CUFUND
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Short-Term Maturity Portfolio
[BULLET}
Adjustable Rate Portfolio
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ANNUAL REPORT
TO
SHAREHOLDERS
5/31/00
THIS INFORMATION MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
CUSOURCE, LLC
INVESTMENT ADVISER
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<PAGE>
CUFUND
THE CREDIT UNION FAMILY OF FUNDS
To Our Shareholders:
CUFUND, the Credit Union Family of Funds, has been serving natural person credit
union investment needs since its inception in June 1992. During this eight-year
period, the Short-Term Maturity Portfolio and the Adjustable Rate Portfolio have
given credit unions an excellent investment option.
CUFUND remains unique among mutual funds as it is the only mutual fund to be
advised by a company that is a wholly-owned subsidiary (CUSO) of a credit union.
As a result, CUFUND is uniquely positioned to respond to the concerns and
changes of natural person credit unions, as well as the continually changing
regulatory environment. As the regulatory environment becomes more complex, we
believe that the flexibility and investment expertise inherent to the portfolios
of CUFUND will allow credit unions to continue to take advantage of all types of
securities available to them in one easy package.
CUFUND has maintained a strong performance record since its inception. It has
been our pleasure, the adviser, the administrator, and the distributor, to offer
CUFUND. We thank all credit unions for their support of and participation in
CUFUND.
Sincerely
/s/signature
Mark E. Nagle
President
1
<PAGE>
CUFUND
MANAGEMENT'S DISCUSSION & ANALYSIS OF FUND PERFORMANCE
GENERAL MARKET COMMENT JULY 7, 2000
The interest rate environment in the second quarter of 2000 has consisted of
slightly higher short term treasury rates and lower long term rates. The yield
curve is now inverted 60 basis points from Fed Funds to the 30 year note. The
Federal Open Market Committee left the Fed Funds rate target unchanged at their
last meeting, but not before tightening 50 basis points at their May 16 meeting.
Fed Funds rate hikes in this cycle of tightening now total 175 basis points
since June 30 of last year. The speculative trading, centered around potential
treasury refundings in 30 year maturities we experienced in the last quarter,
has begun to find its way into shorter maturities, but to a much lesser extent.
We also experienced a small flight to quality as money invested in the stock
market made its way to the safe haven of treasuries amid concerns of further Fed
action. This situation has begun to unwind as the current consensus calls for a
50% chance of one more Fed move to "tweak" the economy at most. We believe the
Fed is finished for the remainder of the year. The two year note yield closed
the quarter at 6.37% off of it's high of 6.91% on May 18. Looking forward, we
think the two year note will settle into a range of 6.35% to 6.75%.
SHORT-TERM MATURITY PORTFOLIO
The investment objective of the Short-Term Maturity Portfolio is to seek a high
level of income consistent with safety of capital. The primary investment
strategy undertaken by the adviser has been a modified "buy and hold" strategy.
The assets of the Portfolio are distributed between U.S. Agency and various
mortgage backed securities (MBS). The average weighted maturity is less than two
years.
The adviser will seek to continue to reinvest this and future principal paydowns
as opportunities arise. The effective duration of 1.46% is up from 1.21% at our
last report. During the quarter, $2.218 million was invested in PAC CMOs with
average lives ranging from 2 to 3 years, $1.480 million was invested in PAC CMOs
with average lives ranging from 1 to 2 years, and 3.0 million was invested in
Agency bullets with maturities ranging between 2 and 3 years. An additional
$100,000 was invested in money market PAC CMOs (average life less than one
year). The adviser will continue to manage the fund toward an effective duration
target of between 1.25% and 2.00%, lengthening the duration when warranted by
higher rates. The one year total return on June 30, 2000 was 5.07%, which is up
from 4.24% on May 31 and 4.00% at our last report. This performance compares
favorably to other funds in the peer group. The net asset value per share closed
at $9.80 on June 30, 2000, which is up from $9.76 on May 31 and from $9.77 on
March 31, 2000.
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Average Annual Total Return
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Annualized Annualized Annualized
One Year Three Five Inception
Return Year Return Year Return to Date*
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4.24% 5.36% 5.54% 4.93%
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*Inception date 6/15/92
COMPARISON OF CHANGE IN THE VALUE OF A $100,000
INVESTMENT IN THE CUFUND SHORT-TERM MATURITY PORTFOLIO,
VERSUS THE 1 YEAR CONSTANT MATURITY TREASURY,
AND THE LIPPER SHORT U.S. GOVERNMENT FUNDS AVERAGE
[line graph omitted--plot points as follows]
<TABLE>
<CAPTION>
CUFUND Short-Term 1 Year Constant Lipper Short U.S.
