[The following message is available to shareholders who dial our toll-free
telephone number.]
US INCOME FUND
This is Ralph Aldis, Portfolio Manager for the US Income Fund. Today is July 8,
1996.
It had been a difficult year for income investing. The traditional utility
sectors have traded down with the expectations of higher interest rates. As you
may remember, from our last shareholder report, we made some strategic portfolio
changes early in the first quarter of the year. At that time we reduced the our
weighting in the utility sector to about 70% of the fund's assets. The remaining
30% of the Fund was invested in other income producing securities which were not
as price sensitive to higher rates as the utilities are. This decision was very
important to our performance results in the first quarter. While the Fund only
returned 2.21% for the quarter, it ranked as the fifth best performing fund out
of the 87 funds in the Utility Sector according to Lipper Analytical Services.
Another factor which enhanced our returns was our relative overweighting of the
natural gas sector.
For the second quarter of the year, we have maintained our portfolio strategy
established in the first quarter. However, during the last week of the second
quarter, sentiment appeared to change to the positive towards utilities and they
moved up strongly. Although we underperformed the group for the week, we believe
our decision was correct, because much of the gains realized by our peers were
immediately given up in the first week of July as it became very apparent that
interest rates were likely headed higher. Employment numbers came in higher than
expected and wage growth appears to be accelerating. With the Fed's latest goal
of fighting wage inflation, higher interest rates by August are certainly in the
cards.
Thank you for your interest in the US Income Fund. The next Portfolio Direct
update is scheduled for mid August.
Investment returns and principal value may vary, and you may have a gain or a
loss when you sell shares. Average annual total rate of return for 1, 5, and 10
year period ended 6/28/96, 16.60%, 10.75%, and 9.08%. Average annual total rate
of return for life of the Fund (11/01/83 through 6/28/96), 9.05%. Past
performance is no guarantee of future results. US stands for "United Services."
Please read the prospectus carefully before investing.
