SHAREHOLDER REPORT
Published for the shareholders of the United Services Family of Funds
[GRAPHIC: UNITED SERVICES FUNDS LOGO]
Autumn 1996
- - --------------------------------------------------------------------------------
THE AMERICAN DREAM GOES GLOBAL
BY FRANK HOLMES, PRESIDENT AND CEO
[GRAPHIC: PHOTO OF FRANK HOLMES]
[GRAPHIC IN MIDDLE OF PAGE: MONGOLIANS HORSEBACK RIDING]
A year ago I toured a mine site in an isolated region of Mongolia. One
day a child demonstrated to the group his skill in horseback riding. When he
finished the performance and climbed down from the wooden saddle, I noticed that
he was wearing a Chicago Bulls baseball cap. I asked our interpreter to ask the
boy if he knew who Michael Jordan or the Bulls are. The little boy smiled, shook
his head and responded, "No, but they are American and so they are good."
Though there are pockets of the world where the United States is
considered to be an evil empire, I have found that in most places Americans are
respected, admired and often envied. As a Canadian, I can say this without bias.
Americanism is spreading around the world. It is evidenced in profound
societal changes such as the embracing of capitalism in recently communistic
countries and in simple ways like the treasuring of NBA sportswear by a
Mongolian youth. Satellites beam images of prosperity to Chinese, Indians,
Russians, Malaysians, Mexicans, Africans, and millions of others who desire to
achieve the "American dream." It's a good thing they are watching the beautiful,
life-saving images of Baywatch instead of the greed and deception of Dallas. Did
you know Baywatch surpassed Dallas as the world's most popular television
program? It is now watched by 1 billion people in more than 100 countries each
week.
The United States has its share of social, familial and economic
problems. Yet millions of people believe there is no other country on earth
where opportunity is more abundant. Americans survive, strive and thrive because
they are resilient, optimistic, industrious and self-reliant. This is evident in
the way this country managed massive corporate restructuring over the past five
years with relatively few social problems. Though hundreds of thousands of jobs
were eliminated, today the U.S. has the lowest unemployment rate of the G7
countries. If our government would take similar measures to cut costs and
streamline operations, our nation's economy would be stronger than ever.
Twenty-five years ago, America was the world's dominant economy. The
U.S. represented 66% of the total value of the world's stock markets in 1970.
Since then, our financial markets have increased ten times in total value yet
our share of the world market has fallen to 38%. Collectively foreign markets
represent 62% of the world's market capitalization today, due to explosive
global growth.
As we watch foreign economies grow and prosper, some wonder what role
the U.S. will play in the global marketplace of the future. I believe we will
continue to be the world's innovators. American ingenuity is what makes us the
leaders in new product and service development, software technology,
entertainment and more.
Creativity is our competitive advantage and it will be difficult, if
not impossible, for other countries to overtake our lead. Whereas most Americans
have been able to think and act freely for hundreds of years, in societies such
as Germany, China and Japan, creativity gets in the way of their coveted order
and uniformity.
In America, the biggest obstacle to success is big government.
Economists at the International Monetary Fund compared economies where the size
of government accounted for about 50% of the economy between 1960 and 1990 as
compared to countries where the size of the government remained below 35% of the
economy. The study concluded that the growth of government between 1960 and 1990
had stifled growth, raised unemployment and had not contributed much to general
economic welfare.
As we prepare for election day, I am happy to hear that both President
Clinton and candidate Dole are in favor of various tax reductions. Lower tax
rates leave more money in the hands of workers and investors. This creates new
incentives for people to work, save and invest. History shows the result is
greater taxpayer productivity, increased growth and more revenue for the
government. The only problem with tax cuts is that if they are not accompanied
by reductions in government spending they leave a legacy of rising deficits.
The Mongolian boy was right. America is good. And if we all keep
working to make it better, other countries will continue to look to us as a
model for their version of the American dream.
