U.S. GLOBAL INVESTORS FUNDS
STATEMENT OF ADDITIONAL INFORMATION
U.S. GOLD SHARES FUND ("Gold Shares Fund")
U.S. GLOBAL RESOURCES FUND ("Global Resources Fund")
U.S. WORLD GOLD FUND ("World Gold Fund")
U.S. TREASURY SECURITIES CASH FUND ("Treasury Securities Cash Fund")
U.S. GOVERNMENT SECURITIES SAVINGS FUND ("Government Securities Savings Fund")
U.S. INCOME FUND ("Income Fund")
U.S. REAL ESTATE FUND ("Real Estate Fund")
UNITED SERVICES NEAR-TERM TAX FREE FUND ("Near-Term Tax Free Fund")
U.S. TAX FREE FUND ("Tax Free Fund")
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the appropriate prospectus issued November 1, 1996 (the
"Prospectus"), which you may request from U. S. Global Investors, Inc. (the
"Advisor"), 7900 Callaghan Road, San Antonio, Texas 78229, or 1-800-US-FUNDS
(1-800-873-8637).
The date of this Statement of Additional Information is November 1, 1996,
amended June 16, 1997.
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TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.........................................................3
INVESTMENT OBJECTIVES AND POLICIES..........................................3
Investment Restrictions.................................................4
SPECIAL RISK CONSIDERATIONS................................................11
PORTFOLIO TRANSACTIONS.....................................................15
MANAGEMENT OF THE FUNDS....................................................16
PRINCIPAL HOLDERS OF SECURITIES............................................17
INVESTMENT ADVISORY SERVICES...............................................18
TRANSFER AGENCY AND OTHER SERVICES.........................................20
CERTAIN PURCHASES OF SHARES OF THE FUNDS...................................21
ADDITIONAL INFORMATION ON REDEMPTIONS......................................21
CALCULATION OF PERFORMANCE DATA............................................22
TAX STATUS.................................................................25
Taxation of the Funds--In General......................................25
Taxation of the Funds' Investments.....................................25
Taxation of the Shareholder............................................26
CUSTODIAN..................................................................27
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL..................................27
INFORMATION ABOUT SECURITIES RATINGS.......................................27
FINANCIAL STATEMENTS.......................................................28
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GENERAL INFORMATION
U.S. Global Investors Funds (the "Trust") is an open-end management investment
company and is a voluntary association of the type known as a "business trust"
organized under the laws of the Commonwealth of Massachusetts. There are
numerous series within the Trust, each of which represents a separate
diversified portfolio of securities (collectively referred to herein as the
"Portfolios" or "Funds" and individually as a "Portfolio" or "Fund").
The assets received by the Trust from the issue or sale of shares of each of the
Funds, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are separately allocated to such Fund. They constitute
the underlying assets of each Fund, are required to be segregated on the books
of accounts, and are to be charged with the expenses with respect to such Fund.
Any general expenses of the Trust, not readily identifiable as belonging to a
particular Fund, will be allocated by or under the direction of the Board of
Trustees in such manner as the Board determines to be fair and equitable.
Each share of each of the Funds represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions, out of the income belonging to that Fund, as are declared by the
Board. Upon liquidation of the Trust, shareholders of each Fund are entitled to
share pro rata in the net assets belonging to the Fund available for
distribution.
The Trustees have exclusive power, without the requirement of shareholder
approval, to issue series of shares without par value, each series representing
interests in a separate portfolio, or divide the shares of any portfolio into
classes, each class having such different dividend, liquidation, voting and
other rights as the Trustees may determine, and may establish and designate the
specific classes of shares of each portfolio. Before establishing a new class of
shares in an existing portfolio, the Trustees must determine that the
establishment and designation of separate classes would not adversely affect the
rights of the holders of the initial or previously established and designated
class or classes.
As described under "The Trust" in the prospectus, under the Trust's First
Amended and Restated Master Trust Agreement (the "Master Trust Agreement"), no
annual or regular meeting of shareholders is required. In addition, after the
Trustees were initially elected by the shareholders, the Trustees became a
self-perpetuating body. Thus, there will ordinarily be no shareholder meetings
unless otherwise required by the Investment Company Act of 1940 (the "1940
Act").
