03) --
- -------------------------------------------------------------------------------------------------
Total Distributions... (0.53) (0.37) (0.38) (0.50) (0.44) (0.45)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period................. 9.94 9.96 10.02 9.73 9.59 10.00
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Total Return............ 5.25% 3.19% 4.22% 6.92% 0.23% 4.77%
- -------------------------------------------------------------------------------------------------
Ratios and Supplemental
Data
- -------------------------------------------------------------------------------------------------
Net Assets, End of Pe-
riod (000)............. 162,147 183,486 172,953 35,050 41,737 20,288
Ratio of Expenses to
Average Net Assets, Net
of Fee Waivers......... 0.38% 0.38% 0.39% 0.38% 0.38% 0.39%
Ratio of Expenses to
Average Net Assets
Excluding Fee Waivers.. 0.51% 0.51% 0.55% 0.51% 0.55% 0.64%
Ratio of Net Investment
Income to Average Net
Assets, Net of Fee
Waivers................ 5.34% 3.70% 3.94% 5.24% 4.23% 4.69%
Ratio of Net Investment
Income to Average Net
Assets Excluding Fee
Waivers................ 5.21% 3.57% 3.78% 5.11% 4.06% 4.44%
Portfolio Turnover Rate. 3.51% 67.22% 70.58% 52.98% 147.70% 188.15%
- -------------------------------------------------------------------------------------------------
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</TABLE>
(1)Commencement of operations. Ratios and total returns for this period have
been annualized.
Amounts designated as "--" are either $0 or have been rounded to $0.
5
<PAGE>
THE TRUST
CUFUND (the "Trust") is a diversified, open-end management investment company
organized as a Massachusetts business trust on November 22, 1991 that offers
units of beneficial interest ("shares") in one of two portfolios
("Portfolios")--the Short-Term Maturity Portfolio and the Adjustable Rate
Portfolio. Each share of each Portfolio represents an undivided, proportionate
interest in that Portfolio. Shares of the Trust are sold without a sales
charge.
The Trust is offered solely to state and federally chartered credit unions.
Shares of the Trust 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 ("FCUA") and Part 703 of the National
Credit Union Administration ("NCUA") Rules and Regulations ("NCUA Rules"). The
Trust intends to continually monitor changes in the applicable laws, rules and
regulations governing eligible investments, including new investments, for
federally chartered credit unions and to take such action as may be necessary
to assure that the Trust's investments, and therefore shares of the Trust,
continue to qualify as eligible investments under the FCUA.
Sections 107(7), 107(8) and 107(15) of the FCUA set forth those securities,
deposits and other obligations in which federally chartered credit unions may
invest. The Trust's investments consist exclusively of assets designed to
qualify as eligible investments if owned directly by a federally chartered
credit union. Shares of the Trust may or may not qualify as eligible
investments for particular state chartered credit unions. Accordingly, the
Trust encourages, but does not require, each state chartered credit union to
consult qualified legal counsel concerning whether the Trust's shares are
permissible investments for that credit union. While the Adviser will attempt
to assure that the Trust follows the investment policies set forth herein, the
Trust cannot be responsible for compliance by participating state chartered
credit unions with limitations on permissible investments to which they may be
subject.
The Trust is designed as a convenient and economic vehicle for state and
federally chartered credit unions seeking to obtain the yields available on
short-term and adjustable rate investments authorized under the FCUA. The Trust
will offer to credit unions an alternative to direct investments in eligible
investments, with the intended financial advantage of quantity purchases. For
example, a higher yield may be available when eligible investments are bought
in substantial amounts. Investment in the Trust will relieve the credit unions
of many of the investment and administrative problems usually associated with
the direct purchase and investment management of these eligible investments,
such as scheduling maturities and reinvestments, safekeeping of securities,
surveying the market for the best price at which to buy and sell, and separate
principal and interest recordkeeping.
THE SHORT-TERM MATURITY PORTFOLIO
INVESTMENT OBJECTIVE
The Short-Term Maturity Portfolio seeks a high level of income consistent with
safety of capital. There is no assurance that the investment objective will be
met.
INVESTMENT POLICIES
The Short-Term Maturity Portfolio's assets will be invested exclusively in
obligations that are authorized investments for federal credit unions under the
FCUA consisting of obligations issued or fully guaranteed as to principal and
interest by the United States Government and its agencies or instrumentalities;
certificates of deposit, banker's acceptances and time deposits issued or
guaranteed by United States banks with total assets exceeding $1 billion,
including comparable U.S. dollar denominated obligations of foreign branches of
such banks; mortgage-backed securities; share certificates issued by corporate
credit unions that operate in compliance with Part 704 of the NCUA Rules and
are examined by the NCUA; repurchase agreements and reverse repurchase
agreements involving securities that constitute permissible investments for the
Portfolio; and federal funds. When market conditions are favorable, the
Portfolio will be predominantly invested in mortgage-backed securities. See
"Portfolio Management Policies." For additional information regarding permitted
investments of the Portfolio, see "Description of Permitted Investments and
Risk Factors."
Under normal circumstances, the Short-Term Maturity Portfolio will maintain an
average weighted maturity of three years or less. The measure of maturity will
be the expected life of securities held by the Portfolio. See "Description of
Permitted Investments and Risk Factors."
6
<PAGE>
THE ADJUSTABLE RATE PORTFOLIO
INVESTMENT OBJECTIVE
The Adjustable Rate Portfolio seeks higher levels of current income while
reducing principal volatility. There is no assurance that the investment
objective will be met.
INVESTMENT POLICIES
The Adjustable Rate Portfolio's assets will be invested exclusively in
obligations authorized under the FCUA (see "The Short-Term Maturity Portfolio--
Investment Policies"). The Adjustable Rate Portfolio will, under normal
circumstances, invest at least 65% of its assets in adjustable rate mortgage
securities ("ARMs") or other adjustable rate securities that have interest
rates which reset at periodic intervals. ARMs are pass-through certificates
representing interests in a pool of adjustable rate mortgages. These adjustable
rate mortgages and other adjustable rate securities have interest rates that
reset at periodic intervals of one year or less based upon a specified index
and thus may experience less price volatility due to changes in market interest
rates than other debt securities. However, these securities will still
experience some price fluctuations since the interest rate adjustments may be
subject to caps and may not correlate completely to market interest rates. For
a description of the Portfolio's permitted investments, see "Description of
Permitted Investments and Risk Factors."
Under normal circumstances, the Adjustable Rate Portfolio expects to maintain
an average weighted maturity of 5 years.
PORTFOLIO MANAGEMENT POLICIES
The Adviser will seek to enhance the yield of each Portfolio by taking
advantage of yield disparities or other factors that occur in the government
securities and money markets. The Trust 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 the Adviser's judgment as to a
desirable portfolio maturity structure or if such disposition is believed to be
advisable due to other circumstances or considerations.
Mortgage-backed securities purchased by a Portfolio will be issued or
guaranteed as to payment of principal and interest by the U.S. Government or
its agencies or instrumentalities or, if backed by private issuers, rated in
one of the two highest rating categories by a nationally recognized statistical
rating organization ("NRSRO"). The principal Governmental issuers or guarantors
of mortgage-backed securities are the Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), and Federal Home Loan
Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed by the full
faith and credit of the U.S. Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Guarantees of each Portfolio's
securities by the U.S. Government or its agencies or instrumentalities
guarantee only the payment of principal and interest on the guaranteed
securities, and do not guarantee the securities' yield or value or the yield or
value of the Portfolio's shares. Each Portfolio may purchase mortgage-backed
securities that are backed or collateralized by fixed, adjustable or floating
rate mortgages.
Under normal circumstances, the Adjustable Rate Portfolio will invest at least
25% of its total assets in privately issued mortgage-backed securities
(securities that are not issued or guaranteed by the U.S. Government or its
agencies or instrumentalities), including securities nominally issued by a
governmental entity (such as the Resolution Trust Corporation) that is not
responsible for the payment of principal and interest on such securities. While
such securities are not obligations of a governmental entity and thus may bear
a greater risk of nonpayment, the timely payment of principal and interest
normally is supported, at least partially, by various forms of insurance or
guarantees. There can be no assurance, however, that such credit enhancements
will support full payment of the principal and interest on such obligations. As
stated above, each Portfolio intends to invest only in privately issued,
mortgage-backed securities rated in one of the two highest rating categories.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, each Portfolio may invest up to 100% of its assets in the
money market instruments described above and in the "Description of Permitted
Investments and Risk Factors," and may hold a portion of its assets in cash.
While each Portfolio expects to invest primarily in mortgage-backed securities,
the Adviser may decide to reduce either Portfolio's holdings at a time when it
believes mortgage-backed securities are trading at a high premium, experiencing
high levels of prepayments, trading
7
<PAGE>
at historically narrow effective margins, or are otherwise less attractive
investments with a risk of capital depreciation.
Under normal circumstances, it is anticipated that the annual portfolio
turnover rate for each Portfolio will not exceed 200%. This rate of portfolio
turnover will likely result in higher transaction costs and higher levels of
capital gains than if the turnover rate was lower.
The Portfolios will not purchase any obligation of any bank or savings and loan
association that does not qualify as a "Section 107(8) institution" under the
FCUA and regulations thereunder.
Fluctuations in the price of securities held by a Portfolio will cause
fluctuations in the net asset value of that Portfolio's shares.
Some of the permitted investments for the Portfolios may not be permitted
investments for particular state chartered credit unions. See "The Trust."
THE ADVISER
The Trust and Southwest Corporate Federal Credit Union (the "Adviser") have
entered into an investment advisory agreement dated May 1, 1992 (the "Advisory
Agreement"). Under the Advisory Agreement, the Adviser makes the investment
decisions for the assets of each Portfolio and continuously reviews, supervises
and administers each Portfolio's investment programs, subject to the
supervision of, and policies established by, the Trustees of the Trust. Each
Portfolio may also execute brokerage or other agency transactions through an
affiliate of the Adviser for which the affiliate receives compensation.