Happy Investing,
/S/ Frank Holmes
Frank Holmes President, CEO & Shareholder
P.S. Don't forget to exercise your right to vote on election day.
[GRAPHIC: FULL-LENGTH PHOTO OF MONGOLIAN NATIVE]
GOING GLOBAL
[GRAPHIC: U.S. FAMILY OF FUNDS LOGO]
The daily operations of a mutual fund are typically run by a fund management
company. The management company usually serves as the fund's investment advisor
or money manager. The United Services Funds and Accolade Funds are managed by
U.S. Global Investors, Inc., a public company founded in San Antonio, Texas in
1968. You may be more familiar with our former name. Prior to June 1, 1996, U.S.
Global Investors, Inc. was known as United Services Advisors, Inc. We changed
our name to better reflect the international focus of our management team and
our investments. Together, our funds invest in more than forty countries, on
every continent except Antarctica. U.S. Global Investors, Inc. trades on the
NASDAQ under the ticker symbol GROW (formerly USVSP). The Advisor's name change
will not affect the names of our funds or our fund listing in the newspaper.
U.S. FAMILY OF FUNDS HOME PAGE
For the latest information on your United Services investments, visit
our web site at http://www.usfunds.com. You can download prospectuses, e-mail
your questions to our shareholder services department, track your portfolio with
daily reports of closing prices and yields and learn more about our family of
funds.
[GRAPHIC: PHOTO OF THE U.S. FAMILY OF FUNDS NETSCAPE SCREEN ON A COMUTER]
NEWS FROM SHAREHOLDER SERVICES
EMPLOYEE PROFILE
[GRAPHIC: PHOTO OF IRENE HERNANDEZ]
IRENE HERNANDEZ, SPHR
DIRECTOR OF HUMAN RESOURCES
U.S. GLOBAL INVESTORS, INC.
Since joining United Services in 1991, Irene has played a key role in
building a company with high morale and a strong work ethic. She hires employees
with great potential and trains them to give you the finest service in the
mutual fund industry. Employees rise in the company by mastering the skills
taught in the training programs Irene manages and by excelling daily in
performing their job responsibilities.
"The mission of the Human Resources Department is to cultivate
employees with a desire to win in the marketplace. Our programs educate them
about mutual funds and the financial industry, train them to use the latest
computer technology and teach them management and leadership skills. The result
is an employee with the tools to service our shareholders better than the
competition."
To learn more about her own field, Irene participates in many seminars
on employment and labor law and courses in management training and techniques.
In addition, she is certified as a Senior Professional of Human Resources. Late
nights and weekends often find her in the office; when she can get away she
enjoys traveling and spending time with her children and grandchildren.
UPCOMING INVESTOR CONFERENCES:
ISI Boston Money Show Oct.11-13
Hynes Convention Center
Western Gold Show Dec. 8-9
San Francisco Hilton Hotel
Call 1-800-US-FUNDS for FREE tickets.
NEW ADDRESS:
P.O. Box 781234
San Antonio, TX 78278-1234
P.O. Box 659 is now closed, so be sure to send investments and correspondence to
the P.O. Box above.
YOUR CALL IS IMPORTANT
When you call 1-800-US-FUNDS or 1-800-4-BONNEL your call is answered by an
Investor Representative in our Education & Service Department. Our Human
Resources Department carefully screens hundreds of applicants to identify those
who best demonstrate intelligence, integrity, and a willingness to listen and
learn. Once hired, the representatives complete a rigorous in-house training
program to prepare them to respond to your comments or questions. In addition,
they have completed college coursework and have passed the NASD's Series 6 and
63 exams for registered representatives. To increase their compensation and
expand their knowledge, we encourage the reps to continue their education with
retirement planning and financial products training courses. Because you expect
the best, we set high standards for these employees who are the ears and mouth
of United Services.
A FEW TIPS FOR EXPEDITED SERVICE...
* Our phone lines are busiest between noon and 2 p.m. Central Time. If you call
earlier or later, you will avoid possible delays in reaching a representative.