On any matter submitted to shareholders, the holder of each share is entitled to
one vote per share (with proportionate voting for fractional shares). On matters
affecting any individual Fund, a separate vote of that Fund would be required.
Shareholders of any Fund are not entitled to vote on any matter which does not
affect their Fund but which requires a separate vote of another Fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds' investment
objectives and policies discussed in the Trust's prospectuses.
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INVESTMENT RESTRICTIONS: None of the Funds will change its investment objectives
as set forth in the prospectus, and none of the Funds will change any of the
following investment restrictions, without, in either case, the affirmative vote
of a majority of the outstanding voting securities of that Fund, which, as used
herein, means the lesser of (1) 67% of that Fund's outstanding shares present at
a meeting at which more than 50% of the outstanding shares of that Fund are
represented either in person or by proxy, or (2) more than 50% of that Fund's
outstanding shares.
A Fund may not:
1. Issue senior securities.
2. Borrow money, except that (i) a Fund may borrow not in excess of 5% of
the total assets of that Fund from banks as a temporary measure for
extraordinary purposes, and (ii) the GOLD SHARES FUND and WORLD GOLD
FUND may borrow money only for temporary or emergency purposes (not
for leveraging or investment), provided that the amount of such
borrowings may not exceed 33 1/3% of the GOLD SHARES and WORLD GOLD
FUND total assets (including the amount borrowed) less liabilities
(other than borrowings).
3. Underwrite the securities of other issuers, except for the GOLD SHARES
FUND, GLOBAL RESOURCES FUND and WORLD GOLD FUND, to the extent that
these Funds may be deemed to act as an underwriter in certain cases
when disposing of restricted securities.
4. Invest in real estate, except as may be represented by securities for
which there is an established market or, with respect to the GOLD
SHARES FUND, when such interests are an incidental part of assets
acquired through merger or consolidation, and except that this
restriction will not prevent the REAL ESTATE FUND from making any
investment which is otherwise consistent with its investment
objectives and policies.
5. Engage in the purchase or sale of commodities or commodity futures
contracts, except that the GOLD SHARES FUND and WORLD GOLD FUND may
(i) invest not more than 10% of its total net assets in gold and gold
bullion and (ii) invest in futures contracts, options on futures
contracts and similar instruments.
6. Lend its assets, except that any Fund may purchase money market debt
obligations and repurchase agreements secured by money market
obligations, and except for the purchase or acquisition of bonds,
debentures or other debt securities of a type customarily purchased by
institutional investors and except that any Fund may lend portfolio
securities with an aggregate market value of not more than one-third
of such Fund's total net assets. (Accounts receivable for shares
purchased by telephone will not be deemed loans.) The NEAR-TERM TAX
FREE FUND may not lend its assets, except that purchases of debt
securities in furtherance of the Fund's investment objectives will not
constitute lending of assets.
7. Purchase any security on margin, except that it may obtain such
short-term credits as are necessary for clearance of securities
transactions.
8. Make short sales.
9. Invest in securities which are subject to legal or contractual
restrictions on resale ("restricted securi ties"), except that the
GOLD SHARES FUND, the GLOBAL RESOURCES FUND and the WORLD GOLD FUND
may invest up to 10% of the value of their respective net assets in
such restricted securities. Any such investments by the GOLD SHARES
FUND will be in companies that have been in existence for two
consecutive years or more, including the operation of predecessors,
and that have not defaulted in the payment of any debt within such two
years. (This 10% restriction includes the 2% restriction on warrants
described in (12) below.)