Maturity Treasury Maturity Portfolio Government Funds Average
<S> <C> <C> <C>
6/30/92 $100,000 $100,000 $100,000
May 93 $104,078 $103,231 $105,132
May 94 $104,317 $107,277 $106,257
May 95 $111,536 $114,111 $113,004
May 96 $117,927 $120,512 $118,135
May 97 $124,885 $127,562 $125,305
May 98 $132,590 $134,706 $132,711
May 99 $140,108 $141,293 $138,630
May 00 $146,049 $149,615 $143,468
</TABLE>
Past Performance is no indication of future performance.
2
<PAGE>
CUFUND
MANAGEMENT'S DISCUSSION & ANALYSIS OF FUND PERFORMANCE
ADJUSTABLE RATE PORTFOLIO
The investment objective of the Adjustable Rate Portfolio is to maximize returns
in the variable rate market while maintaining safety of capital. The primary
investment strategy undertaken by the adviser has been a modified "buy and hold"
strategy. The assets of the Portfolio are distributed between U.S. Agency, U.S.
Treasury and various mortgage backed securities (MBS).
The Fund closed the quarter at .41% effective duration, which is essentially
unchanged from March 31. At June 30, 2000, approximately 68% of the Portfolio
was invested in adjustable rate MBSs, 2% of the Portfolio was cash or
equivalents, while 30% was fixed rate PAC CMOs. The cash position was unchanged
while the fixed rate PAC CMO position was down from 32%. During the quarter,
$7.872 million of LIBOR CMO Floaters and $8.377 million of money market PAC CMOs
(average life less than 1 year) were purchased. Of these investments, $5.932
million was invested in whole loan products. The adviser continues to monitor
the ARM market for value, but has avoided this type of product in recent months
due to the high premium dollar prices associated with investments of this type.
The net asset value per share of the Portfolio of $9.88 on June 30 was up from
$9.85 on May 31 and $9.86 on March 31. Total return for the one year period
ending June 30, 2000 was 5.10%, which is up from 4.65% on May 31 and 4.27% at
our last report. In the coming quarter, the adviser will continue to attempt to
increase duration and yield in fairly valued sectors of the adjustable rate
market while focusing on maintaining a stable net asset value and minimizing
prepayment risk.
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Average Annual Total Return
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Annualized Annualized Annualized
One Year Three Five Inception
Return Year Return Year Return to Date*
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4.65% 5.07% 5.57% 5.06%
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*Inception date 6/15/92
COMPARISON OF CHANGE IN THE VALUE OF A $100,000
INVESTMENT IN THE CUFUND ADJUSTABLE RATE
PORTFOLIO, VERSUS THE 1 MONTH LIBOR INDEX,
AND THE LIPPER ADJUSTABLE-RATE MORTGAGE FUNDS AVERAGE
[line graph omitted--plot points as follows]
<TABLE>
<CAPTION>
CUFUND Adjustable Rate Lipper Adjustable-Rate
Portfolio 1 Month Libor Index Mortgage Funds Average
<S> <C> <C> <C>
6/30/92 $100,000 $100,000 $100,00
May 93 $103,906 $103,118 $103,451
May 94 $107,221 $106,738 $105,282
May 95 $112,850 $112,811 $110,894
May 96 $119,948 $119,422 $117,115
May 97 $127,577 $126,181 $124,950
May 98 $134,759 $133,550 $131,610
May 99 $141,403 $140,722 $137,269
May 00 $147,978 $149,151 $143,309
</TABLE>
Past Performance is no indication of future performance.
