<PAGE>
PROSPECTUS
AND
STATEMENT OF ADDITIONAL INFORMATION
9/27/96
CUF-F008-02
<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 federally and state chartered
credit unions ("Shareholders").
This combined 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 combined 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 COMBINED 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 COMBINED
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 COMBINED 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 COMBINED 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 27, 1996
<PAGE>
2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<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
</TABLE>
<TABLE>
<S> <C>
Dividends................................................................... 12
Determination of Net Asset Value............................................ 12
Performance................................................................. 13
Computation of Yield........................................................ 13
Calculation of Total Return................................................. 13
Federal Taxes............................................................... 13
State Taxes................................................................. 14
General Information......................................................... 15
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 FEDERALLY 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 are the Investment Objectives? 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 in which the Portfolios may invest are subject to
the risk of prepayment during periods of declining interest rates, which could
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 total
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 Fund Resources serves as the Administrator of
the Trust. See "The Administrator."
Who is the Shareholder Servicing Agent? SEI Fund Resources serves 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 serves 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 (a "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
CoreStates Bank, N.A. (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 gains
are 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
- --------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees (after fee waivers)(1)(2)................... .14% .18%
Other Expenses(3)......................................... .25% .21%
- --------------------------------------------------------------------------------
Total Operating Expenses(1)(2)............................ .39% .39%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser has agreed to voluntarily waive its fee and reimburse expenses
in an amount that operates to limit Total 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 .57%, respectively, for the Short-Term Maturity
Portfolio and .32% and .53%, 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
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment in a Portfolio assuming a 5%
annual return and redemption at the end of each
time period........................................ $4 $13 $22 $49
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</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. The purpose of the expense
table and example is to assist the investor in understanding the various costs
and expenses that may be directly or indirectly borne by investors in each
Portfolio. Additional information may be found under "The Adviser," "The
Administrator" and "The Distributor."
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 combined Prospectus and
Statement of Additional Information. Further 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
----------------------------------------------- -----------------------------------------------
06/01/95 06/01/94 06/01/93 06/15/92(1) 06/01/95 06/01/94 06/01/93 06/15/92(1)
TO 05/31/96 TO 05/31/95 TO 05/31/94 TO 05/31/93 TO 05/31/96 TO 05/31/95 TO 05/31/94 TO 05/31/93
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... 9.94 9.96 10.02 10.00 9.73 9.59 10.00 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income. 0.59 0.53 0.37 0.38 0.52 0.50 0.41 0.44
Net Gains on
Investment
Securities........... 0.02 (0.02) (0.06) 0.02 0.03 0.14 (0.38) 0.01
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations.......... 0.61 0.51 0.31 0.40 0.55 0.64 0.03 0.45
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net
Investment Income.... (0.59) (0.53) (0.37) (0.38) (0.52) (0.50) (0.41) (0.45)
Capital Gain
Distributions........ -- -- -- -- -- -- (0.03) --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions.. (0.59) (0.53) (0.37) (0.38) (0.52) (0.50) (0.44) (0.45)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period................ 9.96 9.94 9.96 10.02 9.76 9.73 9.59 10.00
- ------------------------------------------------------------------------------------------------------------------------
Total Return........... 6.29% 5.25% 3.19% 4.22% 5.73% 6.92% 0.23% 4.77%
- ------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental
Data
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of
Period (000).......... 153,760 162,147 183,486 172,593 30,633 35,050 41,737 20,288
Ratio of Expenses to
Average Net Assets,
Net of Fee Waivers.... 0.39% 0.38% 0.38% 0.39% 0.38% 0.38% 0.38% 0.39%
Ratio of Expenses to
Average Net Assets,
Excluding Fee Waivers. 0.53% 0.51% 0.51% 0.55% 0.61% 0.51% 0.55% 0.64%
Ratio of Net Investment
Income to Average Net
Assets, Net of Fee
Waivers............... 5.92% 5.34% 3.70% 3.94% 5.27% 5.24% 4.23% 4.69%
Ratio of Net Investment
Income to Average Net
Assets, Excluding Fee
Waivers............... 5.78% 5.21% 3.57% 3.78% 5.04% 5.11% 4.06% 4.44%
Portfolio Turnover
Rate.................. 23% 4% 67% 71% 42% 53% 148% 188%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</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
and was organized as a Massachusetts business trust on November 22, 1991. The
Trust offers units of beneficial interest ("shares") in 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 federally and state 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 federally and
state chartered credit unions seeking to obtain the yields available on short-
term and adjustable rate investments authorized under the FCUA. The Trust
offers 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 Portfolio's 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, bankers' 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 Portfolio's
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, 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 (an "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, 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, 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 in privately issued, mortgage-
backed securities only if they are 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.