The Adviser is a federally chartered corporate credit union located at 4455 LBJ
Freeway, Farmers Branch, TX 75244-5998. As of August 31, 1995, the Adviser had
total assets of approximately $3.3 billion, ranking it as the third largest
corporate credit union in the United States. Founded in 1975, the Adviser
provides credit unions with investment products and services; payment systems
services; correspondent financial services; financial management information;
and credit services. The Adviser registered as an investment adviser in 1989
and, as of August 31, 1995, had credit union funds under advisement in its
Investment Advisory Service of approximately $1.6 billion.
Linda K. Bowers, Senior Investment Adviser--Portfolio Analyst of the Adviser,
joined the Adviser in 1993 and has served as portfolio manager for the
Adjustable Rate Portfolio since September, 1993. She also advises approximately
20 portfolios of member credit unions under the Network Investment Advisory
Service. She has worked in the fixed income markets since 1985.
Bruce M. Fox, Vice President of Funds Management--joined the Adviser in 1991
and has served as portfolio manager of the Short-Term Maturity Portfolio since
August, 1994. He also advises approximately 20 portfolios of member credit
unions under the Network Investment Advisory Service, and is responsible for
the Adviser's reverse repurchase agreement portfolio of approximately $1.4
billion. Prior to 1991, Mr. Fox was Cash Manager at Members Insurance Group.
Mr. Fox is also responsible for management of Southwest Corporate Federal
Credit Union's funds management area.
The Adviser is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of .32% of the average daily net assets of each Portfolio.
California regulations require that the Adviser waives its advisory fee on that
portion of a Portfolio's assets invested in other open-end investment
companies. In addition, the Adviser has voluntarily agreed to waive all or a
portion of its fees and reimburse expenses in order to limit the operating
expenses of each Portfolio to not more than .39% of each Portfolio's average
daily net assets. The Adviser reserves the right, in its sole discretion, to
terminate this voluntary fee waiver at any time.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Portfolio (including amounts payable to the Adviser but
excluding interest, taxes, brokerage costs, litigation, and other extraordinary
expenses) exceeds limitations established by the State of California (currently
significantly higher than the Trust's expense ratio), the Adviser will bear the
amount of such excess. The Adviser will not be required to bear expenses of the
Trust or either Portfolio to an extent which would result in a Portfolio's
inability to qualify as a regulated investment company under provisions of the
Internal Revenue Code.
The Advisory Agreement provides that the Adviser shall not be protected against
any liability to the Trust or its Shareholders by reason of willful
8
<PAGE>
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard of its obligations or duties under the
Advisory Agreement.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Advisory Agreement or "interested persons" 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 in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to each Portfolio by a majority of the outstanding shares of that
Portfolio, on not less than 30 days nor more than 60 days written notice to the
Adviser, or by the Adviser on 90 days written notice to the Trust.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator") and the Trust are
parties to an administration agreement dated May 1, 1992 (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides the Trust with overall administrative services (other than investment
advisory services) including all necessary office space, equipment, personnel,
and facilities.
The Trust pays the Administrator a fee, which is calculated at an annual rate
which is the greater of: (i) .09% of the average daily net assets of the Trust
up to $750 million, and .0725% of the average daily net assets of the Trust
exceeding $750 million, or (ii) $214,000.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations under the
Administration Agreement.
The Administration Agreement shall remain in effect for a period of two years
after the date of the Agreement and shall continue in effect for successive
periods of one year subject to review by the Trustees of the Trust.
The Administrator, a wholly owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. Alfred P.
West, Jr., Henry H. Greer and Carmen V. Romeo constitute the Board of Directors
of the Administrator. Mr. West is the Chairman of the Board and Chief Executive
Officer of the Administrator and of SEI. Mr. Greer is the President and Chief
Operating Officer of the Administrator and SEI. SEI and its subsidiaries are
leading providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors and money managers. The Administrator also serves as administrator to
the following other mutual funds: SEI Liquid Asset Trust; SEI Tax Exempt Trust;
SEI Institutional Managed Trust; SEI Index Funds; SEI International Trust; SEI
Daily Income Trust; Stepstone Funds; FFB Lexicon Funds; The Compass Capital
Group; The Pillar Funds; STI Classic Funds; CoreFunds, Inc.; First American
Funds, Inc.; First American Investment Funds, Inc.; Rembrandt Funds(R); The
Arbor Fund; 1784 Funds; The PBHG Funds, Inc.; The Advisors' Inner Circle Fund;
Marquis SM Funds; Morgan Grenfell Investment Trust; Inventor Funds, Inc.; The
Achievement Funds Trust; Bishop Street Funds; Crest Funds Inc.; Conestoga
Family of Funds; and Insurance Investment Products Trust.
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the transfer agent, dividend
disbursing agent, and shareholder servicing agent for the Trust. Compensation
for these services is paid under the Administration Agreement. See "The
Administrator."
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a registered broker-dealer
that is a wholly owned subsidiary of SEI, and the Trust are parties to a
distribution agreement (the "Distribution Agreement") dated May 1, 1992. Each
Portfolio may also execute brokerage or other agency transactions through the
Distributor for which the Distributor receives compensation.
9
<PAGE>
The Distribution Agreement appoints the Distributor as the exclusive
distributor of the Trust and provides that the Trust be sold without a minimum
sales quota. The Distribution Agreement is renewable annually and may be
terminated at any time by the Distributor, trustees who are not "interested
persons" of the Trust as that term is defined in the Investment Company Act of
1940, as amended (the "1940 Act"), and who have no direct or indirect financial
interest in the operation of a Distribution Plan or in any agreements related
thereto ("Qualified Trustees") or by a majority vote of the outstanding
securities of the Trust upon not more than 60 days written notice by either
party.
No compensation is paid to the Distributor for distribution services.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under
the laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described above, certain
companies provide essential services to the Trust. The Trustees and executive
officers of the Trust and their principal occupations for the last five years
are set forth below.
JAMES L. BRYAN*--Trustee--777 E. Campbell Road, Suite 731, Richardson, Texas
75081. President of Texins Credit Union, Richardson, Texas (1974-present).
GARY L. JANACEK*--Trustee--2401 S. 31st Street, Temple, Texas 76508. President
of Scott and White Employees Credit Union, Temple, Texas (1977-present)
ARNO J. EASTERLY*--Trustee--2701 Village Lane, Bossier City, Louisiana 71112.
President of Barksdale Federal Credit Union, Barksdale AFB, Louisiana (1984-
present).
DR. MARTHA ROMAYNE SEGER--Trustee--4810 E. Scarlett Street, Tucson, Arizona
85711. John M. Olin Distinguished Fellow in the Eller Center for the Study of
the Private Market Economy at The University of Arizona, Tucson (1991-present).
Former Governor of the Federal Reserve System in Washington, D.C. (1984-91).
- --------
* Messrs Bryan, Janacek and Easterly are Trustees who may be deemed to be
"interested" persons of the Trust as the term is defined in the 1940 Act.
RICHARD HELBER--Trustee--2800 Civic Center Drive, Southfield, Michigan 48076.
President of Central Corporate Credit Union, Southfield, Michigan (1995-
present).
DAVID G. LEE--President, Chief Executive Officer--Senior Vice President of the
Administrator and Distributor since 1993. Vice President of the Administrator
and Distributor 1991-1993. President, GW Sierra Trust Funds before 1991.
CARMEN V. ROMEO--Treasurer, Assistant Secretary--Director, Executive Vice
President, Chief Financial Officer and Treasurer of SEI since 1977. Director,
Executive Vice President and Treasurer of the Administrator and the Distributor
since 1981.
STEPHEN G. MEYER--Controller, Assistant Secretary--CPA--1995 to Present;
Director--Internal Audit and Risk Management--SEI Corporation--1992 to 1995;
Coopers & Lybrand, Senior Associate--1990-1992; Vanguard Group of Investments,
Internal Audit Supervisor--Prior to 1990.
RICHARD W. GRANT--Secretary--2000 One Logan Square, Philadelphia, Pennsylvania
19103, Partner of Morgan, Lewis & Bockius (law firm), Counsel to SEI, the
Trust, Administrator and the Distributor for the past five years.
KEVIN P. ROBINS--Vice President, Assistant Secretary--Senior Vice President and
General Counsel of SEI, the Administrator and the Distributor and Assistant
Secretary of SEI since 1994. Secretary of the Administrator and the Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator
and the Distributor 1992-1994. Associate, Morgan, Lewis & Bockius (law firm)
prior to 1992.
SANDRA K. ORLOW--Vice President, Assistant Secretary--Vice President and
Assistant Secretary of SEI, the Administrator and the Distributor since 1983.
ROBERT B. CARROLL--Vice President, Assistant Secretary--Vice President,
Assistant Secretary of SEI, the Administrator and the Distributor since 1994.
United States Securities and Exchange Commission, Division of Investment
Management, 1990-1994. Associate, McGuire, Woods, Battle & Boothe (law firm)
prior to 1990.
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<PAGE>
KATHRYN L. STANTON--Vice President, Assistant Secretary--Vice President and
Assistant Secretary of SEI, the Administrator and the Distributor since 1994.
Associate, Morgan, Lewis & Bockius (law firm) 1989 to 1994.
TODD CIPPERMAN--Vice President, Assistant Secretary--Vice President and
Assistant Secretary of SEI, the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm) 1994-1995. Associate, Winston & Strawn
(law firm) 1991-1994.
JOSEPH M. LYDON--Vice President, Assistant Secretary--Director of Business
Administration of Fund Resources, SEI Corporation since April, 1995; Vice
President of Fund Group and Vice President of the Adviser--Dreman Value
Management, LP and President of Dreman Financial Services, Inc. prior to 1995.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for unaffiliated Trustees.
Compensation of officers and affiliated Trustees of the Trust is paid by the
Administrator.