3
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 2000
SHORT-TERM MATURITY PORTFOLIO
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Par Value
Description (000) (000)
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U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 83.9%
FHLMC
5.550%, 09/10/01 $1,000 $ 980
FHLMC Pool # E62015
6.000%, 07/01/09 321 300
FHLMC Pool # L73564
5.000%, 03/01/01 318 304
FHLMC Pool # L73582
5.000%, 04/01/01 12 12
FHLMC Pool # L73595
5.000%, 03/01/01 208 199
FHLMC Pool # L73633
5.000%, 04/01/01 150 143
FHLMC Pool # N96383
6.000%, 04/01/03 938 880
FHLMC Series 1489,
Class G REMIC
5.850%, 10/15/06 963 953
FHLMC Series 1490,
Class PE REMIC
5.750%, 07/15/06 45 45
FHLMC Series 1496,
Class G REMIC
4.000%, 03/15/19 949 913
FHLMC Series 1500,
Class GB REMIC
6.250%, 11/15/18 500 494
FHLMC Series 1507,
Class G REMIC
5.500%, 10/15/19 1,000 956
FHLMC Series 1512,
Class EB REMIC
6.000%, 07/15/05 124 123
FHLMC Series 1520,
Class G REMIC
6.250%, 12/15/06 802 794
FHLMC Series 1534,
Class E REMIC
6.000%, 12/15/17 146 145
FHLMC Series 1556,
Class E REMIC
5.600%, 10/15/08 313 311
FHLMC Series 1559,
Class VP REMIC
5.500%, 02/15/20 486 474
FHLMC Series 1626,
Class PN REMIC
5.800%, 01/15/06 286 284
FHLMC Series 1627,
Class A REMIC
6.000%, 05/15/22 40 39
FHLMC Series 1640,
Class F REMIC (A)
6.963%, 10/15/07 107 107
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Par Value
Description (000) (000)
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FHLMC Series 1648,
Class AB REMIC
4.900%, 10/15/18 $ 320 $ 318
FHLMC Series 1665,
Class G REMIC
6.000%, 04/15/21 1,000 979
FHLMC Series 1673,
Class D REMIC
5.750%, 05/15/16 366 364
FHLMC Series 1678,
Class A REMIC
5.500%, 10/15/07 190 189
FHLMC Series 1679,
Class A REMIC
5.250%, 09/15/06 94 93
FHLMC Series 1702,
Class PL REMIC
5.000%, 10/15/16 82 82
FHLMC Series 1710,
Class C REMIC
6.100%, 02/15/24 133 132
FHLMC Series 1734,
Class E REMIC
6.000%, 10/15/06 1,053 1,045
FHLMC Series 2055,
Class OA REMIC
6.000%, 12/15/05 704 697
FHLMC Series 2068,
Class CB REMIC
6.000%, 11/15/10 100 99
FHLMC Series 2095,
Class PB REMIC
5.500%, 10/15/13 764 737
FHLMC Series 2128,
Class PE REMIC
5.500%, 06/15/08 196 190
FHLMC Series 2131,
Class CA REMIC
6.000%, 03/15/18 1,000 970
FHLMC Series 2137,
Class UC REMIC
6.000%, 08/15/14 1,000 970
FHLMC Series 2147,
Class PB CMO
6.000%, 11/15/04 530 524
FNMA Pool # 50948
6.000%, 11/01/03 563 531
FNMA Pool # 190634
6.500%, 02/01/04 454 436
FNMA Pool # 263895
6.000%, 12/01/03 560 529
FNMA Pool # 284306
6.000%, 09/01/05 525 495
4
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 2000
SHORT-TERM MATURITY PORTFOLIO (continued)
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Par Value
Description (000) (000)
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FNMA Series 1992-150,
Class FV REMIC (A)
5.967%, 05/25/21 $ 200 $ 198
FNMA Series 1993-79,
Class PG REMIC
6.250%, 01/25/19 250 247
FNMA Series 1993-93,
Class D REMIC
5.850%, 02/25/06 73 73
FNMA Series 1993-106,
Class C REMIC
6.200%, 02/25/11 526 523
FNMA Series 1993-110,
Class E REMIC
6.000%, 04/25/19 24 24
FNMA Series 1993-138,
Class E REMIC
5.750%, 12/25/16 61 61
FNMA Series 1993-147,
Class PE REMIC
5.000%, 08/25/23 28 28
FNMA Series 1993-199,
Class E REMIC
5.850%, 05/25/19 128 127
FNMA Series 1993-201,
Class G REMIC
3.500%, 05/25/19 500 475
FNMA Series 1993-204,
Class PD REMIC
5.600%, 05/25/18 169 168
FNMA Series 1993-209,
Class E REMIC
5.750%, 07/25/05 441 439
FNMA Series 1993-212,
Class C REMIC
6.000%, 11/25/00 138 137
FNMA Series 1993-212,
Class E REMIC
5.300%, 11/25/00 356 353
FNMA Series 1994-12,
Class PE REMIC
5.750%, 04/25/07 151 149
FNMA Series 1994-27,
Class PK REMIC
6.500%, 06/25/00 13 13
FNMA Series 1994-43,
Class PG REMIC
6.250%, 02/25/22 1,000 979
FNMA Series 1994-58,
Class A REMIC
5.000%, 01/25/07 368 364
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Par Value
Description (000) (000)
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FNMA Series 1994-72,
Class E REMIC
6.000%, 11/25/17 $ 242 $ 240
FNMA Series 1995-19,