10. Invest more than 25% of its total assets in securities of companies
principally engaged in any one industry, except that the GOLD SHARES
FUND will invest primarily in securities of companies involved in the
exploration for, mining of, processing of or dealing in gold; the
GLOBAL RESOURCES FUND and the WORLD GOLD FUND will invest at least 25%
of the value of their respective total assets in securities of
companies principally engaged in natural resource operations; the
TREASURY SECURITIES CASH FUND will
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invest exclusively in short-term debt obligations of the United States
Treasury which are protected by the full faith and credit of the
United States Government, and including repurchase agreements
collateralized by such Government obligations; the GOVERNMENT
SECURITIES SAVINGS FUND will invest exclusively in short-term
obligations of the United States Government and its agencies and
instrumental ities; the TAX FREE FUND and the NEAR-TERM TAX FREE FUND
may invest more than 25% of its total assets in general obligation
bonds or in securities issued by states or municipalities in
connection with the financing of projects with similar
characteristics, such as hospital revenue bonds, housing revenue bonds
or electric power project bonds; and the REAL ESTATE FUND will invest
at least 65% of its assets in securities of companies engaged
principally in or related to the real estate industry. The TAX FREE
FUND and the NEAR-TERM TAX FREE FUND will consider industrial revenue
bonds where payment of principal and interest is the ultimate
responsibility of companies within the same industry as securities
from one industry. For purposes of determining industry concentration,
each Fund relies on the Standard Industrial Classification as compiled
by Standard & Poor's Compustat Services, Inc., as in effect from time
to time.
11. (a) Invest more than 5% of the value of its total assets in securities
of any one issuer, except such limitation will not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities, or (b) acquire more than 10% of the
voting securities of any one issuer. (These limitations as to the GOLD
SHARES FUND and the NEAR-TERM TAX FREE FUND apply to only 75% of the
value of their respective gross assets.)
12. The GOLD SHARES FUND may not invest more than 2% of the value of its
net assets in marketable warrants.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets, will not be considered a violation
of any of the foregoing restrictions.
The following discussion of the investment objectives, policies and risks
associated with each particular Fund supplements the discussions in the
prospectuses.
GOLD SHARES FUND
The GOLD SHARES FUND intends to concentrate its investments in common stocks of
companies involved in exploration for, mining of, processing of, or dealing in
gold, with emphasis on stock of foreign companies. The GOLD SHARES FUND may also
invest in the securities of issuers engaged in operations related to silver and
other precious metals. The GOLD SHARES FUND may also invest in the securities of
closed-end investment companies, provided its investments in these securities do
not exceed 3% of the total voting stock of such closed-end investment company.
The Advisor believes that securities of companies engaged in gold operations
offer an opportunity to achieve long-term capital appreciation and protection of
wealth from eroding monetary values. In recent years, governments of nations
throughout the world have had increasing government deficits accompanied by
increases in their money supplies. A concomitant of this world-wide and
resurgent inflation has been increased world-wide demand for gold. In addition,
demand for gold has been stimulated by unstable political, monetary and social
conditions. As a result, when the rate of inflation increased between 1972 and
1974, the prices of gold and gold mining stock increased rapidly. On the other
hand, in 1975 and 1976 when inflation leveled off, gold and stock of gold mining
companies declined. The years from the end of 1976 to September 1981 were years
of increasing inflation and uncertain monetary conditions. The price of gold
generally rose until January 1980 and the price of gold mining stock generally
rose until September 1981. Since September 1981, inflation has moderated and
both gold and gold mining stocks have generally declined. The prices of gold
mining stocks are volatile and there can be no assurance that they will rise in
the future. See "Volatility of Gold Company Stocks" under Special Risk
Considerations Section.
The investment philosophy of the GOLD SHARES FUND is that in times of severe
economic and monetary instability, people have historically tended to buy gold
and other precious metals as a "store of value" to the extent that they lose
confidence in the purchasing power of the currencies of their countries. As a
consequence, in times of economic and monetary instability, it is expected that
the long-term earnings and market prices of companies that mine and process
precious
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metals, especially gold, may perform better than certain other types of
investments. People and governments who have studied the historical role of gold
as money acquire gold in times of monetary inflation because of an increase in
the purchasing power of gold in relation to paper money. Gold can be purchased
in bullion form, in coins, in futures contracts or in the form of stock of gold
mining companies. Selected gold mining companies are the most attractive vehicle
for gold investment because of the high earnings and yields the mines provide
and because unmined gold securely held in its natural state in mines provides a
call on future earnings and dividends.
GLOBAL RESOURCES FUND
The concentration of the GLOBAL RESOURCES FUND's investments in the common stock
of companies engaged in the exploration, mining, processing, fabrication and
distribution of natural resources of any kind is premised on the Advisor's
belief that over the long term the value of certain metals, minerals, gold and
other natural resources will increase, and that the value of securities of
companies involved in such natural resources operations will also increase.