* If you leave a message, a representative will promptly return your call.
However, we cannot act on exchange instructions left on voice mail. When you
call to make an exchange, please wait for a representative to take your
instructions.
* Automated Account Access gives you 24-hour access to your account information.
For account balances, investment confirmations, dividend payments and
checkwriting information, call 1-800-873-8637 any time.
* We sometimes require a signature guarantee on redemption requests. Please
check your prospectus under "How to Redeem Shares" for the guidelines or call us
to see if you need to obtain one.
You can get a signature guarantee from an officer of a financial institution
such as a bank. The stamp itself reads "signature guaranteed" and includes the
name of the institution and of the officer who guarantees your signature. We
cannot accept a stamp from a notary public, even if he or she works for a bank.
FUND NOTES
U.S. GOLD SHARES FUND
The South African gold mining and exploration companies which make up
the majority of the U.S. Gold Shares Fund have seen remarkable political changes
in their country. The Government of National Unity under President Nelson
Mandela has presided over a swift and stable transition from the racial division
of apartheid to an emerging universal democracy.
Political stability and free market policies have cultivated a
flourishing economy and a booming stock market. Gold stocks, however, have
suffered a decline as labor problems have hurt operations and as investors have
turned a speculative eye toward mining companies outside of South Africa.
We are refocusing our efforts to deliver performance by picking only
those companies which demonstrate a strong growth profile, for example, those
mining concerns which have increasing reserves, production and cash flow.
Whereas the World Gold Fund is more weighted in junior and intermediate
exploration and development companies, Gold Shares will focus on senior,
world-class mining companies.
U.S. WORLD GOLD FUND
For the year ended June 30, 1996, the U.S. World Gold Fund earned for
its shareholders a total return of 34.4%, compared to 6.7% for the Toronto Stock
Exchange Gold and Silver Index and 18.4% for the Australian Gold Index.
[MOUNTAIN GRAPH PLOTTED FROM DATA IN TABLE BELOW]
<TABLE>
<CAPTION>
GOLD U.S. WORLD
BULLION GOLD FUND
---------- ----------
<S> <C> <C>
6/28/91 ............................. 10000 10000
7/31/91 ............................. 9850.681 10029.88
8/30/91 ............................. 9431.233 9033.864
9/30/91 ............................. 9634.849 9173.307
10/31/91 ............................. 9704.078 10099.6
11/29/91 ............................. 9944.345 10159.36
12/31/91 ............................. 9587.338 9721.116
1/31/92 ............................. 9613.129 9960.159
2/28/92 ............................. 9585.98 9820.717
3/31/92 ............................. 9276.484 9133.466
4/30/92 ............................. 9131.237 8266.932
5/29/92 ............................. 9162.73 8934.263
6/30/92 ............................. 9322.637 9452.191
7/31/92 ............................. 9714.937 10000
8/31/92 ............................. 9230.602 9760.956
9/30/92 ............................. 9474.942 9760.956
10/30/92 ............................. 9210.241 9362.549
11/30/92 ............................. 9072.868 8625.498
12/31/92 ............................. 9037.574 9262.948
1/29/93 ............................. 8971.06 8824.701
2/26/93 ............................. 8893.685 9541.833
3/31/93 ............................. 9170.604 10647.41
4/30/93 ............................. 9618.559 12201.2
5/31/93 ............................. 10247.06 13844.62
6/30/93 ............................. 10274.2 14531.87
7/30/93 ............................. 10907.04 17270.92
8/31/93 ............................. 10086.88 15906.38
9/30/93 ............................. 9651.409 13914.34
10/29/93 ............................. 10033.94 16205.18
11/30/93 ............................. 10069.23 15906.38
12/31/93 ............................. 10635.55 17579.68
1/31/94 ............................. 10259.27 18187.25
2/28/94 ............................. 10358.37 17241.04
3/31/94 ............................. 10566.05 17270.92
4/29/94 ............................. 10219.91 15886.45