Class A REMIC
6.500%, 10/25/00 362 361
FNMA Series 1999-19,
Class PC CMO
6.000%, 09/25/14 745 721
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Total U.S. Agency Mortgage-
Backed Obligations
(Cost $23,903) 23,516
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NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 1.9%
Countrywide Mortgage Backed
Services Series 1994-D,
Class A1 CMO (A)
6.656%, 03/25/24 105 105
General Electric Capital
Mortgage Services
Series 1994-5, Class A4
6.500%, 02/25/24 152 151
General Electric Capital
Mortgage Services
Series 1994-13, Class A1
6.500%, 04/25/24 106 105
Residential Funding Mortgage
Securities Series 1993-S40,
Class A1 (A)
6.588%, 11/25/23 173 172
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Total Non-Agency Mortgage-
Backed Obligations
(Cost $536) 533
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U.S. GOVERNMENT AGENCY OBLIGATIONS 7.0%
FHLB Series 8K02
5.860%, 12/30/02 1,000 966
FNMA MTN
6.250%, 06/16/00 1,000 1,000
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Total U.S. Government
Agency Obligations
(Cost $1,970) 1,966
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U.S. TREASURY OBLIGATION 3.3%
U.S. Treasury Note
4.250%, 11/15/03 1,000 927
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Total U.S. Treasury Obligation
(Cost $974) 927
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5
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 2000
SHORT-TERM MATURITY PORTFOLIO (concluded)
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Par Value
Description (000) (000)
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CASH EQUIVALENT 3.8%
SEI Daily Income Trust
Treasury Fund 1,059,229 $ 1,059
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Total Cash Equivalent
(Cost $1,059) 1,059
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TOTAL INVESTMENTS 99.9%
(Cost $28,442) 28,001
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OTHER ASSETS AND LIABILITIES, NET 0.1% 34
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NET ASSETS:
Portfolio Shares (unlimited
authorization -- no par value)
based on 2,873,742 outstanding
shares of beneficial interest 29,132
Undistributed net investment income 6
Accumulated net realized loss
on investments (662)
Net unrealized depreciation
of investments (441)
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Total Net Assets 100.0% $ 28,035
========
Net Asset Value and Redemption
Price Per Share $9.76
========
(A) Adjustable Rate Features. Rate shown on the Statement of Net Assets is the
rate in effect on May 31, 2000.
CMO -- Collateralized Mortgage Obligation
FHLMC -- Federal Home Loan Mortgage Corporation
FHLB -- Federal Home Loan Bank
FNMA -- Federal National Mortgage Association
MTN -- Medium Term Note
REMIC -- Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 2000
ADJUSTABLE RATE PORTFOLIO
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Par Value
Description (000) (000)
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U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS 90.0%
FHLMC Pool # L80052
6.000%, 01/01/01 $ 806 $ 756
FHLMC Pool # M80302
6.000%, 12/01/00 1,048 1,040
FHLMC Pool # 970003 ARM (A)
7.586%, 01/01/23 1,637 1,663
FHLMC Pool # 970021 ARM (A)
7.735%, 01/01/23 2,123 2,160
FHLMC Series 31, Class FC (A)
7.025%, 08/25/23 1,037 1,036
FHLMC Series 1353,
Class F REMIC (A)
5.502%, 08/15/07 1,216 1,155
FHLMC Series 1377,
Class F REMIC (A)
7.063%, 09/15/07 132 133
FHLMC Series 1471,
Class H REMIC (A)
6.963%, 03/15/08 726 725
FHLMC Series 1472,
Class F REMIC (A)
7.013%, 05/15/06 946 944
FHLMC Series 1476,
Class F REMIC (A)
5.717%, 02/15/08 2,154 2,050
FHLMC Series 1500,
Class E REMIC
6.000%, 08/15/16 9 8
FHLMC Series 1506,
Class PE REMIC
5.650%, 07/15/05 15 15
FHLMC Series 1507,
Class E REMIC
5.750%, 01/15/18 1,719 1,703
FHLMC Series 1512,
Class M REMIC (A)
5.417%, 05/15/08 272 253
FHLMC Series 1529,
Class EB REMIC
5.900%, 06/15/00 72 72
FHLMC Series 1541,
Class KM REMIC (A)
5.867%, 08/15/22 87 80
FHLMC Series 1546,