For the fiscal years ended May 31, 1996 and May 31, 1995, the portfolio
turnover rates for the Short-Term Maturity Portfolio were 42% and 53%,
respectively, and for the Adjustable Rate Portfolio were 23% and 4%,
respectively.
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 (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 7920
Belt Line Road, Suite 1100, Dallas, TX 75240. As of May 31, 1996, 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 May 31, 1996, had credit union funds under advisement in its
Investment Advisory Service of approximately $1.6 billion.
Bruce M. Fox, Vice President of Funds Management--joined the Adviser in 1990.
Mr. Fox has served as portfolio manager of the Short-Term Maturity Portfolio
since August, 1994 and will act as adviser to the Adjustable Rate Portfolio
beginning mid-September 1996. Prior to 1990, he was Cash Manager at Members
Insurance Group. He is responsible for management of Southwest Corporate
Federal Credit Union's funds management area.
Jim F. Dykstal, Investment Adviser--joined the Adviser in December 1995. Mr.
Dykstal manages the daily cash position of the Short-Term Maturity Portfolio
and, in conjunction with Mr. Fox, sets the overall strategy and decisions of
the Portfolio. He also advises approximately 12 portfolios of member credit
unions under the Network Investment Advisory Service. He has worked in the
fixed income markets since 1988.
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 waive 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 total
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
misfeasance, bad faith or gross negligence on its
8
<PAGE>
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, 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 Fund Resources (the "Administrator") and the Trust are parties to an
administration agreement (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 Delaware business trust, has its principal business
offices at 680 East Swedesford Road, Wayne, PA 19087-1658. SEI Financial
Management Corporation ("SFM"), a wholly-owned subsidiary of SEI Corporation
("SEI"), is the owner of all beneficial interest in the Administrator. SEI and
its subsidiaries and affiliates, including the Administrator, 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 and its affiliates also serve as
administrator to the following other mutual funds: The Achievement Funds Trust,
The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street
Funds, CoreFunds, Inc., CrestFunds, Inc., FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., Marquis Funds(R), Monitor
Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar
Funds, Rembrandt Funds(R), 1784 Funds(R), SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI Classic Variable
Trust and Turner Funds.
THE SHAREHOLDER SERVICING AGENT
SEI Fund Resources 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"). Each Portfolio may also
execute brokerage or other agency transactions through the Distributor for
which the Distributor receives compensation.
The Distribution Agreement appoints the Distributor as the exclusive
distributor of the Trust's shares and provides that the Trust's shares be sold
without a minimum sales quota. The Distribution Agreement is renewable annually
and may be
9
<PAGE>
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, their respective dates of birth and principal
occupations for the last five years are set forth below. Unless otherwise
indicated, the address of each Trustee and executive officer is 680 East
Swedesford Road, Wayne, Pennsylvania, 19087.
JAMES L. BRYAN* (7/13/38)--Trustee--777 E. Campbell Road, Suite 731,
Richardson, Texas 75081. President of Texins Credit Union, Richardson, Texas
(1974-present).
GARY L. JANACEK* (3/30/51)--Trustee--2401 S. 31st Street, Temple, Texas 76508.
President of Scott and White Employees Credit Union, Temple, Texas (1977-
present).
ARNO J. EASTERLY* (3/25/35)--Trustee--2701 Village Lane, Bossier City,
Louisiana 71112. President of Barksdale Federal Credit Union, Barksdale AFB,
Louisiana (1984-present).
DR. MARTHA ROMAYNE SEGER (2/17/21)--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 (12/19/56)--Trustee--2800 Civic Center Drive, Southfield,
Michigan 48076. President of Central Corporate Credit Union, Southfield,
Michigan (1991-present).
DAVID G. LEE (4/16/52)--President, Chief Executive Officer--Senior Vice
President of the Administrator and the Distributor since 1993. Vice President
of the Administrator and Distributor 1991-1993. President, GW Sierra Trust
Funds prior to 1991.
STEPHEN G. MEYER (7/12/65)--Controller and Chief Financial Officer--CPA--1995
to Present; Director--Internal Audit and Risk Management--SEI Corporation--1992
to 1995; Coopers & Lybrand, Senior Associate--1990-1992.
RICHARD W. GRANT (10/25/45)--Secretary--2000 One Logan Square, Philadelphia,
Pennsylvania 19103, Partner of Morgan, Lewis & Bockius LLP (law firm) since
1989, Counsel to the Trust, SEI, the Administrator, and the Distributor.