There may be temporary periods, however, when investments in such securities
should be reduced due to unusual or adverse economic conditions in the natural
resource industries and, therefore, the GLOBAL RESOURCES FUND may adopt a
defensive investment policy under which its assets may be temporarily invested,
without limitation other than the GLOBAL RESOURCES FUND's investment
restriction, in short-term money market instruments such as United States
Treasury securities, if, in the opinion of the Advisor, market conditions
warrant. Such market conditions might include developments in the markets for
the natural resources produced by the issuers in which the GLOBAL RESOURCES FUND
invests, political and economic developments in the foreign countries in which
the GLOBAL RESOURCES FUND has purchased securities, or other developments.
The investment philosophy of the GLOBAL RESOURCES FUND is that in times of
severe economic and monetary instability, people have historically tended to buy
natural resource metals and minerals as a "store of value" to the extent that
they lose confidence in the purchasing power of the currencies of their
countries. As a consequence, in times of economic and monetary instability it is
expected that the long-term earnings and market prices of companies that mine
and process metals and minerals, especially gold and silver, may perform better
than certain other types of investments.
WORLD GOLD FUND
The concentration of the WORLD GOLD FUND's investments in the common stock of
companies engaged in the exploration, mining, processing, fabrication and
distribution of gold is premised on the Advisor's belief that, over the long
term, the value of gold, other metals and minerals and other natural resources
will increase, and that the value of securities of companies involved in gold
and other natural resources operations will also increase. There may be
temporary periods, however, when investments in such securities should be
reduced due to unusual or adverse economic conditions in the natural resource
industries and, therefore, the WORLD GOLD FUND may adopt a defensive investment
policy under which its assets may be temporarily invested, without limitation
other than the WORLD GOLD FUND's investment restrictions, in short-term money
market instruments (other than repurchase agreements with maturities of more
than seven days) such as United States Treasury securities if, in the opinion of
the Advisor, market conditions warrant. Such market conditions might include
developments in the markets for the natural resources produced by the issuers in
which the WORLD GOLD FUND invests, political and economic developments in the
foreign countries in which the WORLD GOLD FUND has purchased securities, or
other developments as described under "Special Risk Considerations Affecting the
Gold Shares Fund, the Global Resources Fund and the WORLD GOLD FUND."
The investment philosophy of the WORLD GOLD FUND is that in times of severe
economic and monetary instability, people have historically tended to buy gold
and other metals and minerals as a "store of value" to the extent that they lose
confidence in the purchasing power of the currencies of their countries. As a
consequence, in times of economic and monetary instability, it is expected that
the long-term earnings and market prices of companies that mine and process
metals and minerals, especially gold and silver, may perform better than certain
other types of investments.
TREASURY SECURITIES CASH FUND AND GOVERNMENT SECURITIES SAVINGS FUND
The TREASURY SECURITIES CASH FUND and GOVERNMENT SECURITIES SAVINGS FUND have
adopted a fundamental policy requiring use of best efforts to maintain a
constant net asset value of $1.00 per share. Shareholders should understand
that, while the Trust will use its best efforts to attain this objective, there
can be no guarantee that it will do so. The TREASURY SECURITIES CASH FUND and
GOVERNMENT SECURITIES SAVINGS FUND value their respective portfolio securities
on
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the basis of the amortized cost method. See "How Shares are Valued" in the
prospectus. This requires that those Funds maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less, and invest only in securities
determined by the Board of Trustees of the Trust to be of high quality with
minimal credit risks.
INCOME FUND
In order to increase current income, the INCOME FUND may write (sell) covered
call options on common stock in its portfolio.
The covered call option activities of the INCOME FUND may affect its turnover
rate and the amount of brokerage commissions paid by the INCOME FUND. The
exercise of call options written by the INCOME FUND may cause the INCOME FUND to
sell portfolio securities, thus increasing the INCOME FUND's turnover rate.
The INCOME FUND will pay a brokerage commission each time it writes a covered
call option. Such commissions may be higher than those that would apply to
direct purchases and sales of portfolio securities. The call activities of the
INCOME FUND may be restricted if options relating to the types of securities in
which the INCOME FUND will invest are not listed on domestic exchanges or quoted
on NASDAQ.