Class FC REMIC (A)
7.063%, 12/15/21 3,469 3,471
FHLMC Series 1551,
Class JA REMIC (A)
7.113%, 07/15/08 456 456
FHLMC Series 1559,
Class VP REMIC
5.500%, 02/15/20 972 948
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Par Value
Description (000) (000)
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FHLMC Series 1587,
Class F REMIC (A)
7.013%, 07/15/08 $ 525 $ 524
FHLMC Series 1595,
Class F REMIC (A)
6.913%, 10/15/13 840 837
FHLMC Series 1598,
Class E REMIC
5.600%, 11/15/05 211 210
FHLMC Series 1604,
Class FH REMIC (A)
5.867%, 11/15/08 1,897 1,813
FHLMC Series 1611,
Class G REMIC (A)
7.063%, 05/15/21 2,533 2,531
FHLMC Series 1625,
Class EA REMIC
5.750%, 03/15/07 1,389 1,381
FHLMC Series 1630,
Class FC REMIC (A)
7.063%, 10/15/22 1,106 1,103
FHLMC Series 1635,
Class F CMO (A)
7.013%, 12/15/08 1,928 1,930
FHLMC Series 1648,
Class AB REMIC
4.900%, 10/15/18 961 955
FHLMC Series 1663,
Class PE REMIC
5.850%, 09/15/19 201 200
FHLMC Series 1671,
Class J REMIC (A)
6.963%, 12/15/22 9,379 9,351
FHLMC Series 1673,
Class D REMIC
5.750%, 05/15/16 732 728
FHLMC Series 1693,
Class E REMIC
5.750%, 02/15/06 467 464
FHLMC Series 1695,
Class AK REMIC (A)
6.963%, 01/15/24 178 177
FHLMC Series 1890,
Class C REMIC
7.000%, 08/15/01 1,421 1,418
FHLMC Series 2055,
Class OA REMIC
6.000%, 03/15/02 1,407 1,394
FHLMC Series 2234,
Class PF CMO (A)
6.750%, 08/15/26 3,065 3,058
7
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 2000
ADJUSTABLE RATE PORTFOLIO (continued)
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Par Value
Description (000) (000)
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FNMA Pool # 50759
6.000%, 07/01/00 $ 577 $ 576
FNMA Pool # 50968
6.000%, 01/01/04 1,138 1,073
FNMA Pool # 165655 ARM (A)
7.680%, 05/01/22 149 155
FNMA Pool # 166291 ARM (A)
7.648%, 06/01/22 1,025 1,064
FNMA Pool # 303768
6.000%, 06/01/01 830 779
FNMA Pool # 354900 ARM (A)
7.141%, 08/01/26 130 133
FNMA Pool # 359751 ARM (A)
8.222%, 09/01/26 408 412
FNMA Pool # 364612 ARM (A)
7.585%, 11/01/26 244 250
FNMA Series G92-28,
Class F REMIC (A)
7.125%, 05/25/07 328 328
FNMA Series G93-14,
Class G REMIC
6.000%, 06/25/19 381 376
FNMA Series G93-35,
Class JB REMIC
6.500%, 02/25/01 572 570
FNMA Series 1992-141,
Class FA REMIC (A)
7.125%, 08/25/07 203 204
FNMA Series 1992-150,
Class FV REMIC (A)
5.967%, 05/25/21 399 396
FNMA Series 1993-28,
Class F REMIC (A)
7.255%, 03/25/08 953 956
FNMA Series 1993-39,
Class F REMIC (A)
7.325%, 04/25/21 374 376
FNMA Series 1993-72,
Class F REMIC (A)
5.867%, 05/25/08 983 926
FNMA Series 1993-95,
Class PD REMIC
6.000%, 12/25/06 20 20
FNMA Series 1993-96,
Class PE REMIC
5.600%, 11/25/16 15 15
FNMA Series 1993-106,
Class C REMIC
6.200%, 02/25/11 2,104 2,093
FNMA Series 1993-115,
Class E REMIC
5.500%, 04/25/19 82 82
--------------------------------------------------------------------------------
Par Value
Description (000) (000)
--------------------------------------------------------------------------------
FNMA Series 1993-116,
Class FA REMIC (A)
5.467%, 07/25/22 $2,547 $2,458
FNMA Series 1993-127,
Class EA REMIC
5.650%, 10/25/16 40 40
FNMA Series 1993-136,
Class FC REMIC (A)
7.125%, 11/25/21 353 351
FNMA Series 1993-138,
Class E REMIC
5.750%, 12/25/16 129 128
FNMA Series 1993-164,
Class C REMIC
6.500%, 09/25/08 888 874
FNMA Series 1993-168,
Class B REMIC
6.000%, 08/25/00 58 58
FNMA Series 1993-168,
Class FG REMIC (A)
6.067%, 09/25/23 632 598
FNMA Series 1993-168,
Class PE REMIC
6.000%, 08/25/17 258 257
FNMA Series 1993-170,
Class E REMIC
5.750%, 08/25/06 679 674
FNMA Series 1993-194,
Class F REMIC (A)
7.025%, 06/25/08 873 865
FNMA Series 1993-201,
Class G REMIC
3.500%, 05/25/19 1,000 949
FNMA Series 1993-202,
Class E REMIC
5.750%, 12/25/16 1,124 1,119
FNMA Series 1993-202,
Class FO REMIC (A)
7.075%, 02/25/22 1,875 1,868
FNMA Series 1993-204,
Class VC REMIC
5.500%, 10/25/02 500 488
FNMA Series 1993-208,
Class F REMIC (A)
7.175%, 02/25/23 477 475
FNMA Series 1993-209,
Class E REMIC
5.750%, 07/25/05 55 55
FNMA Series 1993-209,
Class FG REMIC (A)
5.867%, 08/25/08 2,095 1,963
FNMA Series 1993-210,