The following table exhibits Trustee compensation for the fiscal year ended May
31, 1995.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION PENSION OR
FROM REGISTRANT RETIREMENT ESTIMATED TOTAL COMPENSATION FROM
FOR THE FISCAL BENEFITS ACCRUED ANNUAL REGISTRANT AND FUND COMPLEX
YEAR ENDED AS PART OF FUND BENEFITS UPON PAID TO TRUSTEES FOR THE
NAME OF PERSON MAY 31, 1995 EXPENSES RETIREMENT FISCAL YEAR ENDED MAY 31, 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dr. M.R. Seger.......... $24,000 N/A N/A $24,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
J.L. Bryan.............. $ 4,000 N/A N/A $ 4,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
A.J. Easterly........... $ 4,000 N/A N/A $ 4,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
G.L. Janacek............ $ 4,000 N/A N/A $ 4,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
J.A. Johnson*........... $ 3,000 N/A N/A $ 3,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
A.E. Williams**......... $ 1,000 N/A N/A $ 1,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
R. Helber............... $ 1,000 N/A N/A $ 1,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
R. Nesher***............ $ 0 N/A N/A $ 0 for service on 1 board
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Mr. Johnson resigned from the Board of Trustees effective January 30, 1995.
** Mr. Williams is deceased.
*** Mr. Nesher resigned from the Board of Trustees effective September 7, 1995.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of either Portfolio may be made on a day on
which both the New York Stock Exchange and the Federal Reserve wire system are
open for business ("Business Day") by placing orders with the Distributor.
The minimum initial investment in either Portfolio of the Trust is $100,000.
There is no minimum for subsequent investments.
A purchase order will be effective as of the day received by the Distributor if
the Distributor receives the order before 4:00 p.m. Eastern time, and the
Custodian receives federal funds before 12:00 p.m. Eastern time on the next
Business Day. The purchase price of shares of a Portfolio is the net asset
value next determined after a purchase order is received by the Trust. The net
asset value per share of a Portfolio is determined by dividing the total market
value of a Portfolio's investments and other assets, less any liabilities, by
the total outstanding shares of the Portfolio. Net asset value per share is
determined as of the close of business of the New York Stock Exchange
(currently 4:00 p.m. Eastern time), on any Business Day . See "Determination of
Net Asset Value." Purchases will be made in full and fractional shares of the
Trust calculated to three decimal places.
Shareholders who desire to redeem shares of either Portfolio must place their
redemption orders prior to 4:00 p.m. Eastern time on any Business Day for the
order to be accepted on that Business Day. The redemption price of the shares
is the net asset value of the Portfolio next determined after receipt by the
Distributor of the redemption order. Payment on redemption will be made as
promptly as possible and, in any event, within seven days
11
<PAGE>
after the redemption order is received, as required by the 1940 Act. It is
currently the Trust's policy to pay for redemptions in cash.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission (the "SEC")
by rule or regulation) as a result of which disposal or valuation of the
Portfolio's securities is not reasonably practicable, or for such other periods
as the SEC has by order permitted. The Trust also reserves the right to suspend
sales of shares of a Portfolio for any period during which the New York Stock
Exchange, the Adviser, the Administrator and/or the Custodian are not open for
business for any reason.
Purchase and redemption orders may be placed by telephone. Neither the Trust
nor its transfer agent nor subagent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent and subagent may each employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, including requiring a
form of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. The Trust or the Trust's
transfer agent may be liable for losses resulting from fraudulent or
unauthorized instructions if it does not employ these procedures. If market
conditions are extraordinarily active, or other extraordinary circumstances
exist, Shareholders who experience difficulties placing redemption orders by
telephone may wish to consider placing the redemption order by other means.
DIVIDENDS
Substantially all of the net investment income (not including capital gain) of
each Portfolio is distributed in the form of monthly dividends to Shareholders.
Net investment income consists of accrued interest and any general income of
the Trust allocated to a Portfolio less the estimated expenses of such
Portfolio and the general expenses of the Trust allocated to such Portfolio
applicable to that period. Dividends are declared daily, just prior to a
determination of net asset value. If a purchase order is placed on the
preceding Business Day, shares begin earning dividends on the Business Day
federal funds payment is received by the Custodian. If a purchase order and
federal funds are received the same Business Day, shares begin earning
dividends on the next Business Day. Currently, capital gains of a Portfolio, if
any, will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
unless the Shareholder has elected at the time of initial investment to take
such payments in cash. Shareholders may change their election by providing
written notice to the Administrator at least 15 days prior to the change.
Dividends and distributions of each Portfolio are paid on a per-share basis.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is calculated by adding the
value of securities and other assets, subtracting liabilities and dividing by
the number of outstanding shares.
Pursuant to policies established by the Board of Trustees of the Trust, the
Administrator values the securities of each Portfolio based upon valuations
provided by an independent pricing service. The pricing service relies
primarily on prices of actual market transactions as well as trader quotations.
However, the service may also use a matrix system to determine valuations of
fixed income securities, which system considers such factors as security
prices, yields, maturities, call features, ratings and developments relating to
specific securities in arriving at valuations.The procedures of the pricing
service and its valuations are reviewed by the officers of the Trust under the
general supervision of the Board of Trustees. In addition, securities and other
assets for which market prices are either (i) not readily available, or (ii)
deemed by the Adviser to be materially inaccurate, are valued at fair value as
determined in good faith by the Adviser under procedures established by the
Board of Trustees.
PERFORMANCE
From time to time, each Portfolio may advertise yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. The 30 day yield of a
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<PAGE>
Portfolio refers to the annualized income generated by an investment in the
Portfolio over a specified 30 day period. The 30 day yield is calculated by
assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment. See
"Computation of Yield."
The total return of a Portfolio refers to the average compounded rate of return
to a hypothetical investment, for designated time periods (including but not
limited to the period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions. See "Calculation of Total Return."
Each Portfolio's performance may from time to time be compared to other mutual
funds tracked by mutual fund rating services, to broad groups of comparable
mutual funds or to unmanaged indices which may assume investment of dividends
but generally do not reflect deductions for administrative and management
costs. Indices that may be used are as follows: for the Short-Term Maturity
Portfolio--1 year and 3 year Constant Maturity Treasury Adjustable Rate
("CMT"); for the Adjustable Rate Portfolio--1 month and 6 month London
Interbank Offered Rate ("LIBOR"), 1 year CMT, Effective Fed Funds Rate, and 30
day Donoghue Index.
COMPUTATION OF YIELD
From time to time, each Portfolio may advertise a 30 day yield. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Portfolio refers to the annualized income generated
by an investment in the Portfolio over a specified 30 day period. The yield is
calculated by assuming that the income generated by the investment during that
30 day period is generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula: Yield = 2[((a-b)/(cd)+1)/6/-1] where a = dividends
and interest earned during the period; b = expenses accrued for the period (net
of reimbursement); c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and d = the maximum
offering price per share on the last day of the period.
For the 30-day period ended May 31, 1995, the end of the Trust's most recent
fiscal year, the yield for each Portfolio was: Short-Term Maturity Portfolio,
5.38% and Adjustable Rate Portfolio, 6.15%.
CALCULATION OF TOTAL RETURN
From time to time, each Portfolio may advertise total return. The total return
of a Portfolio refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period. In particular, total return will be calculated according to the
following formula: P(1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
designated time period as of the end of such period. For the fiscal period
ended May 31, 1995 the total return for each Portfolio was: Short-Term Maturity
Portfolio, 6.92% and Adjustable Rate Portfolio, 5.25%. For the period from June
15, 1992 (commencement of operations) through May 31, 1995, the average annual
total return for each Portfolio was: Short Term Maturity, 3.92% and Adjustable
Rate Portfolio, 4.22%.
FEDERAL TAXES
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Prospectus and Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of the Portfolios or their Shareholders.
Credit unions generally are exempt from federal income taxation on income,
dividends, and capital gains realized as a result of purchasing, holding, or
redeeming shares of the Trust. Shareholders are, however, urged (but not
required) to consult their tax advisors regarding specific questions as to
federal, state and local income taxes including,
13
<PAGE>
without limitation, issues relating to unrelated business income taxes.
Tax Status of the Portfolios:
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other Portfolio. Each Portfolio intends to
qualify for the special tax treatment afforded regulated investment companies
("RICs") under the Code, so that it will be relieved of federal income tax on
that part of its net investment income and net capital gains (the excess of
long-term capital gain over short-term capital loss) which is distributed to
Shareholders.
Tax Status of Distributions:
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to Shareholders. Dividends from net
investment income will be taxable to Shareholders as ordinary income whether
received in cash or in additional shares. Any net capital gain will be
distributed annually and will be taxed to Shareholders as long-term capital
gain, regardless of how long the Shareholder has held shares. Each Portfolio
will make annual reports to Shareholders of the federal income tax status of
all distributions.
In order to qualify for treatment as a RIC under the Code, each Portfolio must
distribute annually to its Shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) and also must meet several additional requirements. Among these
requirements are the following: (i) at least 90% of the Portfolio's gross
income each taxable year must be derived from dividends, interest, payments
with respect to securities loans, and gains from the sale or other disposition
of stock or securities, or certain other income; (ii) the Portfolio must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of stocks or securities held for less than three months; (iii) at
the close of each quarter of the Portfolio's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, United
States Government securities, securities of other RICs and other securities,
with such other securities limited, in respect to any one issuer, to an amount
that does not exceed 5% of the value of the Portfolio's assets and that does
not represent more than 10% of the outstanding voting securities of such
issuer; and (iv) at the close of each quarter of the Portfolio's taxable year,
not more than 25% of the value of its assets may be invested in securities
(other than United States Government securities or the securities of other
RICs) of any one issuer or two or more issuers which the Portfolio controls and
which are engaged in the same, similar or related trades or businesses. The
Trust's Adviser may reimburse the Trust for certain costs incurred.
If for any taxable year a Portfolio does not qualify for the special tax
treatment afforded RICs, all of its taxable income will be subject to federal
income tax at corporate rates without any deduction for distributions to its
Shareholders.