FRANCIS C. LEE (12/3/48)--Vice President, Assistant Secretary--President and
CEO of Southwest Corporate Federal Credit Union since 1995. Senior Vice
President of Operations, Western Corporate Federal Credit Union--1981-1995.
KEVIN P. ROBINS (4/5/61)--Vice President, Assistant Secretary--Senior Vice
President, General Counsel and Secretary 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 LLP (law firm) prior to 1992.
SANDRA K. ORLOW (10/18/53)--Vice President, Assistant Secretary--Vice President
and Assistant Secretary of SEI, the Administrator and the Distributor since
1983.
KATHRYN L. STANTON (11/19/58)--Vice President, Assistant Secretary--Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm)--1989-1994.
TODD CIPPERMAN (2/14/66)--Vice President, Assistant Secretary--Vice President
and Assistant Secretary of SEI, the Administrator and the Distributor since
1995. Associate, Dewey Ballantine
10
<PAGE>
(law firm) 1994-1995. Associate, Winston & Strawn (law firm) 1991-1994.
JOSEPH M. LYDON (9/27/59)--Vice President, Assistant Secretary--Director of
Business Administration of the Administrator since 1995; Vice President of Fund
Group and Vice President of Dreman Value Management (investment adviser) and
President of Dreman Financial Services, Inc. prior to 1995.
BARBARA A. NUGENT 6/18/56)--Vice President, Assistant Secretary--Vice President
and Assistant Secretary of SEI, the Distributor and Administrator. Associate,
Drinker Biddle & Reath (law firm)-- 1994-1996. Assistant Vice
President/Administration, Delaware Services Company, Inc.--1981-1994.
MARC H. CAHN (6/19/57)--Vice President, Assistant Secretary--Vice President and
Assistant Secretary of SEI, the Distributor and Administrator. Associate
General Counsel, Barclays Bank PLC--1995-1996. Counsel for First Fidelity
Bancorporation 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 Trustees. Compensation of
officers of the Trust is paid by the Administrator.
The following table exhibits Trustee compensation for the fiscal year ended May
31, 1996.
<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, 1996 EXPENSES RETIREMENT FISCAL YEAR ENDED MAY 31, 1996
- ------------------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------
R. Helber............... $ 4,000 N/A N/A $ 4,000 for service on 1 board
- ------------------------------------------------------------------------------------------------------
R. Nesher*.............. $ 0 N/A N/A $ 0 for service on 1 board
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* 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 (the "NYSE") and the Federal Reserve
wire system are open for business (a "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 NYSE (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 a Portfolio calculated to three
decimal places.
Shares may be offered only to residents of those states in which such shares
are eligible for purchase.
11
<PAGE>
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 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 NYSE 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 NYSE, 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. The Trust, its
transfer agent or subagent will not 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, 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, the Trust's transfer
agent or sub-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 their redemption orders by other means.
DIVIDENDS
Substantially all of the net investment income (not including capital gains) 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
during a particular 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
As described previously, 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.
12
<PAGE>
PERFORMANCE
From time to time, each Portfolio may advertise its 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 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 reinvestment 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--Lipper Short Term U.S. Government Index and 3 year Constant Maturity
Treasury Adjustable Rate ("CMT"); for the Adjustable Rate Portfolio--Lipper
Adjustable Rate Mortgage Index, 6 month London Interbank Offered Rate
("LIBOR"), 1 year CMT, Effective Fed Funds Rate and 30-day Donoghue Index.
COMPUTATION OF YIELD
The 30-day yield for a Portfolio is calculated by assuming that the income
generated by the Portfolio's 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, 1996, the end of the Trust's most recent
fiscal year, the yield for each Portfolio was: Short-Term Maturity Portfolio,
5.23% and Adjustable Rate Portfolio, 5.74%.
CALCULATION OF TOTAL RETURN
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,
1996 the total return for each Portfolio was: Short-Term Maturity Portfolio,
5.73% and Adjustable Rate Portfolio, 6.29%. For the period from June 15,1992
(commencement of operations) through May 31, 1996, the average annual total
return for each Portfolio was: Short-Term Maturity Portfolio, 4.37% and
Adjustable Rate Portfolio, 4.74%.
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 combined 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, 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")
13
<PAGE>
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, exchange 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 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."