Class FB REMIC (A)
7.025%, 10/25/22 1,717 1,704
8
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 2000
ADJUSTABLE RATE PORTFOLIO (continued)
--------------------------------------------------------------------------------
Par Value
Description (000) (000)
--------------------------------------------------------------------------------
FNMA Series 1993-212,
Class E REMIC
5.300%, 11/25/00 $ 712 $ 706
FNMA Series 1993-221,
Class A CMO
6.000%, 11/25/06 1,780 1,765
FNMA Series 1993-221,
Class F REMIC (A)
5.817%, 03/25/08 2,027 1,982
FNMA Series 1993-229,
Class PD REMIC
5.600%, 07/25/06 176 175
FNMA Series 1993-238,
Class F REMIC (A)
6.825%, 06/25/08 313 311
FNMA Series 1994-42,
Class FN REMIC (A)
5.467%, 03/25/23 2,594 2,449
FNMA Series 1994-58,
Class A REMIC
5.000%, 01/25/07 1,676 1,656
FNMA Series 1994-75,
Class E REMIC
6.600%, 09/25/18 2,186 2,173
FNMA Series 1994-87,
Class F REMIC (A)
7.075%, 03/25/09 801 799
FNMA Series 1994-89,
Class FE REMIC (A)
7.095%, 03/25/09 1,344 1,338
FNMA Series 1995-19,
Class A REMIC
6.500%, 10/25/00 191 190
FNMA Series 1997-20,
Class F REMIC (A)
5.635%, 03/25/27 6,259 6,146
FNMA Series 1997-24,
Class FA REMIC (A)
7.094%, 06/18/21 3,232 3,224
FNMA Series 1997-70,
Class FA REMIC (A)
7.044%, 07/18/20 490 490
FNMA Series 2000-2,
Class FM REMIC (A)
6.960%, 01/25/22 3,874 3,863
GNMA Series 1999-24,
Class FE REMIC (A)
6.380%, 04/20/25 4,716 4,686
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Total U.S. Agency Mortgage-
Backed Obligations
(Cost $105,656) 104,403
--------
--------------------------------------------------------------------------------
Par Value
Description (000) (000)
--------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS 6.0%
DLJ Mortgage Acceptance
Series 1994-Q1,
Class 1A1 CMO (A)
8.334%, 03/25/24 $ 495 $ 494
Fund America Investors II
Series 1993-J,
Class M CMO (A)
8.279%, 11/25/23 388 386
Merrill Lynch Mortgage
Investments Series 1991-F,
Class A2 CMO (A)
6.778%, 06/15/16 641 641
Merrill Lynch Mortgage
Investments Series 1992-C,
Class A2 CMO (A)
7.038%, 06/15/17 954 954
Norwest Asset Securities
Series 1999-16, Class A5 (A)
6.450%, 06/25/29 2,000 1,982
Residential Funding Mortgage
Series 1997-S4,
Class A CMO (A)
6.599%, 03/25/12 765 762
Salomon Brothers Mortgage
Securities VII Series 1992-2,
Class A4 CMO (A)
7.776%, 06/25/22 471 472
Salomon Brothers Mortgage
Securities VII Series 1992-4,
Class A5 CMO (A)
7.871%, 09/25/22 297 295
Salomon Brothers Mortgage
Securities VII Series 1992-6,
Class A1 CMO (A)
7.770%, 11/25/22 727 725
Securitized Assets Sales
Series 1993-8, Class A2
CMO (A)
7.869%, 12/26/23 311 309
--------
Total Non-Agency Mortgage-
Backed Obligations
(Cost $7,039) 7,020
--------
U.S. GOVERNMENT AGENCY OBLIGATION 0.9%
FFCB (A)
6.285%, 07/03/00 1,000 1,000
--------
Total U.S. Government
Agency Obligation
(Cost $1,000) 1,000
--------
9
<PAGE>
STATEMENT OF NET ASSETS CUFUND
May 31, 2000
ADJUSTABLE RATE PORTFOLIO (concluded)
--------------------------------------------------------------------------------
Shares/Par Value
Description (000) (000)
--------------------------------------------------------------------------------
U.S. TREASURY OBLIGATION 1.6%
U.S. Treasury Note
4.250%, 11/15/03 $ 2,000 $ 1,855
--------
Total U.S. Treasury Obligation
(Cost $1,949) 1,855
--------
CASH EQUIVALENT 1.6%
SEI Daily Income Trust
Treasury Fund 1,886,831 1,887
--------
Total Cash Equivalent
(Cost $1,887) 1,887
--------
TOTAL INVESTMENTS 100.1%
(Cost $117,531) 116,165
--------
OTHER ASSETS AND LIABILITIES, NET (0.1%) (131)
--------
NET ASSETS:
Portfolio Shares (unlimited
authorization -- no par value)
based on 11,780,290 outstanding
shares of beneficial interest 118,074
Undistributed net investment income 2
Accumulated net realized loss
on investments (676)
Net unrealized depreciation
on investments (1,366)
--------
Total Net Assets (100.0%) $116,034
========
Net Asset Value and Redemption
Price Per Share $9.85
========
(A) Adjustable Rate Features. Rate shown on the Statement of Net Assets is the
rate in effect on May 31, 2000.