Notwithstanding the distribution requirement described above, which only
requires a Portfolio to distribute at least 90% of its annual investment
company taxable income and does not require any minimum distribution of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), a Portfolio will be subject to a nondeductible 4% federal excise
tax to the extent it fails to distribute by the end of any calendar year 98% of
its ordinary income for that year and 98% of its capital gain net income (the
excess of short and long-term capital gains over short and long-term capital
losses) for the one-year period ending on October 31 of that year, plus certain
other amounts.
Each Portfolio intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax.
Dividends declared by a Portfolio in October, November or December of any year
and payable to Shareholders of record on a date in that month will be deemed to
have been paid by the Portfolio and received by the Shareholder on December 31
of that year, if paid by the Portfolio at any time during the immediately
succeeding January.
Sale or redemption of Portfolio shares is a taxable event to the Shareholder.
STATE TAXES
Income received on direct U.S. obligations is exempt from tax at the state
level when received directly and may be exempt, depending on the state, when
received by a Shareholder from a
14
<PAGE>
Portfolio provided certain conditions are satisfied. Interest received on
repurchase agreements may not be exempt from state taxation. Each Portfolio
will inform Shareholders annually of the percentage of income and distributions
derived from direct U.S. obligations. Shareholders should consult their tax
advisors to determine whether any portion of the income dividends received from
a Portfolio is considered tax exempt in their particular states.
Each Portfolio is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. See "Federal Taxes."
GENERAL INFORMATION
THE TRUST
The Declaration of Trust under which the Trust was organized permits the Trust
to offer separate portfolios of shares. All consideration received by the Trust
for shares of any portfolio and all assets of such portfolio belong only to
that portfolio and would be subject only to liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
For the Short-Term Maturity Portfolio, for the fiscal periods ended May 31,
1993, May 31, 1994 and May 31, 1995, (i) the fees paid to the Administrator and
Shareholder Servicing Agent by the Portfolio were $12,100, $25,773 and $40,076,
respectively, and (ii) the fees payable to the Adviser were $43,000, $91,635
and $128,971, respectively, of which $33,500, $46,444 and $58,150 were waived,
respectively. For the Adjustable Rate Portfolio, for the fiscal period ended
May 31, 1993, May 31, 1994 and May 31, 1995, (i) the fees paid to the
Administrator and Shareholder Servicing Agent by the Portfolio were $144,200,
$158,486 and $167,753, respectively, and (ii) the fees payable to the Adviser
were $512,600, $563,497 and $544,498, respectively, of which $260,800, $222,776
and $208,635 were waived, respectively.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of a Portfolio, each of which represents an equal proportionate interest
in that Portfolio with each other share of the Portfolio. Shares are entitled
upon liquidation to a pro rata share in the net assets of the respective
Portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Board of Trustees of the Trust may create additional series
of shares. All consideration received by the Trust for shares of any additional
series and all assets in which such consideration is invested would belong to
that series and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the
obligations of the trust. Even if, however, the Trust were held to be a
partnership, the possibility of the Shareholders incurring financial loss for
that reason appears remote because (i) the Trust's Declaration of Trust
contains an express disclaimer of Shareholder liability for obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by or on behalf of the Trust
or the Trustees, and (ii) the Declaration of Trust provides for indemnification
out of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable for his or her
own willful defaults and shall not be liable for any neglect or wrongdoing of
any officer, agent, employee, investment adviser, administrator, principal
underwriter or custodian. The Declaration of Trust also provides that the Trust
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with actual or threatened litigation in which they may
be involved because of their offices with the Trust, unless it is determined in
the manner provided in the Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. However, nothing in the Declaration of Trust shall
protect or indemnify a Trustee against any liability for his or her willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
15
<PAGE>
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
"fundamental policies" of each Portfolio. Fundamental policies cannot be
changed with respect to a Portfolio without the consent of the holders of a
majority of the Portfolio's outstanding shares. The term "majority of the
Portfolio's outstanding shares" means the vote of (i) 67% or more of the
Portfolio's shares present at a meeting, if more than 50% of the outstanding
shares of the Portfolio are present or represented by proxy, or (ii) more than
50% of the Portfolio's outstanding shares, whichever is less.
Each Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed as
to principal and interest by the U.S. Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if as a
result of such purchase more than 5% of the total assets of the Portfolio would
be invested in the securities of such issuer. This restriction applies to 75%
of the Portfolio's total assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided
that this limitation does not apply to securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or repurchase agreements
involving such securities; and further provided that the Adjustable Rate
Portfolio will invest at least 25% of the value of its total assets in
mortgage-backed securities which are not issued or guaranteed by the U.S.
Government as described in this Prospectus, except when investing for temporary
defensive purposes.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of its total assets, except that
each Portfolio may enter into reverse repurchase agreements. Any borrowing will
be done from a credit union, corporate credit union or bank (any borrowing over
5% will be from a bank) and, to the extent that such borrowing exceeds 5% of
the value of the Portfolio's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall below
300%, the Portfolio shall, within three days thereafter or such longer period
as the SEC may prescribe by rules and regulations, reduce the amount of its
borrowings to such an extent that the asset coverage of such borrowings shall
be at least 300%. This borrowing provision is included solely to facilitate the
orderly sale of portfolio securities to accommodate heavy redemption requests
if they should occur and is not for investment purposes. All borrowings in
excess of 5% of a Portfolo's total assets will be repaid before making
additional investments and any interest paid on such borrowings will reduce
income.
4. Make loans, except that (a) a Portfolio may purchase or hold debt
instruments in accordance with its investment objective and policies; and (b) a
Portfolio may enter into repurchase agreements.
5. Pledge, mortgage or hypothecate assets, except to secure temporary
borrowings permitted by paragraph (3) above in aggregate amounts not to exceed
10% of total assets taken at current value at the time of the incurrence of
such loan.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts, provided that this
limitation shall not prohibit the purchase of securities of issuers that may
invest in such obligations and debt securities secured by real estate or
interests therein.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits as
necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a Portfolio security.
9. Purchase securities of other investment companies except for money market
funds, CMOs and REMICs (defined below) and then only as permitted by the 1940
Act and the rules and regulations thereunder. Under these rules and
regulations, the Portfolios are prohibited from acquiring the securities of
other investment companies if, as a result of such acquisition, the Portfolios
own more than 3% of the total voting stock of the company; securities issued by
any one investment company represent more than 5% of the total assets of either
Portfolio; or securities (other than treasury stock) issued by all investment
companies represent more than 10% of the total assets of either Portfolio.
Investment companies typically incur fees that are separate from those fees
incurred directly by the Portfolio. A Portfolio's purchase of such investment
company securities results in the layering of expenses, such that Shareholders
would indirectly bear a proportionate
16
<PAGE>
share of the operating expenses of such investment companies, including
advisory fees.
It is the position of the SEC's Staff that certain nongovernmental issuers of
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs") constitute investment companies pursuant to the
1940 Act and that investments in instruments issued by such entities are
subject to the limitations set forth above unless the issuers of such
instruments have received orders from the SEC exempting such instruments from
the definition of investment company.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulations or order of the SEC.
11. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or any investment
adviser of the Trust owns beneficially more than 1/2 of 1% of the shares or
securities of such issuer and all such officers, trustees, partners and
directors owning more than 1/2 of 1% of such shares or securities together own
more than 5% of such shares or securities.
12. Invest in interests in oil, gas or other mineral exploration or development
programs or oil, gas or mineral leases.
13. Purchase securities of any company which has (with predecessors) a record
of less than three years' continuing operations, except (i) obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or
(ii) municipal securities which are rated by at least two NRSROs, if, as a
result, more than 5% of the total assets (taken at fair market value) of the
Portfolio would be invested in such securities.
In addition,
14. CUFUND is not insured or insurable by the National Credit Union Share
Insurance Fund.
15. CUFUND is not supervised or examined by NCUA and is not subject to NCUA
oversight. It is the responsibility of each credit union investing in CUFUND to
evaluate the appropriateness of the investment and the suitable level of
concentration risk on their balance sheets.
16. Except for the initial shareholder, CUFUND investors are restricted to only
credit unions. CUFUND will refuse all offers of investment arising from other
non-credit union parties.
17. Each Portfolio of CUFUND will only invest in investments and engage in
transactions permitted for natural person federal credit unions under Sections
107(7), 107(8) and 107(15) of the FCUA and Part 703 of the NCUA Rules and
Regulations.
18. Any amendments, modifications, or changes to these fundamental policies
must be approved by the NCUA before becoming effective.
NON-FUNDAMENTAL POLICIES
Non-fundamental policies can be changed without Shareholder approval.
Each Portfolio may not:
1. Invest in warrants.
2. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of the Portfolio's assets. An illiquid security is a security which cannot be
disposed of promptly (within seven days) and in the usual course of business at
a price that approximates its carrying value by the Portfolio, and includes
repurchase agreements maturing in excess of seven days, time deposits with a
withdrawal penalty, non-negotiable instruments and instruments for which no
market exists.
3. Write or purchase puts, calls, options or combinations thereof.
4. Acquire more than 10% of the voting securities of any one issuer.
5. Invest in companies for the purpose of exercising control.
Credit unions that seek an independent certified accountant's opinion on their
financial statements in accordance with generally accepted accounting
principles ("GAAP") are required to account for investments in mutual funds
such as CUFUND at fair value each month. Credit unions that do not seek an
independent certified accountant's opinion in accordance with GAAP are required
to account for investments in mutual funds by the lower of cost or market each
month. This disclosure is intended to comply with the substance of an NCUA
requirement that the Adviser disclose the proper accounting treatment for
Shareholders investing in the Trust.
The foregoing percentages concerning the investment limitations and non-
fundamental policies of the Portfolios will apply at the time of the purchase
of a security and shall not be considered violated unless an excess occurs or
17
<PAGE>
exists immediately after and as a result of a purchase of such security.
In addition to the investment restrictions discussed in fundamental policy
number 9, as long as each Portfolio's shares are registered for sale in the
state of California, the Adviser is required, pursuant to California
regulations, to waive its advisory fee on that portion of a Portfolio's assets
invested in other open-end investment companies.