14
<PAGE>
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 years ended May 31, 1996,
May 31, 1995 and May 31, 1994, (i) the fees paid to the Administrator and
Shareholder Servicing Agent (formerly SFM) by the Portfolio, were $38,327,
$40,076 and $25,773, respectively and (ii) the fees paid to the Adviser were
$108,870, $128,971 and $91,635, respectively, of which $78,682, $58,150 and
$46,444 were waived, respectively. For the Adjustable Rate Portfolio, for the
fiscal years ended May 31, 1996, May 31, 1995 and May 31, 1994, (i) the fees
paid to the Administrator and Shareholder Servicing Agent (formerly SFM) by the
Portfolio, were $175,673, $167,753 and $158,486, respectively and (ii) the fees
paid to the Adviser were $505,410, $544,498 and 563,497, respectively, of which
$221,873, $208,635 and $222,776 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.
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.
15
<PAGE>
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 the Portfolio
makes 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 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.
16
<PAGE>
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
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
17
<PAGE>
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 will send to its shareholders annual and semi-annual reports; the
financial statements appearing in annual reports are audited by independent
public accountants. The Trust furnishes proxy statements and other reports to
Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Adviser, 7920 Belt Line Road,
Suite 1100, Dallas, TX 75240.
PORTFOLIO TRANSACTIONS
The Adviser 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 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 may pay a minimal transaction cost when the transaction
presents no difficulty. Trades are generally 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. Longer term debt securities 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 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
Adviser may place orders with broker/dealers which have agreed to defray
certain Trust expenses such as custodian fees.
It is expected that the Adviser 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
18
<PAGE>
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.
The Trust is required to identify any securities of its "regular broker or
dealers" (as such term is defined in the Investment Company Act) which the
Trust has acquired during its most recent fiscal year. As of May 31, 1996, the
Short-Term Maturity Portfolio held debt securities issued by CS First Boston
and Prudential Securities in the amount of $74,000 and $5,485,000,
respectively, and the Adjustable Rate Portfolio held debt securities issued by
Merrill Lynch and Prudential Securities in the amount of $14,351,000 and
$5,488,000, respectively.
5% SHAREHOLDERS
As of September 5, 1996, 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 Melissa Wardell
7920 Belt Line Road, Suite 1100
Dallas TX 75240, 88.70%
SHORT-TERM MATURITY PORTFOLIO
Southwest Corporate FCU
c/o Melissa Wardell
7920 Belt Line Road, Suite 1100
Dallas TX 75240, 77.75%
Dyess Federal Credit Union
Attn: Wilson R. Little
P.O. Box 631
Abilene, TX 79604, 9.64%
Carter Federal Credit Union
c/o Sherrel Matlock
P.O. Box 814
Springhill, LA 71075, 6.41%
As of September 2, 1996 Southwest Corporate FCU, 7920 Belt Line Road, Suite
1100, Dallas, TX 75240, which is the Adviser, owned of record 88.70% and 77.75%
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 and Short-Term Maturity 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.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius LLP, 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 "General Information--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 total assets
in illiquid securities. See "General Information--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
20
<PAGE>
rating categories. While they are generally 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: (i) 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; (ii) that are directly guaranteed as to payment of principal
and interest by the issuer, which guarantee is collateralized by U.S.
Government securities; (iii) that 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; (iv) whose price is estimated to change not more than 17
percent, due to an immediate and sustained parallel shift in the yield
curve of plus or minus 300 basis points; (v) 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 (vi) 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 will invest in residual REMICs for hedging purposes only,
pursuant to Section 703.5(i) of the NCUA Rules. Guaranteed REMIC pass-
through certificates ("REMIC Certificates") issued by FNMA, FHLMC or GNMA
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
21
<PAGE>
payment date. PAC Bonds are always parallel pay CMOs with the required
principal payment 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
will invest in SMBs for hedging purposes only, 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, FHLMC, 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., GNMA securities), 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.,
FNMA securities). Guarantees of principal by agencies or instrumentalities of
the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a
22
<PAGE>
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 a 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, 1996, and the Report of Independent Public Accountants of Arthur
Andersen LLP dated July 3, 1996 relating to the Financial Statements and
Financial Highlights for the Portfolios.