5/31/94 ............................. 10522.62 16643.43
6/30/94 ............................. 10540.53 15567.73
7/29/94 ............................. 10425.15 15587.65
8/31/94 ............................. 10472.66 16304.78
9/30/94 ............................. 10719.44 17280.88
10/31/94 ............................. 10420.81 16563.74
11/30/94 ............................. 10400.45 14272.91
12/30/94 ............................. 10404.79 14601.59
1/31/95 ............................. 10177.83 13064.58
2/28/95 ............................. 10218.55 13344.04
3/31/95 ............................. 10642.34 14881.05
4/28/95 ............................. 10581.26 15290.25
5/31/95 ............................. 10433.02 15260.31
6/30/95 ............................. 10522.62 15779.3
7/31/95 ............................. 10407.23 16467.96
8/31/95 ............................. 10380.08 16917.09
9/29/95 ............................. 10425.15 16907.11
10/31/95 ............................. 10388.23 15170.49
11/30/95 ............................. 10528.05 16467.96
12/29/95 ............................. 10506.6 16927.07
1/31/96 ............................. 11009.94 19661.75
2/29/96 ............................. 10876.91 20190.72
3/29/96 ............................. 10760.17 21268.62
4/30/96 ............................. 10623.07 21927.34
5/31/96 ............................. 10602.7 24162.99
6/28/96 ............................. 10370.85 21198.76
COMPARE THE
U.S. WORLD GOLD FUND
TO GOLD BULLION OVER 5 YEARS.
U.S. World Gold Fund $21,198.76
Gold bullion $10,370.85
</TABLE>
The share prices of the North American and Australian mining concerns
which make up the majority of the Fund's holdings have generated enthusiastic
speculative interest following a series of large gold discoveries. The influx of
capital has financed further exploration and bolstered the finances of the
junior mining companies. A high level of liquidity has also encouraged investors
to put money into the gold sector.
[GRAPHIC: WATERMARK OF ABC BUILDING BLOCKS IN CENTER OF PAGES]
BOND AND MONEY MARKET FUNDS
Volatility defined the bond markets in the second quarter of 1996.
Conflicting economic news has sparked a debate over whether the economy is
overheating and what, if anything, the Federal Reserve Board will do to curb
inflationary pressures. This clouded inflation picture has led to sharp rises
and falls in bond yields as each week's economic news builds, and sometimes
shatters, investors' expectations.
During the second quarter the municipal bond market outperformed the
Treasury market and we expect it to stay its present course. Investors should
keep in mind that municipal bond yields do not take into account the additional
benefit of tax-exempt dividend income enjoyed by the U.S. Tax-Free Fund and the
United Services Near-Term Tax-Free Fund.
The U.S. Treasury Securities Cash Fund and the U.S. Government
Securities Savings Fund continue to offer investors very competitive yields
while still offering the instant access and convenience of checkwriting
privileges as well as many other options, such as automatic exchanges and
withdrawals. These money market funds are ideal for investors looking for a
stable and convenient place to protect their assets from the volatility of
stocks and bonds.
CHINA REGION OPPORTUNITY FUND
The China Region Opportunity Fund is rebounding from the difficulties
of late 1995, when policies of the Chinese government hurt the earnings results
of many stocks in the market. Credit-tightening measures in place since 1993 and
the possibility of lowering import tariffs and repealing tax benefits depressed
share prices of Chinese companies in the fourth quarter of last year. Because we
believe that these companies will bottom out this year and are extremely
undervalued, we are taking full advantage of this situation as a buying
opportunity. The continuing improvement of the Chinese economy will also provide
excellent growth opportunities for Hong Kong.
Diplomatic relations between China and Taiwan have improved
considerably, as has Taiwan's stock market, since the tense atmosphere of
Taiwan's presidential election. The greater political stability and an increased
weighting in the much-followed Morgan Stanley Far East Index have helped
Taiwanese equities to post good returns in the second quarter of 1996.