VOTING RIGHTS
Each share of a Portfolio held entitles the Shareholder of record to one vote
on all matters voted on by the Shareholders of such Portfolio. Each Portfolio
will vote separately on matters relating solely to that Portfolio. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
of Shareholders but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by a majority vote of the
remaining Trustees or by a majority vote of Shareholders at a special meeting
called upon written request of Shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested
the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting. Voting by proxy is permitted.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Adviser, 4455 LBJ Freeway,
Suite 1200, Farmers Branch, TX 75244-5998.
PORTFOLIO TRANSACTIONS
The Trust selects brokers or dealers to execute transactions for the purchase
or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers execute transactions at best price and execution. Best
price and execution refers to many factors, including the price paid or
received for a security, the transaction cost, the promptness and reliability
of execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of the Adviser as to rates paid and
charged for similar transactions throughout the securities industry. In some
instances, the Trust pays a minimal share transaction cost when the transaction
presents no difficulty. Some trades are made on a net basis where the Trust
either buys securities directly from the dealer or sells them to the dealer. In
these instances, there is no direct commission charged but there is a spread
(the difference between the buy and sell price) which is the equivalent of a
commission.
The money market securities in which the Portfolios invest are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded over-
the-counter, but may be traded on an exchange. Where possible, the Adviser will
deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will primarily consist of dealer spreads.
The Adviser may place a combined order for two or more accounts or Portfolios
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in
a manner deemed equitable to each account or Portfolio. It is believed that the
ability of the accounts to participate in volume transactions will generally be
beneficial to the accounts and Portfolios. Although it is recognized that, in
some cases, the joint execution of orders could adversely affect the price or
volume of the security that a particular account or trust may obtain, it is the
opinion of the Adviser and the Board of Trustees that the
18
<PAGE>
advantages of combined orders outweigh the possible disadvantages.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
Trust may place orders with broker/dealers which have agreed to defray certain
Trust expenses such as custodian fees.
It is expected that the Trust may execute brokerage or other agency
transactions through the Distributor, a registered broker-dealer, or an
affiliate of the Adviser in conformity with the 1940 Act, the Securities
Exchange Act of 1934, as amended, and rules promulgated by the SEC. Under these
provisions, the Distributor or an affiliate of the Adviser is permitted to
receive and retain compensation for effecting portfolio transactions for the
Trust on an exchange if a written contract is in effect between the Distributor
or an affiliate of the Adviser and the Trust expressly permitting the
Distributor or an affiliate of the Adviser to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor or an affiliate of the Adviser by the Trust for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the Trust
may direct business to one or more designated broker/dealers in connection with
such broker/dealer's provision of services to the Trust or payment of certain
Trust expenses (e.g., custody, pricing and professional fees). The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of compensation paid to the
Distributor or an affiliate of the Adviser and will review these procedures
periodically.
5% SHAREHOLDERS
As of September 5, 1995, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the
shares referred to below were owned by the indicated entities both of record
and beneficially.
ADJUSTABLE RATE PORTFOLIO
Southwest Corporate FCU
c/o Robert Hall
P.O. Box 655147
Dallas TX 75265-5147, 88.16%
SHORT-TERM MATURITY PORTFOLIO
Southwest Corporate FCU
c/o Robert Hall
P.O. Box 655147
Dallas TX 75265-5147, 65.72%
Atlantic Federal Credit Union
P.O. Box 2819
Dallas, TX 75221, 14.74%
Dyess Federal Credit Union
Attn: Wilson R. Little
P.O. Box 631
Abilene, TX 79604, 8.15%
Carter Federal Credit Union
c/o Sherrel Matlock
P.O. Box 814
Springhill, LA 71075, 5.96%
As of September 5, 1995 Southwest Corporate FCU, P.O. Box 655147, Dallas, TX
75265-5147, which is the Adviser, owned of record 88.16% and 65.72% of the
outstanding voting securities of the Adjustable Rate Portfolio and the Short-
Term Maturity Portfolio, respectively. Southwest Corporate FCU has voting or
investment power with respect to such voting securities. Consequently, under
the 1940 Act, Southwest Corporate FCU may be deemed to be a controlling person
of the Adjustable Rate Portfolio. To the best of the knowledge of the Trust,
Southwest Corporate FCU's ownership of such voting securities is for investment
only, not for purposes of control, but may materially affect the voting rights
of other Shareholders of the Adjustable Rate Portfolio.
COUNSEL AND INDEPENDENT ACCOUNTANT
Morgan, Lewis & Bockius, Washington D.C. and Philadelphia, Pennsylvania, serves
as counsel to the Trust. Arthur Andersen LLP, Philadelphia, Pennsylvania,
serves as the independent public accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, acts as Custodian of the Trust. The Custodian holds cash,
securities and other assets of the Trust as required by the 1940 Act.
19
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of the permitted investments for the Portfolios:
BANKERS' ACCEPTANCE--are bills of exchange or time drafts drawn on and accepted
by a commercial bank. Bankers' acceptances are used by corporations to finance
the shipment and storage of goods. Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT; SHARE CERTIFICATES-- Certificates of deposit are
interest bearing instruments with a specific maturity. They are issued by banks
and savings and loan associations in exchange for the deposit of funds and
normally can be traded in the secondary market prior to maturity. Each
Portfolio may also purchase share certificates issued by certain credit unions
which cannot be traded in a secondary market. Such share certificates are
considered to be illiquid securities and neither Portfolio may invest more than
15% of its total assets in illiquid securities. See "Non-Fundamental Policies."
FEDERAL FUNDS--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 loan
of federal funds is an unsecured loan at a negotiated interest rate for a
negotiated time period, generally overnight. Unsecured loans of federal funds
may be made to U.S. banks and other Section 107(8) institutions, provided that:
1) the accounts of such banks are federally insured; 2) the interest received
is at the market rate for federal funds transactions; and 3) the transaction
has a specified maturity or the Portfolio is able to require repayment at any
time. Federal funds investments maturing in more than seven days are considered
to be illiquid; a Portfolio will not invest more than 15% of its assets in such
securities. See "Non-Fundamental Policies."
Loans of federal funds are not federally insured. In the event the borrower of
federal funds enters into a bankruptcy or other insolvency proceedings, the
lending Portfolio could experience delays and incur expenses in recovering
cash. Further, the possibility exists that, in such an instance, the borrowing
institution may not be able to repay the borrowed funds. A Portfolio will limit
federal funds lending to those banks and other Section 107(8) institutions
whose creditworthiness has been reviewed and found satisfactory by the Adviser.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional fixed rate mortgages, graduated payment mortgages, and
adjustable rate mortgages. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected
to accelerate. Prepayment of mortgages which underlie securities purchased at a
premium often results in capital losses, while prepayment of mortgages
purchased at a discount often results in capital gains. Because of these
unpredictable prepayment characteristics, it is often not possible to predict
accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued
or guaranteed by a U.S. Government agency representing an interest in a
pool of mortgage loans. The primary issuers or guarantors of these
mortgage-backed securities are GNMA, FNMA and FHLMC. FNMA and FHLMC
obligations are not backed by the full faith and credit of the U.S.
Government as GNMA certificates are, but FNMA and FHLMC securities are
supported by the instrumentalities' right to borrow from the U.S. Treasury.
GNMA, FNMA and FHLMC each guarantees timely distributions of interest to
certificate holders. GNMA and FNMA also each guarantees timely
distributions of scheduled principal. FHLMC has in the past guaranteed only
the ultimate collection of principal of the underlying mortgage loan;
however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs) which
also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is
likely to vary inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities
issued by a non-governmental entity, such as a trust. These securities
include collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs") that are rated in one of the top
two rating categories. While they are generally
20
<PAGE>
structured with one or more types of credit enhancement, private pass-
through securities typically lack a guarantee by an entity having the
credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations: CMOs are debt obligations or
multiclass pass-through certificates issued by agencies or
instrumentalities of the U.S. Government or by private originators or
investors in mortgage loans. In a CMO, series of bonds or certificates are
usually issued in multiple classes. Principal and interest paid on the
underlying mortgage assets may be allocated among the several classes of a
series of a CMO in a variety of ways. Each class of a CMO, often referred
to as a "tranche," is issued with a specific fixed or floating coupon rate
and has a stated maturity or final distribution date. Principal payments on
the underlying mortgage assets may cause CMOs to be retired substantially
earlier than their stated maturities or final distribution dates, resulting
in a loss of all or part of any premium paid. One or more classes of CMOs
may have coupon rates that reset periodically based on an index, such as
the London Interbank Offered Rate ("LIBOR"). The Trust may purchase fixed,
adjustable or "floating" rate CMOs that are collateralized by fixed rate or
adjustable rate mortgages that are guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. Government; are
directly guaranteed as to payment of principal and interest by the issuer,
which guarantee is collateralized by U.S. Government securities; are
collateralized by privately issued fixed rate or adjustable rate mortgages
adhering to sufficient credit enhancements to achieve the highest rating by
a nationally recognized rating agency; whose price is not estimated to
change more than 17 percent, due to an immediate and sustained parallel
shift in the yield curve of plus or minus 300 basis points; whose expected
average life is not greater than 10 years; whose average life would not
extend by more than 4 years, assuming an immediate and sustained parallel
shift in the yield curve of plus 300 basis points; and whose average life
would not shorten by more than 6 years, assuming an immediate and sustained
parallel shift in the yield curve of minus 300 basis points. The expected
average life test and the two average life sensitivity tests, which are set
forth in the final three clauses of the immediately preceding sentence
hereof, do not apply to a floating or adjustable rate CMO that has all of
the following characteristics at the time of purchase or on a subsequent
date: the interest rate of the instrument resets at least annually; the
interest rate of the instrument, at the time of purchase or at a subsequent
testing date, is below the contractual cap of the instrument; the index
upon which the interest rate is based is a conventional, widely-used market
interest rate such as LIBOR; and the interest rate of the instrument varies
directly (not inversely) with the index upon which it is based and is not
reset as a multiple of the change in the related index.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under
the Code and invests in certain mortgages principally secured by interests
in real property. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests, or "residual" interests. The
Portfolios only will invest in residual REMICs for hedging purposes
pursuant to Section 703.5(i) of the NCUA Rules. Guaranteed REMIC pass-
through certificates ("REMIC Certificates") issued by FNMA or FHLMC
represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, 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. FNMA REMIC Certificates are issued and
guaranteed as to timely distribution of principal and interest by FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are
structured to provide payments of principal on each payment date to more
than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each
class, which must be retired by its stated maturity date or final
distribution date, but may be retired earlier. Planned Amortization Class
CMOs ("PAC Bonds") generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with
the required principal payment
21
<PAGE>
on such securities having the highest priority after interest has been paid
to all classes.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured
with two classes that receive specified proportions of the monthly interest
and principal payments from a pool of mortgage securities. One class may
receive all of the interest payments and is thus termed an interest-only
class ("IO"), while the other class may receive all of the principal
payments and is thus termed the principal-only class ("PO"). The value of
IOs tends to increase as rates rise and decrease as rates fall; the
opposite is true of POs. SMBs are extremely sensitive to changes in
interest rates because of the impact thereon of prepayment of principal on
the underlying mortgage securities. The market for SMBs is not as fully
developed as other markets; SMBs therefore may be illiquid. The Portfolios
only will invest in SMBs for hedging purposes pursuant to Section 703.5(i)
of the NCUA Rules.