ARM -- Adjustable Rate Mortgage
CMO -- Collateralized Mortgage Obligation
FFCB -- Federal Farm Credit Bank
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
REMIC -- Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
STATEMENTS OF OPERATIONS CUFUND
For the year ended May 31, 2000
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------------------------------------------------
SHORT-TERM MATURITY ADJUSTABLE RATE
PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income $1,650 $6,866
-------------------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees 90 373
Waiver of Investment Advisory Fees (74) (284)
Administrator Fees 52 198
Custodian Fees 3 12
Professional Fees 17 70
Registration Fees 1 4
Trustee Fees 7 29
Printing Fees 10 39
Transfer Agent Fees 1 4
Other 3 10
-------------------------------------------------------------------------------------------
Total Expenses 110 455
-------------------------------------------------------------------------------------------
Net Investment Income 1,540 6,411
-------------------------------------------------------------------------------------------
Net Unrealized Depreciation of Investments (377) (1,157)
-------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $1,163 $5,254
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS CUFUND
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------
SHORT-TERM MATURITY ADJUSTABLE RATE
PORTFOLIO PORTFOLIO
------------------------ ------------------------
06/01/99 06/01/98 06/01/99 06/01/98
TO 05/31/00 TO 05/31/99 TO 05/31/00 TO 05/31/99
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ 1,540 $ 1,522 $ 6,411 $ 6,529
Net Realized Gain/(Loss) on Investments -- 158 -- (2)
Net Unrealized Depreciation of Investments (377) (78) (1,157) (659)
--------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 1,163 1,602 5,254 5,868
--------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income (1,515) (1,534) (6,377) (6,511)
--------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued in Lieu of Cash Distributions 61 76 607 575
Cost of Shares Redeemed -- (1,363) (1,031) (7,749)
--------------------------------------------------------------------------------------------------------------------
Increase/(Decrease) in Net Assets from
Capital Share Transactions 61 (1,287) (424) (7,174)
--------------------------------------------------------------------------------------------------------------------
Total Decrease in Net Assets (291) (1,219) (1,547) (7,817)
--------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 28,326 29,545 117,581 125,398
--------------------------------------------------------------------------------------------------------------------
End of Period (1) $28,035 $28,326 $116,034 $117,581
====================================================================================================================
Capital Share Transactions:
Shares Issued in Lieu of Cash Distributions 6 8 61 58
Shares Redeemed -- (137) (104) (774)
--------------------------------------------------------------------------------------------------------------------
Net Capital Share Transactions 6 (129) (43) (716)
====================================================================================================================
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Including undistributed net investment income (distributions in excess of net
investment income) (000) of $6 and $(19) for Short-Term Maturity Portfolio,
$2 and $(32) for Adjustable Rate Portfolio at May 31, 2000 and May 31, 1999,
respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS CUFUND
FOR THE YEARS ENDED MAY 31,
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET
NET REALIZED AND NET NET RATIO RATIO OF NET
ASSET UNREALIZED DIVIDENDS ASSET ASSETS OF NET INVESTMENT
VALUE NET GAINS FROM NET VALUE END OF EXPENSES INCOME
BEGINNING INVESTMENT (LOSSES)ON INVESTMENT END OF TOTAL PERIOD TO AVERAGE TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME PERIOD RETURN (000) NET ASSETS NET ASSETS
-----------------------------------------------------------------------------------------------------------------
Short-Term Maturity Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $ 9.88 $0.54 $(0.13) $(0.53) $ 9.76 4.24% $ 28,035 0.39% 5.47%
1999 9.86 0.52 0.03 (0.53) 9.88 5.67 28,326 0.39 5.28
1998 9.80 0.53 0.06 (0.53) 9.86 6.17 29,545 0.39 5.37
1997 9.76 0.52 0.04 (0.52) 9.80 5.90 29,668 0.39 5.33
1996 9.73 0.52 0.03 (0.52) 9.76 5.73 30,633 0.38 5.27
Adjustable Rate Portfolio
2000 $ 9.94 $0.54 $(0.09) $(0.54) $ 9.85 4.65% $116,034 0.39% 5.49%
1999 10.00 0.54 (0.06) (0.54) 9.94 4.93 117,581 0.39 5.44
1998 10.01 0.56 (0.01) (0.56) 10.00 5.63 125,398 0.39 5.58
1997 9.96 0.57 0.05 (0.57) 10.01 6.36 148,960 0.39 5.66
1996 9.94 0.59 0.02 (0.59) 9.96 6.29 153,760 0.39 5.92
--------------------------------------------------------------------------------------------------------------------------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS PORTFOLIO
(EXCLUDING (EXCLUDING TURNOVER
WAIVERS) WAIVERS) RATE
-------------------------------------------
Short-Term Maturity Portfolio
<S> <C> <C> <C> <C>
2000 0.65% 5.21% 72%
1999 0.61 5.06 130
1998 0.59 5.17 76
1997 0.58 5.14 63
1996 0.61 5.04 42
Adjustable Rate Portfolio
2000 0.63% 5.25% 42%
1999 0.60 5.23 35
1998 0.59 5.38 31
1997 0.56 5.49 17
1996 0.53 5.78 23
----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS CUFUND
May 31, 2000
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 Investments Mutual Funds Services
(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 Short-Term
Maturity Portfolio and the Adjustable Rate 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 in the United States.