U.S. ALL AMERICAN EQUITY FUND
The All American Equity Fund's growth portfolio aims to beat the S&P
500 in bull and bear markets. We believe the volatility will continue in the
stock market, and we will buy our favorite stocks when they are at short-term
lows. The robust yet stable growth in the economy and the continuing flow of new
capital into the stock market confirm our bullish outlook on the next twelve
months.
Frank Holmes, CEO of United Services Funds, has a special interest in
the Fund. "My sons Joshua and Nigel invest money every month in the All American
Fund to save for their college educations. Saving is something everyone should
do, and the ABC Investment Plan(R) makes it easy."
Using the Plan, shareholders can automatically build capital by
regularly investing money from their checking accounts. You can start the Plan
with only $100 when you transfer $30 or more into your account each month
thereafter.
U.S. INCOME FUND
The U.S. Income Fund holds a variety of utility stocks with a history
of paying generous dividends. The fund currently has a large position in shares
of telecommunications companies.
The Telecommunications Act of 1996 ignited a wildfire of competition
among regional and long-distance telephone companies. As a result, these
companies are restructuring and positioning themselves for impending industry
consolidation. This intense business climate has eroded share prices, which now
have very attractive valuations.
Electric utilities face a very similar environment. A number of
companies are awaiting regulatory approval of mergers and acquisitions and are
looking for overseas counterparts to acquire.
We anticipate a rise in the stocks of both of these sectors, so we will
maintain the Fund's traditional core exposure in them for capital gain potential
as well as stability and income.
U.S. REAL ESTATE FUND
During the second quarter, real estate markets continued their solid
recovery as rents and occupancy rates grew and new development remained slow.
Hotels and suburban office complexes have seen the greatest increases in their
earnings as a result of this equilibrium of high demand and limited supply.
The Real Estate Fund buys shares of real estate investment trusts, or
REITs, which own properties such as apartment buildings, hotels and office
complexes. REITs pass the income from those properties on to their shareholders.
By investing in a number of REITs, the Fund can diversify holdings throughout
the United States and across all sectors of the real estate market.
The Fund's largest holdings, Patriot American Hospitality and Felcor
Suites, are both REITs and returned dividend yields over the year ended 6/30/96
of 6.48% and 6.03%.
BONNEL GROWTH FUND
Assets in the Bonnel Growth Fund continue to grow, which helps to
reduce total shareholder costs since fixed costs are spread over a larger asset
base. The Fund is invested in more than 100 companies in three main industry
groups: technology, retailing and health care, with several subsectors in each
of these.
Art remains very bullish on the stock market, in spite of recent
volatility. According to Bonnel, "The seasoned investor understands that
corrections provide a wonderful opportunity to purchase great companies at
bargain prices, which is why the Fund took advantage of the 'sale' and I added
to many of our favorite positions."
[MOUNTAIN GRAPH PLOTTED FROM DATA IN TABLE BELOW]
<TABLE>
<CAPTION>
Bonnel
Russell 2000 Growth Fund
------------ -----------
<S> <C> <C>
10/31/94 ......................................... 9959.598 10010
11/30/94 ......................................... 9557.131 10030
12/30/94 ......................................... 9812.975 10090
1/31/95 ......................................... 9689.036 9859.314
2/28/95 ......................................... 10092.39 10491.19
3/31/95 ......................................... 10265.37 10942.54
4/28/95 ......................................... 10493.44 11423.97
5/31/95 ......................................... 10673.9 11594.47
6/30/95 ......................................... 11227.6 12677.69
7/31/95 ......................................... 11874.31 14121.99
8/31/95 ......................................... 12120.05 14252.38
9/29/95 ......................................... 12336.53 14874.23
10/31/95 ......................................... 11784.84 14523.18
11/30/95 ......................................... 12279.85 14804.02
12/29/95 ......................................... 12603.79 14653.02
1/31/96 ......................................... 12590.21 14442.94
2/29/96 ......................................... 12982.65 15031.16
3/29/96 ......................................... 13246.84 15734.93
4/30/96 ......................................... 13955.15 17604.63
5/31/96 ......................................... 14505.12 19085.69
6/28/96 ......................................... 13909.54 17552.11
COMPARE THE
BONNEL GROWTH FUND
TO THE RUSSELL 2000.