Risk Factors: Due to the possibility of prepayments of the underlying
mortgage instruments, mortgage-backed securities generally do not have a
known maturity. In the absence of a known maturity, market participants
generally refer to an estimated average life. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns, based
upon current interest rates, current conditions in the relevant housing
markets and other factors. The assumption is necessarily subjective, and
thus different market participants can produce different average life
estimates with regard to the same security. There can be no assurance that
estimated average life will be a security's actual average life.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The custodian will hold the security as
collateral for the repurchase agreement. A Portfolio bears a risk of loss in
the event the other party defaults on its obligations and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral or
if the Portfolio realizes a loss on the sale of the collateral. A Portfolio
will enter into repurchase agreements only with financial institutions deemed
to present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act, although they are not considered to be loans under Section 107 of the
FCUA, which generally limits federal credit unions to making loans only to
members.
REVERSE REPURCHASE AGREEMENTS--Reverse repurchase agreements are agreements by
which a Portfolio sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time a Portfolio enters into a reverse repurchase agreement, the
Portfolio will place liquid assets having a value equal to the repurchase price
in a segregated custodial account and monitor this account to ensure equivalent
value is maintained. Reverse repurchase agreements involve the risk that the
market value of securities sold by the Portfolio may decline below the price at
which the Portfolio is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Portfolio under the
1940 Act, and would also be considered to be borrowings under Section 107 of
the FCUA.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for a deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits are considered to be illiquid
securities.
UNITED STATES GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies
of the U.S. Government, including, among others, the Federal Farm Credit Bank,
the Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the
Federal Land Banks and the U.S. Postal Service. Some of these securities are
supported by the full faith and credit of the U.S. Treasury (e.g., Government
National Mortgage Association), others are supported by the right of the issuer
to borrow from the Treasury (e.g., Federal Farm Credit Bank), while still
others are supported only by the credit of the instrumentality (e.g., Federal
National Mortgage Association). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the
22
<PAGE>
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of the Portfolio's
shares.
UNITED STATES TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills,
notes and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations purchased by each
Portfolio may carry variable or floating rates of interest, and may involve a
conditional or unconditional demand feature. Such instruments bear interest at
rates which are not fixed, but which vary with changes in specified market
rates or indices such as the Federal Reserve Composite Index. The interest
rates on these securities may be reset daily, weekly, quarterly or some other
reset period, and may have a floor or ceiling on interest rate changes. There
is a risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand
notice exceeding seven days may be considered illiquid if there is no secondary
market for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--The Portfolios may individually
purchase or sell portfolio securities in when-issued or delayed delivery
transactions. When-issued or delayed delivery basis transactions involve the
purchase of an instrument with payment and delivery taking place in the future.
Delivery of and payment for these securities may occur a month or more after
the date of the purchase commitment. Each Portfolio will maintain with the
custodian a separate account with liquid high grade debt securities or cash in
an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date and no interest accrues to
the Portfolio before settlement. These securities are subject to market
fluctuation due to changes in market interest rates and it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. Although a
Portfolio generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities for its portfolio, a
Portfolio may dispose of a when-issued security or forward commitment prior to
settlement if it deems appropriate.
EXPERTS
The Financial Statements in this Prospectus and Statement of Additional
Information have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
FINANCIAL STATEMENTS
The following are the audited Financial Statements for the fiscal period ended
May 31, 1995, and the Report of Independent Public Accountants of Arthur
Andersen LLP dated July 6, 1995 relating to the Financial Statements and
Financial Highlights for the Portfolios.
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<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1995
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) ADJUSTABLE RATE PORTFOLIO (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
AGENCY MORTGAGE-BACKED OBLIGATIONS (36.7%)
FHLMC
$ 5,678 Class #1329 FA, 5.507%, 08/15/99 (A) CMO .................... $ 5,560
3,474 Class #1512 M, 5.457%, 05/15/08 (A) CMO ..................... 3,344
8,794 Class #1611 G, 6.563%, 05/15/21 (A) CMO ..................... 8,767
5,759 Pool #970003, 6.851%, 01/01/23 (A) (B) ...................... 5,813
11,552 Pool #970021, 6.919%, 01/01/23 (A) (B) ...................... 11,711
FNMA
1,656 Class #G 92-28 F, 6.594%, 05/25/07 (A) CMO .................. 1,663
16,500 Class #92-112 FC, 6.794%, 06/25/18 (A) CMO .................. 16,714
881 Pool #165655, 6.805%, 05/01/22 (A) (B) ...................... 903
3,881 Pool #166291, 6.808%, 06/01/22 (A) (B) ...................... 3,944
1,135 Pool #169164, 7.114%, 06/01/22 (A) (B) ...................... 1,158
- ----------------------------------------------------------------------------------
Total Agency Mortgage-Backed Obligations (Cost $59,757) ... 59,577
- ----------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS (54.3%)
Capstead Securities IV
3,939 Class #92-9 A, 7.114%, 07/25/22 (A) (B) ..................... 3,889
Citicorp Mortgage Securities
1,035 Class #92-9 A4, 6.975%, 04/25/21 (A) CMO .................... 1,036
DLJ Mortgage Acceptance
5,660 Class #94-Q1 1A1, 5.888%, 03/25/24 (A) (B) .................. 5,674
FBS Mortgage
87 Class #92-CB B1, 6.743%, 09/25/23 (A) CMO ................... 87
First Boston Mortgage Securities
8,000 Class #93-4 A, 6.934%, 06/26/00 (A) CMO ..................... 8,055
Fund America Investors II
3,734 Class #93-J M, 6.950%, 12/25/23 (A) (B) ..................... 3,776
Merrill Lynch Mortgage Investments
7,400 Class #91-F A2, 6.903%, 06/15/16 (A) (B) .................... 7,410
7,000 Class #92-C A2, 6.913%, 06/15/17 (A) (B) .................... 7,009
Prudential Home Mortgage Securities
5,477 Class #93-5 A7, 6.825%, 03/25/00 (A) CMO .................... 5,505
Residential Funding Mortgage Securities I
756 Class #92-S33 A4, 6.913%, 09/25/19 (A) CMO .................. 757
Resolution Trust
3,158 Class #92-M4 A4, 6.925%, 09/25/21 (A) CMO ................... 3,158
1,943 Class #92-6 B9, 6.985%, 11/25/26 (A) CMO .................... 1,928
2,240 Class #92-3 A4, 6.675%, 09/25/30 (A) CMO .................... 2,240
Ryland Mortgage Securities
3,316 Class #92-L6 A2, 7.510%, 05/25/22 (A) (B) ................... 3,339
3,630 Class #92-L9 A2, 7.542%, 07/25/22 (A) (B) ................... 3,626
Salomon Brothers Mortgage Securities VII
4,450 Class #92-2 A4, 7.415%, 06/25/22 (A) (B) .................... 4,506
</TABLE>
FS-1
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1995
<TABLE>
<CAPTION>
Face Market
Amount Value
(000)/Shares ADJUSTABLE RATE PORTFOLIO (concluded) (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
$ 3,031 Class #92-4 A5, 7.312%, 09/25/22 (A) (B) ............. $ 3,046
5,391 Class #92-6 A1, 7.198%, 11/25/22 (A) (B) ............. 5,425
Saxon Mortgage Securities
1,204 Class #92-1 A2, 7.602%, 09/25/22 (A) (B) ............. 1,200
3,255 Class #92-3 A1, 7.487%, 11/25/22 (A) (B) ............. 3,239
5,680 Class #93-1 A, 7.601%, 02/25/23 (A) (B) .............. 5,694
Sears Mortgage Securities
2,209 Class #93-3 F, 7.013%, 07/25/20 (A) CMO .............. 2,212
Securitized Assets Sales
5,240 Class #93-8 A2, 7.997%, 12/26/23 (A) CMO ............. 5,273
- --------------------------------------------------------------------------------
Total Non-Agency Mortgage-Backed Obligations (Cost
$88,532) ........................................... 88,084
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (6.8%)
FHLB Discount Notes
5,000 5.880%, 06/09/95 ..................................... 4,993
FNMA Discount Notes
6,000 5.880%, 06/12/95 ..................................... 5,988
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations (Cost
$10,982) ........................................... 10,981
- --------------------------------------------------------------------------------
CASH EQUIVALENTS (1.7%)
SEI Liquid Asset Trust Government Portfolio
2,692 5.700%, 06/07/95 ..................................... 2,692
- --------------------------------------------------------------------------------
Total Cash Equivalents (Cost $2,692) ................. 2,692
- --------------------------------------------------------------------------------
Total Investments (99.5%) (Cost $161,963) ............ 161,334
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.5%)
- --------------------------------------------------------------------------------
Total Other Assets and Liabilities, Net .............. 813
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio shares (unlimited authorization--no par
value) based on 16,313,939 outstanding shares of
beneficial interest ................................. 163,448
Distributions in Excess of Net Investment Income...... (19)
Accumulated Net Realized Loss on Investments ......... (653)
Net Unrealized Depreciation of Investments ........... (629)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS: (100.0%).............................. $162,147
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE............................................... $9.94
- --------------------------------------------------------------------------------
</TABLE>
CMO ---Collateralized Mortgage Obligation
FHLB --Federal Home Loan Bank
FNMA --Federal National Mortgage Association
FHLMC--Federal Home Loan Mortgage Corporation
(A) Adjustable Rate Features. Rate shown on the Statement of Net Assets is the
rate in effect on May 31, 1995.