23
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1996
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) ADJUSTABLE RATE PORTFOLIO (000)
- ------------------------------------------------------------------------------------
<C> <S> <C>
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS (45.2%)
FHLMC
$ 2,649 Class #1512-M, 5.425%, 05/15/08 (A) CMO........................ $ 2,557
7,282 Class #1611-G, 5.938%, 05/15/21 (A) CMO........................ 7,309
8,278 Class #1546-FC, 5.938%, 12/15/21 (A) CMO....................... 8,316
9,857 Class #1671-J, 5.963%, 12/15/22 (A) CMO........................ 9,868
4,322 Pool #97003, 7.286%, 01/01/23 (A) (B).......................... 4,387
7,904 Pool #970021, 7.417%, 01/01/23 (A) (B)......................... 8,022
FNMA
6,008 Class #94-12 PB, 5.000%, 11/25/00 CMO.......................... 5,979
1,292 Class #92-28F, 5.938%, 05/25/07 (A) CMO........................ 1,297
16,500 Class #92-112 FC, 6.138%, 06/25/18 (A) CMO..................... 16,684
872 Pool #165655, 7.555%, 05/01/22 (A) (B)......................... 890
763 Pool #169164, 7.935%, 06/01/22 (A) (B)......................... 771
3,401 Pool #166291, 7.414%, 06/01/22 (A) (B)......................... 3,454
- ------------------------------------------------------------------------------------
Total U.S. Agency Mortgage-Backed Obligations (Cost $69,488)... 69,534
- ------------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS (45.2%)
Capstead Securities IV
2,768 Class #92-9 A, 6.560%, 07/25/22 (A) (B)........................ 2,747
Citicorp Mortgage Securities
650 Class #92-9 A4, 6.288%, 04/25/21 (A) CMO....................... 651
DLJ Mortgage Acceptance
3,756 Class #94-Q1 1A1, 7.190%, 03/25/24 (A) (B)..................... 3,754
Fund America Investors II
2,067 Class #93-J M, 7.970%, 12/25/23 (A) (B)........................ 2,083
Merrill Lynch Mortgage Investments
7,400 Class #91-F A2, 6.340%, 06/15/16 (A) (B)....................... 7,351
7,000 Class #92-C A2, 6.288%, 06/15/17 (A) (B)....................... 7,000
Prudential Home Mortgage Securities
5,477 Class #93-5 A7, 6.138%, 03/25/00(A) CMO........................ 5,488
Residential Funding Mortgage Securities I
100 Class #92-S33 A4, 6.288%, 09/25/19 (A) CMO..................... 100
Resolution Trust
2,163 Class #92-M4 A4, 6.238%, 09/25/21 (A) CMO...................... 2,153
4,794 Class #92-16 A4, 7.794%, 08/25/22 CMO.......................... 4,854
1,946 Class #92-6 B9, 6.388%, 11/25/26 (A) CMO....................... 1,934
1,770 Class #92-3 A4, 5.988%, 09/25/30 (A) CMO....................... 1,772
Ryland Mortgage Securities
1,980 Class #92-L6 A2, 7.500%, 05/25/22 (A) (B)...................... 2,027
1,920 Class #92-L9 A2, 7.720%, 07/25/22 (A) (B)...................... 1,929
5,000 Class #92-L9 A1B, 7.780%, 07/25/22 (A) (B)..................... 5,031
Salomon Brothers Mortgage Securities VII
3,382 Class #92-2 A4, 7.180%, 06/25/22 (A) (B)....................... 3,393
</TABLE>
FS-1
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1996
<TABLE>
<CAPTION>
Face Market
Amount Value
(000)/Shares ADJUSTABLE RATE PORTFOLIO (concluded) (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
$ 2,206 Class #92-4 A5, 7.450%, 09/25/22 (A) (B).................. $ 2,230
3,461 Class #92-6 A1, 7.370%, 11/25/22 (A) (B).................. 3,499
Saxon Mortgage Securities
546 Class #92-1 A2, 7.740%, 09/25/22 (A) (B).................. 549
1,925 Class #92-3 A1, 7.270%, 11/25/22 (A) (B).................. 1,939
3,773 Class #93-1 A, 7.820%, 02/25/23 (A) (B)................... 3,794
Sears Mortgage Securities
1,557 Class #93-3 F, 6.388%, 07/25/20 (A) CMO................... 1,560
Securitized Assets Sales
3,626 Class #93-8 A2, 7.680%, 12/26/23 (A) CMO.................. 3,680
- --------------------------------------------------------------------------------------
Total Non-Agency Mortgage-Backed Obligations (Cost
$69,719).................................................. 69,518
- --------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (8.8%)
FHLMC Discount Notes
6,900 5.220%*, 06/04/96......................................... 6,896
1,250 5.250%*, 06/07/96......................................... 1,249
2,695 5.230%*, 06/12/96......................................... 2,690
FNMA Discount Notes
700 5.180%*, 06/17/96......................................... 698
2,000 5.180%*, 06/17/96......................................... 1,995
- --------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations (Cost $13,530)... 13,528
- --------------------------------------------------------------------------------------
CASH EQUIVALENT (0.3%)
376 SEI Liquid Asset Trust Treasury Portfolio................. 376
- --------------------------------------------------------------------------------------
Total Cash Equivalent (Cost $376)......................... 376
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.5%) (COST $153,113)................. 152,956
- --------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.5%)
- --------------------------------------------------------------------------------------
Total Other Assets and Liabilities, Net................... 804
- --------------------------------------------------------------------------------------
NET ASSETS:
Portfolio shares (unlimited authorization--no par
value) based on 15,430,968 outstanding shares of
beneficial interest...................................... 154,614
Distributions in Excess of Net Investment Income.......... (23)
Accumulated Net Realized Loss on Investments.............. (674)
Net Unrealized Depreciation of Investments................ (157)
- --------------------------------------------------------------------------------------
TOTAL NET ASSETS (100.0%)................................. $153,760
- --------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE................................................. $9.96
- --------------------------------------------------------------------------------------
</TABLE>
* Effective Yield
(A) Adjustable Rate Features. Rate shown on the Statement of Net Assets is the
rate in effect on May 31, 1996.