Bonnel Growth Fund $17,552.11
Russell 2000 $13,909.54
</TABLE>
FUND FEATURE
US GLOBAL RESOURCES FUND
The U.S. Global Resources Fund invests in companies that produce the
energy and raw materials that are the building blocks of every economy in the
world. Wood, steel, concrete, plastic, asphalt; they all come from companies in
the natural resources sector. We own stocks in companies that sell oil for
gasoline, steel for office buildings and cars, plastics for every conceivable
use, lumber for houses, and electricity for light.
The companies in the Fund are globally diversified across the world's
economies. We have investments in companies in India, Australia, South Africa,
Nigeria, the former Soviet Union, and many other countries. In fact, the
companies in our portfolio generate about half to two-thirds of their revenues
overseas, and we intend to take full advantage of the growth in the emerging
markets of the world.
EMERGING MARKETS DEMAND NATURAL RESOURCES
Imagine this: China has miles and miles of roads. Dirt roads. They have
millions and millions of apartments, most of whose residents are waiting for
telephones to be installed. China needs tar, asphalt, copper wire and
fiber-optic cable to build those roads and phone lines, and they do not have the
resources to produce it all themselves. Therefore, they are going to have to
import a lot of the raw materials they will require. This is very positive for
mineral producing countries and companies.
Another fact: There are now about 1.9 million cars in China, most of
them owned by the government. Peregrine Brokerage Ltd. of Hong Kong estimates
that in 15 years, Chinese households could own as many as 180 million cars. That
many cars would fill three lanes of traffic going from the earth to the moon.
Also keep in mind that as the number of cars increases, roads will have to be
built to accommodate them. The U.S. has 15,702 miles of road per million people.
China has only 567 miles per million.
DIVERSIFICATION LOWERS RISKS AND CAN BOOST RETURNS
We select the resources sectors which we believe have the greatest
growth potential and then pick the best companies within those sectors. Three
sectors make up most of the Fund's holdings:
* Energy-oil, natural gas, electric power and coal.
* Industrials-chemicals, paper and forest products and railroads.
* Metals-aluminum, copper, nickel, zinc, steel and gold.
The Fund allocates about two-thirds of its assets to energy, and divides the
rest between the metals and industrials.
INVEST IN THE BEST
In addition to having financial and market savvy, our investment team
has the technical training and experience necessary to master the natural
resources sector. Ralph Aldis, CFA, is a geologist with a MA in mineral
economics and leads our management team. Naijiang Zhou, a petroleum engineer
with a MBA and a PhD in energy economics, and Michael Chapman, who has a BS in
petroleum engineering and a MA in mineral economics, are the Fund's financial
analysts.
A STRATEGY FOR SUCCESS
Our team looks for the stocks with the best value by visiting a
company's facilities, inspecting financial statements, and examining earnings
estimates produced in-house and by industry analysts. The commitment and skill
of a company's management weighs heavily on our team's decision to invest.
Finally, we choose companies with healthy cash flows that enable a company to
carry out expansion plans while still easily paying off debt.
GOLD ENHANCES THE FUND'S LUSTER
The Global Resources Fund is a natural complement to United Services'
specialized gold funds, since it offers a broader diversification into base
metals and energy while potentially benefiting from its small exposure to gold
stocks.
WE INVEST IN THE FUTURE OF THE WORLD
China, India and recapitalizing nations such as the former Soviet Union
need large amounts of natural resources to build their infrastructures. This
trend for growth gives a very positive outlook for the Fund over the next five
to ten years since it is positioned to take advantage of growth and increasing
industrial production worldwide.