When the INCOME FUND writes a call option, it will be required to collateralize
the option transaction with the underlying securities, which assets will not be
available for use by the INCOME FUND.
The INCOME FUND may also purchase call options. The Fund will purchase call
options only in closing transactions; that is, to close out a call option which
it has written.
The INCOME FUND's annual rate of portfolio turnover may vary widely from year to
year depending on market conditions and prospects and may be higher than that of
other mutual funds with preservation of capital, and consistent with that
objective, production of current income as an investment objective. For the
fiscal years ended June 30, 1994, 1995 and 1996, the INCOME FUND's rate of
portfolio turnover equaled, 6.91%, 7.02% and 50.89%, respectively. High
portfolio turnover in any given year indicates a substantial amount of
short-term trading, which will result in payment by the INCOME FUND from capital
of above-average amounts of brokerage commissions and could result in the
payment by shareholders of above-average amounts of taxes on realized investment
gain. Any short-term gain realized on securities will be taxed to shareholders
as ordinary income.
TAX FREE FUND AND NEAR-TERM TAX FREE FUND
As stated in the prospectus, the TAX FREE FUND and the NEAR-TERM TAX FREE FUND
seek to provide a high level of current income that is exempt from Federal
income taxation and to preserve capital. To achieve that objective, the Fund's
portfolio will consist of short-term, intermediate and long-term debt
obligations issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political sub-divisions,
agencies or instrumentalities, or multi-state agencies or authorities. These
securities are generally known as "municipal bonds."
The TAX FREE FUND and NEAR-TERM TAX FREE FUND will invest only in securities
which are rated one of the four highest ratings by Moody's Investors Service
(Aaa, Aa, A, or Baa) or by Standard & Poor's Corporation (AAA, AA, A, or BBB).
(A description of Moody's and Standard & Poor's rating systems is presented
under "Information About Securities Ratings" in this Statement of Additional
Information.) No investments in the fourth category of bonds (Baa and BBB) will
be made if it causes the aggregate of such investments to exceed 10% of total
net assets of the Fund. Investments in this fourth category may have speculative
characteristics and may involve higher risks. Even though these investments are
generally regarded as having an adequate capacity to pay interest and repay
principal, they may be more susceptible to adverse changes in the economy.
The TAX FREE and NEAR-TERM TAX FREE FUND's annual rate of portfolio turnover may
vary widely from year to year depending on market conditions and prospects and
may be higher than that of other mutual funds with an investment objective of
providing a high level of current income that is exempt from Federal income
taxation. For the fiscal years ended June 30, 1994, 1995, and 1996, the TAX FREE
FUND's rate of portfolio turnover equaled 50.87%, 21.52% and 69.23%,
respectively. For the fiscal years ended June 30, 1994, 1995 and 1996, the
NEAR-TERM TAX FREE FUND's rate of
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portfolio turnover equaled, 69.13%, 52.63% and 83.39%, respectively. High
portfolio turnover in any given year indicates a substantial amount of
short-term trading, which will result in payment by the TAX FREE FUND and
NEAR-TERM TAX FREE FUND from capital of above-average amounts of brokerage
commissions and could result in the payment by shareholders of above-average
amounts of taxes on realized investment gain. Any short-term gain realized on
securities will be taxed to shareholders as ordinary income.
Subsequent to a purchase by the TAX FREE FUND and NEAR-TERM TAX FREE FUND, an
issue of municipal bonds may cease to be rated or its rating may be reduced
below the minimum required for purchase by the TAX FREE FUND and NEAR-TERM TAX
FREE FUND. Neither event will require sale of such municipal bonds by the TAX
FREE FUND and NEAR-TERM TAX FREE FUND, but the Advisor will consider such event
in its determination of whether the TAX FREE FUND and NEAR-TERM TAX FREE FUND
should continue to hold the municipal bonds. To the extent that the rating given
by Moody's or Standard & Poor's for municipal bonds may change as a result of
changes in such organizations or their rating systems, the TAX FREE FUND and
NEAR-TERM TAX FREE FUND will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in the
prospectus and in this Statement of Additional Information.