(B) Pass-Through Security
FS-2
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1995
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) SHORT-TERM MATURITY PORTFOLIO (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
AGENCY MORTGAGE-BACKED OBLIGATIONS (55.5%)
FHLMC
$ 348 Class #1134 C, 8.000%, 09/15/96 CMO ............................ $ 349
792 Class #1275 VK, 7.000%, 01/15/97 CMO ........................... 795
500 Class #1539 PC, 4.500%, 04/15/99 CMO ........................... 495
349 Class #1655 A, 4.750%, 08/15/99 CMO ............................ 345
302 Class #1631 A, 4.750%, 09/15/04 CMO ............................ 300
727 Class #1403 B, 5.250%, 08/15/06 CMO ............................ 724
455 Class #1640 F, 6.462%, 10/15/07 (A) CMO......................... 451
2,500 Class #1714 B, 5.250%, 05/15/09 CMO ............................ 2,460
1,000 Class #1611 C, 5.000%, 03/15/13 CMO ............................ 973
1,450 Class #1543 TC, 5.400%, 06/15/13 CMO ........................... 1,426
139 Class #1392 AA, 6.250%, 03/15/15 CMO ........................... 138
1,000 Class #1671 D, 5.750%, 11/15/16 CMO ............................ 976
1,000 Class #1650 D, 5.400%, 04/15/24 CMO............................. 963
FNMA
453 Class #92-131 GA, 7.000%, 05/25/97 CMO ......................... 454
442 Class #93-186 A, 5.000%, 04/25/00 CMO .......................... 437
106 Class #93-141 PA, 4.250%, 11/25/03 CMO ......................... 105
2,000 Class #92-155 E, 6.700%, 08/25/04 CMO .......................... 1,987
294 Class #93-137 PA, 4.750%, 04/25/05 CMO ......................... 292
302 Class #93-110 A, 2.500%, 10/25/06 CMO .......................... 300
1,000 Class #93-99 PB, 4.500%, 06/25/08 CMO .......................... 986
600 Class #G93-9 C, 5.500%, 03/25/10 CMO ........................... 593
1,000 Class #93-207 B, 4.850%, 06/25/10 CMO .......................... 969
800 Class #92-132 PE, 7.250%, 07/25/15 CMO ......................... 804
873 Class #92-28 A, 6.250%, 12/25/16 CMO ........................... 867
203 Class #91-82 PH, 8.000%, 11/25/18 CMO........................... 203
1,042 Class #90-106 H, 8.500%, 01/25/19 CMO........................... 1,047
- ----------------------------------------------------------------------------------
Total Agency Mortgage-Backed Obligations (Cost $19,710) ...... 19,439
- ----------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS (31.8%)
Countrywide Mortgage Backed Securities
686 Class #94-D A1, 6.594%, 03/25/24 (A) CMO ....................... 672
First Boston Mortgage Securities
122 Class #93-5 A13, 7.300%, 10/25/97 CMO .......................... 122
General Electric Mortgage Services
1,500 Class #94-7 A4, 5.500%, 02/25/09 CMO ........................... 1,461
Housing Securities
256 Class #94-1 A4, 5.500%, 07/25/02 CMO ........................... 250
Prudential Home Mortgage Securities
1,370 Class #93-43 A1, 5.400%, 10/25/23 CMO........................... 1,333
1,500 Class #93-57 A2, 5.500%, 12/25/23 CMO........................... 1,466
3,000 Class #93-54 A21, 5.500%, 01/25/24 CMO ......................... 2,902
</TABLE>
FS-3
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1995
<TABLE>
<CAPTION>
Face Market
Amount Value
(000)/Shares SHORT-TERM MATURITY PORTFOLIO (concluded) (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
Residential Funding Mortgage Securities I
$ 456 Class #92-S30 A5, 7.000%, 04/25/97 CMO ................. $ 456
1,287 Class #93-S40 A1, 6.462%, 11/25/23 (A) CMO.............. 1,255
1,236 Class #94-S1 A1, 4.750%, 01/25/24 CMO .................. 1,218
- ----------------------------------------------------------------------------------
Total Non-Agency Mortgage-Backed Obligations (Cost
$11,389) ............................................. 11,135
- ----------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (5.4%)
FNMA Discount Notes
1,400 5.960%, 06/01/95 ....................................... 1,399
500 5.950%, 06/29/95 ....................................... 498
- ----------------------------------------------------------------------------------
Total U.S. Government Agency Obligations (Cost $1,898) 1,897
- ----------------------------------------------------------------------------------
CASH EQUIVALENTS (7.6%)
SEI Liquid Asset Trust Government Portfolio
1,381 5.700%, 06/07/95 ....................................... 1,381
SEI Liquid Asset Trust Treasury Portfolio
1,285 5.720%, 06/07/95 ....................................... 1,285
- ----------------------------------------------------------------------------------
Total Cash Equivalents (Cost $2,666) ................... 2,666
- ----------------------------------------------------------------------------------
Total Investments (100.3%) (Cost $35,663) .............. 35,137
- ----------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.3%)
- ----------------------------------------------------------------------------------
Total Other Assets and Liabilities, Net ................ (87)
- ----------------------------------------------------------------------------------
NET ASSETS:
Porfolio shares (unlimited authorization--no par value)
based on 3,603,405 outstanding shares of beneficial
interest ................................................ 36,298
Distributions in Excess of Net Investment Income ......... (2)
Accumulated Net Realized Loss on Investments ............. (720)
Net Unrealized Depreciation of Investments ............... (526)
- ----------------------------------------------------------------------------------
TOTAL NET ASSETS: (100.0%) ............................... $35,050
- ----------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE..................................................... $9.73
- ----------------------------------------------------------------------------------
</TABLE>
CMO ---Collateralized Mortgage Obligation
FNMA --Federal National Mortgage Association
FHLMC--Federal Home Loan Mortgage Corporation
(A) Adjustable Rate Features. Rate shown on the Statement of Net Assets is the
rate in effect on May 31, 1995.
FS-4
<PAGE>
STATEMENT OF OPERATIONS CUFUND
For the Year ended 05/31/95
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------
ADJUSTABLE RATE SHORT-TERM MATURITY
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest Income............................ $9,743 $2,267
- --------------------------------------------------------------------------------
Expenses:
Administrator Fee......................... 168 40
Investment Adviser Fee.................... 544 129
Waiver of Investment Adviser Fee.......... (209) (58)
Custodian Fees............................ 15 4
Professional Fees......................... 34 8
Registration Fees......................... 8 1
Insurance Fees............................ 7 3
Trustee Fees.............................. 42 9
Printing Fees............................. 18 4
Amortization of Deferred Organizational
Costs.................................... 11 11
Other..................................... 19 2
- --------------------------------------------------------------------------------
Total Expenses........................... 657 153
- --------------------------------------------------------------------------------
Net Investment Income..................... 9,086 2,114
- --------------------------------------------------------------------------------
Net Realized Loss on Securities Sold...... (638) (599)
- --------------------------------------------------------------------------------
Net Unrealized Appreciation of Investment
Securities............................... 78 999
- --------------------------------------------------------------------------------
Net Gain (Loss) on Investments............. (560) 400
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations................................ $8,526 $2,514
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS CUFUND
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------
ADJUSTABLE RATE SHORT-TERM MATURITY
PORTFOLIO PORTFOLIO
----------------------- -----------------------
06/01/94 06/01/93 06/01/94 06/01/93
TO 05/31/95 TO 05/31/94 TO 05/31/95 TO 05/31/94
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income......... $ 9,086 $ 6,523 $ 2,114 $ 1,213
Net Realized Gain (Loss) on
Securities Sold.............. (638) 5 (599) (118)
Net Unrealized Appreciation
(Depreciation) of Investment
Securities................... 78 (1,027) 999 (1,486)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Opera-
tions......................... 8,526 5,501 2,514 (391)
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income......... (9,024) (6,597) (2,115) (1,204)
Capital Gains................. -- -- -- (105)
- --------------------------------------------------------------------------------
Total Distributions.......... (9,024) (6,597) (2,115) (1,309)
- --------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued... 5,700 193,294 8,200 45,322
Shares Issued in Lieu of Cash
Distributions................ 1,004 943 579 485
Cost of Shares Redeemed....... (27,545) (182,608) (15,865) (22,658)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net As-
sets from Share Transactions.. (20,841) 11,629 (7,086) 23,149
- --------------------------------------------------------------------------------
Total Increase (Decrease) in
Net Assets.................. (21,339) 10,533 (6,687) 21,449
- --------------------------------------------------------------------------------
Net Assets:
Beginning of Period........... 183,486 172,953 41,737 20,288
- --------------------------------------------------------------------------------
End of Period (1)............. $162,147 $ 183,486 $35,050 $41,737
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Issued and Redeemed:
Shares Issued................ 574 19,292 855 4,553
Shares Issued in Lieu of Cash
Distributions............... 101 94 61 49
Shares Redeemed.............. (2,782) (18,230) (1,663) (2,281)
- --------------------------------------------------------------------------------
Net Share Transactions......... (2,107) 1,156 (747) 2,321
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Including distributions in excess of net investment income (000) of $(19)
and $(81) for Adjustable Rate Portfolio, and $(2) and $(1) for Short-Term
Maturity Portfolio at May 31, 1995 and May 31, 1994, respectively.