FUND DIVERSIFICATION
[PIE CHART CONSTRUCTED WITH THE FOLLOWING INFORMATION]
Petroleum And Natural Gas 51.4%
Electric Services 7.2%
Base Metals and Minerals 6.6%
Chemicals 4.6%
Paper & Lumber 4.1%
Transportation 3.7%
Precious Metals 2.3%
Plastics 2.0%
Smelting 1.8%
Medicinal Chemicals 1.0%
Cash & Other Assets 15.3%
[END OF PIE CHART]
GUEST COMMENTARY
WHAT'S AHEAD FOR INFLATION, THE ECONOMY AND THE MARKETS
BERT DOHMEN is editor of THE DOHMEN LETTER.
[GRAPHIC: PHOTO OF BER DOHMEN]
[GRAPHIC IN CENTER OF PAGE: The economy is now in a wonderful position, at least
from an investor's point of view.]
At any sign of better economic news, the doomsayers start talking about
inflation. The Federal Reserve immediately agrees. Bond sellers dump their bonds
and interest rates spike upward. Traders are not afraid of higher inflation, but
they do fear the Fed's reaction to stronger economic news.
It is a fact that strong economic growth does not cause inflation. Only
excessive money growth can do that. Even a study by the Federal Reserve of St.
Louis concluded this several years ago. Yet the Fed Board acts as if it didn't
know this.
Consumer prices (year over year) are rising at a minuscule 2.9% rate.
Even the Fed chairman has stated that the CPI overstates inflation by at least
one percentage point. Thus, actual inflation is less than 2%.
Raw materials prices over the past several years have risen, some
considerably so. But this is a "catch-up move." The CRB Raw Industrial Materials
Index recently was no higher than in 1980. I'm not talking about percentage
change, but actual numbers. This means that raw materials prices have not seen
an increase in 16 years. Where's the inflation?
In my opinion, it would be healthy for these prices to rise moderately,
since it would increase the profitability of companies producing raw materials,
allowing them to go out and search for more. This could apprehend future price
increases by making sure that an ample supply is available whenever demand
rises.
But such an increase in raw materials prices would probably produce a
negative response by the Fed--boosting interest rates. This would hurt many
sectors of the economy that are interest-rate sensitive. You see, boosting
interest rates is a very crude tool: It doesn't necessarily attack the sector
that is producing higher prices, but instead may be killing areas that are
already in recessions.
For example, a shortage of basic, nonferrous metals resulting from
demand from the underdeveloped world, such as China, would boost those prices
significantly, as we saw in the early 1990s. If the Fed raises interest rates to
stop such price increases, which don't even originate in the U.S., it would be
killing sectors such as U.S. housing, because people just cannot afford the
higher mortgage rates. These consumers had nothing to do with raw materials
prices rising, but they suffer because of it. And the higher interest rates
would only affect these prices via a large detour.
It is no secret that I'm not in favor of any small group of people,
like the "Twelve Apostles" at the Fed in Washington, trying to control anything,
much less the lives and well-being of 260 million Americans. The free market can
do a much better job. In fact, the distortions produced by the Fed's
manipulations cost the country trillions of dollars.
When the Fed raises interest rates because of inflation fears, it
causes more distortions. Many firms curtail expansion plans for production
facilities. This enhances any future supply shortages, which increases price
pressures rather than reducing them. Fortunately, any economy is much more
resilient than most economists believe.
The doubling of interest rates by the Fed in 1994, and the hardship
thus produced, is nothing but a thunderstorm in the long term picture of the
economy. It passed, and the lingering effects will soon pass as well. The
economy will recover nicely. In 1997 it may grow fast enough for the Federal
Reserve to once again tighten money and raise interest rates. That will be the
time to watch out for the stock market.
CONCLUSION:
The economy is now in a wonderful position, at least from an investor's
point of view. It is too weak for the Federal Reserve to tighten, yet strong
enough to allow companies to produce rising earnings. A steady strengthening of
the economy will produce great opportunities for well managed firms. That
produces opportunities for investors.
Contrary to what many economists and investment gurus tell you, we are
not in the final stages of this bull market.