U.S. Global Investors Funds' Management buys and sells securities for the Funds
to accomplish investment objectives. The Funds' investment policies may lead to
frequent changes in investments, particularly in periods of rapidly fluctuating
interest rates. The Funds' investments may also be traded to take advantage of
perceived short-term disparities in market values or yields among securities of
comparable quality and maturity.
GENERAL INFORMATION ON MUNICIPAL BONDS. Municipal bonds are generally understood
to include debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets, and water and sewer works. Other public purposes for which municipal
bonds may be issued include the refunding of outstanding obligations, obtaining
funds for general operating expenses and lending such funds to other public
institutions and facilities. In addition, certain types of private activity
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately operated hazardous waste-treatment facilities; certain
redevelopment projects; airports, docks, and wharves (other than lodging,
retail, and office facilities); mass commuting facilities; multifamily
residential rental property; sewage and solid waste disposal property;
facilities for the furnishing of water; and local furnishing of electric energy
or gas or district heating and cooling facilities. Such obligations are
considered to be municipal bonds provided that the interest paid thereon
qualifies as exempt from Federal income tax, in the opinion of bond counsel, to
the issuer. In addition, if the proceeds from private activity bonds are used
for the construction, equipment, repair or improvement of privately operated
industrial or commercial facilities, the interest paid on such bonds may be
exempt from Federal income tax, although current Federal tax laws place
substantial limitations on the size of such issues.
In order to be classified as a "diversified" investment company under the 1940
Act, a Fund may not, with respect to 75% of its total assets, invest more than
5% of its total assets in the securities of any one issuer (except U.S.
government obligations) or own more than 10% of the outstanding voting
securities of any one issuer. For the purpose of diversifica tion under the 1940
Act, the identification of the issuer of municipal bonds depends on the terms
and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the issuing entity and the security is backed
only by the assets and revenues of such entity, such entity would be deemed to
be the sole issuer. Similarly, in the case of a private activity bond, if that
bond is backed only by the assets and revenues of the non-governmental user,
then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case the creating government or some other entity guarantees
a security, such a guarantee may be considered a separate security and is to be
treated as an issue of such government or other entity.
The yields on municipal bonds are dependent on a variety of factors, including
general economic and monetary conditions, money market factors, conditions of
the municipal bond market, size of a particular offering, maturity of the
obligation, and rating of the issue. The imposition of a Fund's management fees,
as well as other operating expenses, will have the effect of reducing the yield
to investors.
Municipal bonds are also subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon
municipalities by levying taxes. There is also the possibility that, as a result
of
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litigation or other conditions, the power or ability of any one or more issuers
to pay, when due, principal of and interest on its, or their, municipal bonds
may be materially affected. The Tax Reform Act of 1986 enlarged the scope of the
alternative minimum tax. As a result, interest on private activity bonds issued
after August 7, 1986 will be a preference item for alternative minimum tax
purposes.
From time to time, proposals to restrict or eliminate the Federal income tax
exemption for interest on municipal bonds have been introduced before Congress.
Similar proposals may be introduced in the future. If such a proposal were
enacted, the availability of municipal bonds for investment by the Funds would
be adversely affected. In such event, the Funds would re-evaluate their
investment objective and policies.
MUNICIPAL NOTES. Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal notes
include:
1. Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of state and local governments. Generally, they
are issued in anticipation of various seasonal tax revenues, such as
ad valorem property, income sales, use and business taxes, and are
payable from these specific future taxes. Tax anticipation notes are
usually general obligations of the issuer. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest.
2. Revenue Anticipation Notes. Revenue anticipation notes are issued by
state and local governments or governmental bodies with the
expectation that receipt of future revenues, such as Federal revenue
sharing or state aid payments, will be used to repay the notes.
Typically, they also constitute general obligations of the issuer.
3. Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing for state and local governments until long-term
financing can be arranged. In most cases, the long-term bonds then
provide the money for the repayment of the notes.
4. Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It
is issued and backed by agencies of state and local governments to
finance seasonal working capital needs or as short-term financing in
anticipation of longer-term financing.
VARIABLE RATE DEMAND OBLIGATIONS. Variable rate obligations have a yield which
is adjusted periodically based upon changes in the level of prevailing interest
rates. Such adjustments are generally made on a daily, weekly or monthly basis.
Variable rate obligations lessen the capital fluctuations usually inherent in
fixed income investments.