SECURITIES VALUATION--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 brokers or an independent
pricing service. The pricing services rely 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 considers such factors as security prices, yields,
maturities, call features, ratings and developments relating to specific
securities in arriving at valuation. Debt obligations with sixty days or
less remaining until maturity may be valued at their amortized cost.
Investment securities for which market prices are either (i) not readily
available or not obtained, or (ii) deemed by the Adviser to be materially
inaccurate, are valued at fair value as determined in good faith under
procedures established 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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The
preparation of financial statements, in conformity with generally accepted
accounting principles in the United States, 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.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) CUFUND
May 31, 2000
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. Effective October 26, 1998, the minimum annual fee of $214,000 was
increased to $250,000. 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 Investments Distribution Co. (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 CuSource, LLC (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 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. At May
31, 2000, the Adviser is the record owner of 83.92% and 90.16% of the
outstanding shares of the Short-Term Maturity and Adjustable Rate Portfolios,
respectively.
The Trust and First Union National Bank, (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 year ended May 31, 2000, purchases and sales of investment securities
and United States Government Obligations (other than short-term securities) were
as follows (000):
U.S. GOVERNMENT OTHER INVESTMENT
SECURITIES SECURITIES
---------------- ------------------
PURCHASES SALES PURCHASES SALES
--------- ------ ----------- ------
Short-Term
Maturity
Portfolio $13,997 $ 9,546 $ -- $1,375
Adjustable
Rate
Portfolio $29,385 $30,892 $2,807 $8,504
The total cost of securities held for federal income tax purposes at May 31,
2000 for the Short-Term Maturity Portfolio and the Adjustable Rate Portfolio was
not materially different from amounts reported for financial reporting purposes.
The Short-Term Maturity Portfolio had net unrealized depreciation of $(441,144),
which was composed of gross unrealized appreciation of $3,270 and gross
unrealized depreciation of $(444,414) for tax purposes. The Adjustable Rate
Portfolio had net unrealized depreciation of $(1,365,716), which was composed of
gross unrealized appreciation of $122,565 and gross unrealized depreciation of
$(1,488,281) for tax purposes.
6. Capital Loss Carryforwards:
The capital loss carryforwards at May 31, 2000 for federal income tax purposes
are as follows:
EXPIRATION
AMOUNT DATE
-------- ----------
Short-Term
Maturity Portfolio $225,461 2003
337,054 2004
32,759 2005
66,509 2006
Adjustable Rate
Portfolio $556,310 2003
37,771 2004
46,794 2005
33,108 2007
1,994 2008
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS CUFUND
May 31, 2000
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.
16
<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 Short-Term
Maturity and Adjustable Rate Portfolios of CUFUND (the "Trust") as of May 31,
2000, and the related statements of operations, the statements of changes in net
assets, and the 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 auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of May 31, 2000, 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
Short-Term Maturity and Adjustable Rate Portfolios of CUFUND as of May 31, 2000,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
July 14, 2000
17
<PAGE>
NOTICE TO SHAREHOLDERS
(Unaudited)
For Taxpayers filing on a calendar year basis, this notice is for informational
purposes only.
Dear CUFUND Shareholders:
For the fiscal year ended May 31, 2000, each Portfolio is designating long term
capital gains, with regard to distributions paid during the fiscal year as
follows:
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
------------ ------------- -------------- -------------
Short-Term Maturity 0% 100% 100%
Adjustable Rate 0% 100% 100%
--------------
* Items (A) and (B) are based on a percentage of the Portfolio's
total distributions.
Please consult your tax adviser for proper treatment of this information.
18
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
INVESTMENT ADVISER
Southwest Corporate Federal Credit Union
CUSOURCE, LLC
7920 Belt Line Road, Suite 1100
Dallas, TX 75240
ADMINISTRATOR
SEI Investments Mutual Funds Services
One Freedom Valley Drive
Oaks, PA 19456
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-6993
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1601 Market Street
Philadelphia, PA 19103-2499
CUF-F-010-04