RETIREMENT FOCUS
LISA KOTTLER, CMFC,
is vice president of
SECURITY TRUST & FINANCIAL CO.
Chasing the latest "hot stock" tip is not a sure-fire way of reaching
your retirement goals. This year's top market performer may be next year's
disaster. Instead, a carefully thought out long-range plan can help you secure a
reliable income for your golden years. You can create a steady investment plan
by following a couple of simple guidelines:
First, invest the same amount of money at regular intervals, without
regard for market fluctuations. Over time, this method--known as dollar-cost
averaging--will maximize your investment effectiveness without requiring you to
determine the best time to buy.
Second, and maybe more importantly, allocate your investments across
types of assets. Put some of your money in stocks, some in bonds and the rest in
fixed-income investments. Then further diversify by choosing a variety of
sectors and regions to invest in. Exposing your portfolio to a variety of
securities and avoiding heavy investment in a single asset can greatly reduce
risk while enhancing performance.
A classic study by Brinson, Hood and Breebower indicates that about 93%
of a portfolio's rate of return is a result of the selection of the right
proportions of broad asset categories. The remaining 7% of return is attributed
to the selection of individual securities and market timing. So a variance in
stock vs. bond allocation seems to have a greater effect on the rate of return
than the selection of individual securities or efforts to time the market.
The number of asset classes you should choose depends on which
characteristics each asset class contributes to your portfolio. Some types of
investments are very effective in reducing the market risk of a portfolio
because they have a low correlation with the overall market or because they
experience more cyclical movements instead of daily market action. For that
reason, investors should consider adding international securities, real estate
and precious metals to a portfolio of mainstream U.S. common stocks.
Of course, no asset allocation program can eliminate risk or guarantee
success. Since each investor has a different risk profile and objective, your
asset allocation plan should account for your objectives, time horizon and
tolerance for risk. And it should be flexible, so it can change as your goals
change.
CHANGING JOBS?
When you leave a job, you must make tough decisions. One of those
decisions will be what to do with your retirement plan savings. All the options
can be confusing and if you're not careful, you could lose nearly half of your
retirement savings to taxes and penalties.
Did you know if you directly transfer your retirement plan assets into
a United Services' IRA, you can avoid the 20% withholding requirement? Plus,
this tax-free transfer into an IRA allows your money to continue growing on a
tax-deferred basis.
[GRAPHIC: CHART BASED ON INFORMATION BELOW]
LIFE CYCLE INVESTING Based on your age:
Age of Investor:
30s : 10% Money Market, 15% Bonds, 70% Stocks, and 5% gold
40s: 15% Money Market, 20% Bonds, 60% Stocks, and 5% gold
50s: 15% Money Market, 35% Bonds,45% Stocks, and 5% gold
60s: 20% Money Market, 40% Bonds, 35% Stocks, and 5% gold
[GRAPHIC WITHIN CHART: VERTICAL ARROW]
High Reward - High Risk
Moderate Reward - Moderate Risk
Low Reward - Low Risk
[End of Chart]
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For a free Fact Kit containing more complete information, including charges and
expenses, call 1-800-US-FUNDS. Read the prospectus carefully before investing.
Investment returns and principal value will fluctuate. You may have a gain or a
loss when you sell shares. Past performance is no guarantee of future results.
"U.S." stands for United Services. Investments in gold funds involve special
risks. Gold bullion does not pay dividends. U.S. World Gold Fund reflects total
return with all dividends reinvested. Average annual total returns as of 6/28/96
for the U.S. World Gold Fund are: 34.35% one-year, 16.21% five-year, 9.07% since
inception (11/27/85). Average annual total returns for the Bonnel Growth Fund as
of 6/28/96 are 38.45%, one year and 39.39% since inception (10/17/94). The
Bonnel Growth Fund reflects total returns with all dividends reinvested. The
Russell 2000 is an unmanaged index of stocks considered to be representative of
the broad small-cap market.