Amounts designated as "--" are either $0 or have been rounded to $0.
FS-6
<PAGE>
FINANCIAL HIGHLIGHTS CUFUND
FOR THE PERIODS ENDED MAY 31,
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Ratio of
Net Net Net Net Ratio Expenses
Asset Gain Dividends Asset Assets Ratio of of Net to Average
Value Net (Loss) on from Net Capital Value End of Expenses Income Net Assets
Beginning Investment Investment Investment Gain End of Total Period to Average to Average (Excluding
of Period Income Securities Income Distributions Period Return (000) Net Assets Net Assets Waivers)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable Rate Portfolio
1995 $ 9.96 0.53 (0.02) (0.53) -- $ 9.94 5.25% $162,147 0.38% 5.34% 0.51%
1994 $10.02 0.37 (0.06) (0.37) -- $ 9.96 3.19% $183,486 0.38% 3.70% 0.51%
1993(1) $10.00 0.38 0.02 (0.38) -- $10.02 4.22% $172,593 0.39% 3.94% 0.55%
Short-Term Maturity Portfolio
1995 $ 9.59 0.50 0.14 (0.50) -- $ 9.73 6.92% $ 35,050 0.38% 5.24% 0.51%
1994 $10.00 0.41 (0.38) (0.41) (0.03) $ 9.59 0.23% $ 41,737 0.38% 4.23% 0.55%
1993(1) $10.00 0.44 0.01 (0.45) -- $10.00 4.77% $ 20,288 0.39% 4.69% 0.64%
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net Income
to Average
Net Assets Portfolio
(Excluding Turnover
Waivers) Rate
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Portfolio
1995 5.21% 3.51%
1994 3.57% 67.22%
1993(1) 3.78% 70.58%
Short-Term Maturity Portfolio
1995 5.11% 52.98%
1994 4.06% 147.70%
1993(1) 4.44% 188.15%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adjustable Rate Portfolio and Short-Term Maturity Portfolio commenced
operations on June 15, 1992. Ratios and total returns for this period have
been annualized.
FS-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS CUFUND
May 31, 1995
1. Organization:
CUFUND (the "Trust") was organized as a Massachusetts business trust under a
Declaration of Trust dated November 22, 1991 and had no operations through June
14, 1992 other than those related to organizational matters and the sale of
initial shares of beneficial interest to SEI Financial Management Corporation
(the "Administrator") on January 16, 1992.
The Trust is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end investment company with two portfolios: the
Adjustable Rate Portfolio and the Short-Term Maturity Portfolio.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
Securities Valuation--Investment securities of the Adjustable Rate
Portfolio and the Short-Term Maturity Portfolio which are listed on a
securities exchange for which market quotations are available are valued at
the last quoted sales prices for such securities on each business day, or,
if there is no such reported sales price on the valuation date, at the most
recently quoted bid price. Unlisted securities for which market quotations
are readily available are valued at the most recently quoted price. Debt
obligations with sixty days or less remaining until maturity may be valued
at their amortized cost. Under this valuation method, purchase discounts
and premiums are accreted and amortized ratably to maturity and are
included in interest income. Securities for which quotations are not
readily available are valued at fair value using methods determined in good
faith by the Board of Trustees.
Security Transactions and Related Income--Security transactions are
accounted for on the trade date of the security purchase or sale. Costs
used in determining net realized capital gains and losses on the sale of
securities are those of the specific securities sold, adjusted for the
accretion and amortization of purchase discounts and premiums during the
respective holding period. Gains and losses realized on sales of securities
are determined on a first-in first-out (FIFO) basis. Interest income and
expenses are recognized on the accrual basis. Purchase discounts and
premiums are accreted and amortized over the life of each security and
recorded as interest income.
Distributions to Shareholders--Distributions of net investment income for
each Portfolio are declared daily and paid monthly on the first business
day. Any net realized capital gains will be distributed at least annually.
Federal Income Taxes--The Trust's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income and net capital gains to its
Shareholders. Accordingly, no provision for Federal Income Taxes is
required in the financial statements.
Organization Costs--The Trust incurred organization costs of approximately
$108,500. These costs have been deferred in the accounts of the Portfolios
and are being amortized on a straight line basis over a period of sixty
months commencing with operations. In the event any of the initial shares
of the Trust are redeemed by any holder thereof during the period that the
Trust is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof by the Trust will be reduced by the
FS-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) CUFUND
May 31, 1995
unamortized organizational costs in the same ratio as the number of initial
shares being redeemed bears to the number of initial shares outstanding at
the time of redemption.
Other--Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses of the Trust
are prorated to the Portfolios on the basis of relative net assets.
3. Administrative and Distribution Agreements:
The Trust and SEI Financial Management Corporation are parties to an
administrative agreement dated May 1, 1992 under which the Administrator
provides services for a fee that is computed daily and payable monthly, at an
annual rate which is the greater of .09% of the average daily net assets of the
Trust up to $750 million, and .0725% of the average daily net assets of the
Trust exceeding $750 million or $214,000. Certain officers of the Trust are
also officers of the Administrator and/or Distributor. Such officers are paid
no fees by the Trust for serving in their respective roles.
SEI Financial Services Company (the "Distributor") acts as the Distributor of
the shares of the Trust. No compensation is paid to the Distributor for
distribution services.
4. Investment Advisory and Custodian Agreements:
The Trust and Southwest Corporate Federal Credit Union (the "Adviser") are
parties to an investment advisory agreement dated May 1, 1992, under which the
Adviser receives an annual fee, which is calculated daily and paid monthly, at
an annual rate of .32% of the average daily net assets of each Portfolio. The
Adviser has voluntarily agreed to waive its fee and reimburse the Trust for
other expenses to the extent necessary to limit the annual operating expenses
of each Portfolio to .39%.
The Trust and CoreStates Bank, N.A. (the "Custodian"), are parties to a
custodial agreement dated May 1, 1992 under which the Custodian holds cash,
securities and other assets of the Trust as required by the Investment Company
Act of 1940. The Custodian plays no role in determining the investment policies
of the Trust or which securities are to be purchased or sold in the Portfolios.
5. Investment Transactions:
For the period ended May 31, 1995, purchases and sales of investment securities
and United States Government Obligations (other than short-term securities)
were as follows (000):
<TABLE>
<CAPTION>
U.S. GOVERNMENT OTHER INVESTMENT
SECURITIES SECURITIES
----------------- -----------------
PURCHASES SALES PURCHASES SALES
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Adjustable
Rate
Portfolio $ -- $ 9,922 $5,529 $27,008
Short-Term
Maturity
Portfolio 11,955 23,914 2,672 4,026
</TABLE>
The total cost of securities held for Federal Income Tax purposes at May 31,
1995 for the Adjustable Rate Portfolio and the Short-Term Maturity Portfolio
was not materially different from amounts reported for financial reporting
purposes. The Adjustable Rate Portfolio had net unrealized depreciation of
$629,546, which was composed of gross unrealized appreciation of $326,379 and
gross unrealized depreciation of $955,925 for tax purposes. The Short-Term
Maturity Portfolio had net unrealized depreciation of $526,630, which was
composed of gross unrealized appreciation of $12,011 and gross unrealized
depreciation of $538,641 for tax purposes.
FS-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) CUFUND
May 31, 1995
6. Capital Loss Carryforwards:
The capital loss carryforwards at May 31, 1995 for Federal Income Tax purposes
are $573,459 expiring in 2003 and $380,335 expiring in 2003 for the Adjustable
Rate and Short-Term Maturity Portfolios, respectively. Subsequent to 10/31/94,
the Short-Term Maturity Portfolio recognized net capital losses for tax
purposes that have been deferred to 1995 of $339,901. The capital loss
carryforwards and post 10/31/94 deferred losses will be used to offset future
net realized gains.
7. Variable Rate Financial Instruments
The Adjustable Rate Portfolio's investment policies include investing, under
normal circumstances, at least 65% of its assets in adjustable rate mortgage
securities or other adjustable rate securities that have interest rates that
reset at periodic intervals. Such securities may experience less price
volatility due to changes in market interest rates than other debt securities.
These investments include securities subject to interest rate caps as well as
certain securities that adjust based upon an index whose movements may not
correlate directly with market movements. Both of these items may influence the
pricing of the security. As with other securities, the market values are
adjusted on a daily basis.
FS-10
<PAGE>
REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of CUFUND:
We have audited the accompanying statements of net assets of the Adjustable
Rate and Short-Term Maturity Portfolios of CUFUND as of May 31, 1995, and the
related statements of operations, changes in net assets and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
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 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 May
31, 1995, by correspondence with the custodian. 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 financial highlights referred to
above present fairly, in all material respects, the financial position of the
Adjustable Rate and Short-Term Maturity Portfolios of CUFUND as of May 31,
1995, the results of their operations, changes in their net assets and
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 6, 1995
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
THOMSON BANKWATCH
AAA The highest category; indicates that the ability to repay principal and
interest on a timely basis is very high.
AA The second-highest category; indicates a superior ability to repay
principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
IBCA RATING DEFINITIONS
AAA Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk substantially.
AA Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk, albeit not very significantly.
FITCH RATINGS
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in
the `AAA' and `AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+'.
MOODY'S RATING DEFINITIONS
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 risk appear somewhat larger than
the Aaa securities.
DUFF & PHELPS
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.
STANDARD & POOR'S DEFINITIONS
AAA Debt rated `AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated `AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A-1
<PAGE>
INVESTMENT ADVISER
Southwest Corporate Federal Credit Union
4455 LBJ Freeway, Suite 1200
Farmers Branch, TX 75244-5988
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087-1658
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, PA 19087-1658
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1601 Market Street
Philadelphia, PA 19103-2499