(B) Pass-Through Security
CMO--Collateralized Mortgage Obligation
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
The accompanying notes are an integral part of these financial statements.
FS-2
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1996
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) SHORT-TERM MATURITY PORTFOLIO (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS (52.8%)
FHLMC
$ 315 Class #1275 VK, 7.000%, 01/15/97 CMO........................... $ 316
399 Class #1640-F, 5.838%, 10/15/07 (A) CMO........................ 399
2,500 Class #1714 B, 5.250%, 05/15/09 CMO............................ 2,490
1,000 Class #1611 C, 5.000%, 03/15/13 CMO............................ 988
1,234 Class #1543 TC, 5.400%, 06/15/13 CMO........................... 1,229
1,000 Class #1611 D, 5.250%, 01/15/16 CMO............................ 973
1,000 Class #1671 D, 5.750%, 11/15/16 CMO............................ 979
1,000 Class #1650 D, 5.400%, 04/15/24 CMO............................ 974
FNMA
226 Class #92-131 GA, 7.000%, 05/25/97 CMO......................... 227
298 Class #93-11C, 5.750%, 04/25/02 CMO............................ 296
2,000 Class #92-155 E, 6.700%, 08/25/04 CMO.......................... 1,978
99 Class #93-99 PB, 4.500%, 06/25/08 CMO.......................... 99
536 Class #G 93-9 C, 5.500%, 03/25/10 CMO.......................... 534
1,000 Class #93-207 B, 4.850%, 06/25/10 CMO.......................... 985
909 Class #93-20 C, 5.700%, 08/25/12 CMO........................... 903
728 Class #92-132 PE, 7.250%, 07/25/15 CMO......................... 731
1,000 Class #93-203 PD, 5.250%, 08/25/15 CMO......................... 973
129 Class #92-28 A, 6.250%, 12/25/16 CMO........................... 129
1,000 Class #94-76-C, 5.000%, 12/25/17 CMO........................... 976
- --------------------------------------------------------------------------------
Total U.S. Agency Mortgage-Backed Obligations (Cost $16,373)... 16,179
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS (34.5%)
Countrywide Mortgage Backed Securities
626 Class #94-D A1, 5.938%, 03/25/24 (A) CMO....................... 617
First Boston Mortgage Securities
74 Class #93-5 A13, 7.300%, 10/25/97 CMO.......................... 74
General Electric Mortgage Services
1,472 Class #94-7 A4, 5.500%, 02/25/09 CMO........................... 1,451
Housing Securities
256 Class #94-1 A4, 5.500%, 07/25/02 CMO........................... 255
Prudential Home Mortgage Securities
1,102 Class #93-43 A1, 5.400%, 10/25/23 CMO.......................... 1,075
1,500 Class #93-57 A2, 5.500%, 12/25/23 CMO.......................... 1,483
3,000 Class #93-54 A21, 5.500%, 01/25/24 CMO......................... 2,927
Residential Funding Mortgage Securities I
225 Class #92-S30 A5, 7.000%, 04/25/97 CMO......................... 224
1,093 Class #93-S40 A1, 5.838%, 11/25/23 (A) CMO..................... 1,078
</TABLE>
FS-3
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 1996
<TABLE>
<CAPTION>
Face Market
Amount Value
(000)/Shares SHORT-TERM MATURITY PORTFOLIO (concluded) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
$1,157 Class #93-S45 A3, 6.750%, 12/25/23 CMO.................. $ 1,153
228 Class #94-S1 A1, 4.750%, 01/25/24 CMO................... 226
- ---------------------------------------------------------------------------------
Total Non-Agency Mortgage-Backed Obligations (Cost
$10,726)............................................... 10,563
- ---------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (2.5%)
Federal Farm Credit Bank Discount Note
775 5.260%*, 06/05/96....................................... 774
- ---------------------------------------------------------------------------------
Total U.S. Government Agency Obligations (Cost $775).... 774
- ---------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (5.4%)
U.S. Treasury Notes
1,000 5.125%, 02/28/98........................................ 982
700 5.000%, 02/15/99........................................ 676
- ---------------------------------------------------------------------------------
Total U.S. Treasury Obligations (Cost $1,676)........... 1,658
- ---------------------------------------------------------------------------------
CASH EQUIVALENTS (4.5%)
799 SEI Liquid Asset Trust Government Portfolio............. 799
585 SEI Liquid Asset Trust Treasury Portfolio............... 585
- ---------------------------------------------------------------------------------
Total Cash Equivalents (Cost $1,384).................... 1,384
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%) (COST $30,934)................ 30,558
- ---------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.3%)
- ---------------------------------------------------------------------------------
Total Other Assets and Liabilities, Net................. 75
- ---------------------------------------------------------------------------------
NET ASSETS:
Portfolio shares (unlimited authorization--no par value)
based on 3,139,592 outstanding shares of beneficial
interest............................................... 31,761
Accumulated Net Realized Loss on Investments............ (752)
Net Unrealized Depreciation of Investments.............. (376)
- ---------------------------------------------------------------------------------
TOTAL NET ASSETS (100.0%)............................... $30,633
- ---------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE.................................................. $9.76
- ---------------------------------------------------------------------------------
</TABLE>
* Effective Yield
(A) Adjustable Rate Features. Rate shown on the Statement of Net Assets is the
rate in effect on May 31, 1996.
CMO--Collateralized Mortgage Obligation
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
The accompanying notes are an integral part of these financial statements.
FS-4
<PAGE>
STATEMENT OF OPERATIONS CUFUND
For the Year ended 05/31/96
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------
ADJUSTABLE RATE SHORT-TERM MATURITY
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------
<S> <C> <C>
Investment Income......................... $9,944 $1,920
- -------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees................. 505 109
Waiver of Investment Advisory Fees....... (222) (78)
Administrator Fees....................... 176 38
Custodian Fees........................... 14 4
Professional Fees........................ 60 19
Registration Fees........................ 8 2
Insurance Fees........................... 1 --
Trustee Fees............................. 38 11
Printing Fees............................ 13 7
Amortization of Deferred Organizational
Costs................................... 11 11
Other.................................... 10 5
- -------------------------------------------------------------------------------
Total Expenses.......................... 614 128
- -------------------------------------------------------------------------------
Net Investment Income..................... 9,330 1,792
- -------------------------------------------------------------------------------
Net Realized Loss on Investments........ (21) (32)
- -------------------------------------------------------------------------------
Net Unrealized Appreciation on Invest-
ments.................................. 472 150
- -------------------------------------------------------------------------------
Net Realized and Unrealized Gain on
Investments.............................. 451 118
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations............................... $9,781 $1,910
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS CUFUND
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------
ADJUSTABLE RATE SHORT-TERM MATURITY
PORTFOLIO PORTFOLIO
--------------------- ---------------------
6/1/95 6/1/94 6/1/95 6/1/94
TO 5/31/96 TO 5/31/95 TO 5/31/96 TO 5/31/95
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income............ $ 9,330 $ 9,086 $ 1,792 $ 2,114
Net Realized Loss on Investments. (21) (638) (32) (599)
Net Unrealized Appreciation on
Investments..................... 472 78 150 999
- -------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations........ 9,781 8,526 1,910 2,514
- -------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income............ (9,334) (9,024) (1,790) (2,115)
- -------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued...... 5,000 5,700 600 8,200
Shares Issued in Lieu of Cash
Distributions................... 662 1,004 151 579
Cost of Shares Redeemed.......... (14,496) (27,545) (5,288) (15,865)
- -------------------------------------------------------------------------------
Decrease in Net Assets from
Capital Share Transactions....... (8,834) (20,841) (4,537) (7,086)
- -------------------------------------------------------------------------------
Total Decrease in Net Assets.... (8,387) (21,339) (4,417) (6,687)
- -------------------------------------------------------------------------------
Net Assets:
Beginning of Period.............. 162,147 183,486 35,050 41,737
- -------------------------------------------------------------------------------
End of Period (1)................ $153,760 $162,147 $30,633 $35,050
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued.................... 502 574 62 855
Shares Issued in Lieu of Cash
Distributions................... 66 101 15 61
Shares Redeemed.................. (1,451) (2,782) (541) (1,663)
- -------------------------------------------------------------------------------
Net Capital Share Transactions.... (883) (2,107) (464) (747)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Including distributions in excess of net investment income (000) of $(23)
and $(19) for Adjustable Rate Portfolio, $(0) and $(2) for Short-Term
Maturity Portfolio at May 31, 1996 and May 31, 1995, respectively.