Unlike securities with fixed rate coupons, variable rate instrument coupons are
not fixed for the full term of the instrument. Rather, they are adjusted
periodically based upon changes in prevailing interest rates. The more
frequently such instruments are adjusted, the less such instruments are affected
by interest rate changes. The value of a variable rate instrument, however, may
fluctuate in response to market factors and changes in the creditworthiness of
the issuer. By investing in variable rate obligations the Funds seek to take
advantage of the normal yield curve pattern that usually results in higher
yields on longer-term investments. This policy also means that should interest
rates decline, a Fund's yield will decline and that Fund and its shareholders
will forego the opportunity for capital appreciation of that Fund's investments
and of their shares to the extent a portfolio is invested in variable rate
obligations. Should interest rates increase, a Fund's yield will increase and
that Fund and its shareholders will be subject to lessened risks of capital
depreciation of its portfolio investments and of their shares to the extent a
portfolio is invested in variable rate obligations. There is no limitation on
the percentage of the Funds' assets which may be invested in variable rate
obligations. For purposes of determining a Fund's weighted average portfolio
maturity, the term of a variable rate obligation is defined as the longer of the
length of time until the next rate adjustment or the time of demand.
Floating rate demand notes have an interest rate fixed to a known lending rate
(such as the prime rate) and are automatically adjusted when the known rate
changes. Variable rate demand notes have an interest rate which is adjusted at
specified intervals to a known rate. Demand notes provide that the holder may
demand payment of the note at its par value plus accrued interest by giving
notice to the issuer. To ensure that ability of the issuer to make payment upon
such demand, the note may be supported by an unconditional bank letter of
credit.
Page 9
<PAGE>
The Trustees have approved investments in floating and variable rate demand
notes upon the following conditions: the Funds have an unconditional right of
demand, upon notice to exceed thirty days, against the issuer to receive
payment; the Advisor determines the financial condition of the issuer and
continues to monitor it in order to be satisfied that the issuer will be able to
make payment upon such demand, either from its own resources or through an
unqualified commitment from a third party; and the rate of interest payable is
calculated to ensure that the market value of such notes will approximate par
value on the adjustment dates.
OBLIGATIONS WITH TERM PUTS ATTACHED. The Funds may purchase municipal securities
together with the right that it may resell the securities to the seller at an
agreed-upon price or yield within a specified period prior to the maturity date
of the securities. Although it is not a put option in the usual sense, such a
right to resell is commonly known as a "term put." The Funds may purchase
obligations with puts attached from banks and broker-dealers.
The price which the Funds expect to pay for municipal securities with puts
generally is higher than the price which otherwise would be paid for the
municipal securities alone. The Funds will use puts for liquidity purposes in
order to permit it to remain more fully invested in municipal securities than
would otherwise be the case by providing a ready market for certain municipal
securities in its portfolio at an acceptable price. The put generally is for a
shorter term than the maturity of the municipal security and does not restrict
the Funds' ability to dispose of (or retain) the municipal security in any way.
In order to ensure that the interest on municipal securities subject to puts is
tax exempt to the Fund, it will limit its use of puts in accordance with
applicable interpretations and rulings of the Internal Revenue Service.
Since it is difficult to evaluate the likelihood of exercise of the potential
benefit of a put, it is expected that puts will be determined to have a "value"
of zero, regardless of whether any direct or indirect consideration was paid.
Accordingly, puts as separate securities are expected not to affect the
calculation of the weighted average portfolio maturity. Where a Fund has paid
for a put, the cost will be reflected as unrealized depreciation in the
underlying security for the period during which the commitment is held, and
therefore would reduce any potential gain on the sale of the underlying security
by the cost of the put. There is a risk that the seller of the put may not be
able to repurchase the security upon exercise of the put by that Fund. To
minimize such risks, the Funds will only purchase obligations with puts attached
from sellers whom the Advisor believes to be creditworthy.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENTS. In order to secure what the Advisor
considers to be an advanta geous price or yield, a Fund may purchase securities
on a "when-issued" or "firm commitment" basis or may purchase or sell securities
for delayed delivery, that is payment for and delivery of the securities (the
"settlement date") normally takes place 15 to 45 days after the date the offer
is accepted. A Fund will enter into such purchase transactions for the purpose
of acquiring portfolio securities and not for the purpose of leverage. Delivery
of the securities, in such cases, occurs beyond the normal settlement periods,
but no payment or delivery is made by that Fund prior to the reciprocal delivery
or payment by the other party to the transaction. The Funds rely on the other
party to consummate the transaction, and may be disadvantaged if the other party
fails to do so.