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE>
FINANCIAL HIGHLIGHTS CUFUND
FOR THE PERIODS ENDED MAY 31,
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Net Ratio of
Net Realized and Net Net Ratio of Net Expenses
Asset Unrealized Dividends Asset Assets Ratio of Investment to Average
Value Net Gains from Net Capital Value End of Expenses Income Net Assets
Beginning Investment (Losses) on Investment Gains End of Total Period to Average to Average (Excluding
of Period Income Investments 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
1996 $ 9.94 0.59 0.02 (0.59) -- $ 9.96 6.29% $153,760 0.39% 5.92% 0.53%
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
1996 $ 9.73 0.52 0.03 (0.52) -- $ 9.76 5.73% $ 30,633 0.38% 5.27% 0.61%
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
Investment
Income
to Average
Net Assets Portfolio
(Excluding Turnover
Waivers) Rate
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Portfolio
1996 5.78% 23%
1995 5.21% 4%
1994 3.57% 67%
1993
(1) 3.78% 71%
Short-Term Maturity Portfolio
1996 5.04% 42%
1995 5.11% 53%
1994 4.06% 148%
1993
(1) 4.44% 188%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(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.
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS CUFUND
May 31, 1996
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 (the
"Portfolios"). The Trust's prospectus provides a description of each
Portfolio's investment objectives, policies and strategies.
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 Portfolios which are
listed on a securities exchange for which market quotations are available
are valued at the last quoted sales price 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 using a method which approximates the effective
interest method.
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 in connection
with its start-up. 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 that 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
FS-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) CUFUND
May 31, 1996
redemption proceeds payable to the holder thereof by the Trust will be
reduced by the 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.
Use of Estimates in the Preparation of Financial Statements--The
preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
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 the Administrator 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% of average daily net assets.
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, 1996, 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 $18,400 $14,447 $10,248 $28,722
Short-Term Maturity Portfolio 8,321 9,949 1,412 2,086
</TABLE>
The total cost of securities held for Federal income tax purposes at May 31,
1996 for the Adjustable Rate Portfolio and the Short-Term Maturity Portfolio
FS-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) CUFUND
May 31, 1996
was not materially different from amounts reported for financial reporting
purposes. The Adjustable Rate Portfolio had net unrealized depreciation of
($156,996), which was composed of gross unrealized appreciation of $308,098 and
gross unrealized depreciation of ($465,094) for tax purposes. The Short-Term
Maturity Portfolio had net unrealized depreciation of ($376,199), which was
composed of gross unrealized appreciation of $9,043 and gross unrealized
depreciation of ($385,242) for tax purposes.
6. Capital Loss Carryforwards:
The capital loss carryforwards at May 31, 1996 for Federal income tax purposes
are as follows:
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATE
-------- ----------
<S> <C> <C>
Adjustable Rate Portfolio $ 4,605 2001
10,425 2002
558,430 2003
37,771 2004
Short-Term Maturity Portfolio 383,533 2003
337,054 2004
</TABLE>
Subsequent to 10/31/95 the Adjustable Rate Portfolio and the Short-Term
Maturity Portfolio recognized net capital losses for tax purposes that have
been deferred to 1996 of $62,774 and $31,213, respectively. The capital loss
carryforwards and post 10/31/95 deferred losses can 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 INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of CUFUND:
We have audited the accompanying statements of net assets of the Adjustable
Rate and Short-Term Maturity Portfolios of CUFUND (the "Trust") as of May 31,
1996, 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 Trust'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, 1996, 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,
1996, 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 3, 1996
FS-11
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
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.
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+'.
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.
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.
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.
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.
A-1
<PAGE>
INVESTMENT ADVISER
Southwest Corporate Federal Credit Union
7920 Belt Line Road
Suite 1100
Dallas, TX 75240
ADMINISTRATOR
SEI Fund Resources
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 LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1601 Market Street
Philadelphia, PA 19103-2499