These municipal securities are normally subject to changes in value based upon
changes, real or anticipated, in the level of interest rates and, to a lesser
extent, the public's perception of the creditworthiness of the issuers. In
general, municipal securities tend to appreciate when interest rates decline and
depreciate when interest rates rise. Purchasing municipal securities on a
when-issued basis or delayed delivery basis, therefore, can involve the risk
that the yields available in the market, when the delivery takes place, may
actually be higher than those obtained in the transaction itself.
At all times the Funds will restrict cash (which may be invested in repurchase
obligations) or liquid securities equal to the amount of a Fund's when-issued or
delayed delivery commitments. The restricted cash or liquid securities will
either be identified as being restricted in the Fund's accounting records or
physically segregated in a separate account at Bankers Trust Company, the Funds'
custodian. For the purpose of determining the adequacy of the securities in the
account, the deposited securities will be valued at market or fair value. If the
market or fair value of such securities declines, additional cash or securities
will be restricted on a daily basis so that the value of the account will equal
the amount of such commitments by that Fund. On the settlement date that Fund
will meet its obligations from then- available cash flow, the sale of securities
held in the separate account, the sale of other securities, or, although it
would
Page 10
<PAGE>
not normally expect to do so, from the sale of the when-issued or delayed
delivery securities themselves (which may have a greater or lesser value than a
Fund's payment obligations).
REAL ESTATE FUND
The REAL ESTATE FUND is designed to provide investors the advantages of real
estate investment with the convenience and liquidity provided by a
professionally managed fund.
The Fund's portfolio will consist primarily of securities of companies in the
real estate industry or securities of companies related to the real estate
industry. Because the Fund's portfolio will be concentrated in one industry,
this would not be a suitable investment for a person seeking a more diversified
portfolio.
The Fund's investments will include the common and preferred stock of companies,
including real estate investment trusts ("REITs"), listed on national securities
exchanges or on NASDAQ which have at least 50% of the value of their assets in,
or which derive at least 50% of their revenue from, the ownership, construction,
management or sale of residential, commercial or industrial real estate.
SPECIAL RISK CONSIDERATIONS
The following are among the most significant risks associated with an investment
in the Funds.
GOLD SHARES FUND, GLOBAL RESOURCES FUND, WORLD GOLD FUND, INCOME FUND, AND REAL
ESTATE FUND
INVESTMENT IN FOREIGN SECURITIES. Investment in securities of foreign issuers
may involve special considerations and additional risks not present in domestic
investments. These include fluctuating exchange rates, the fact that foreign
securities, and the markets therefore, may not be as liquid as their domestic
issuers, the risk of adverse changes in foreign investment or exchange control
regulations, expropriation or confiscatory taxation, political or financial
instability, or other developments which can affect investments. As a result,
the selection of investments in foreign issuers may be more difficult and
subject to greater risks than investment in domestic issuers. The GOLD SHARES
FUND, the GLOBAL RESOURCES FUND, the WORLD GOLD FUND, the INCOME FUND and the
REAL ESTATE FUND will invest in the securities of foreign issuers that are
listed on a domestic exchange, quoted on NASDAQ, or traded in the domestic
over-the-counter market. In addition, when available, the Funds will invest in
American Depository Receipts ("ADRs") or other securities which can be sold for
United States dollars and for which market quotations are readily available in
New York, so that some of these risks may be minimized. (ADRs are certificates
issued by United States banks representing the right to receive securities of a
foreign issuer deposited in that bank or a correspondent bank.) The GOLD SHARES
FUND, the GLOBAL RESOURCES FUND, the WORLD GOLD FUND, and the REAL ESTATE FUND
may also invest in securities of foreign issuers that are listed on foreign
securities exchanges or, except for the REAL ESTATE FUND, traded in the foreign
over-the-counter market.
GOLD SHARES FUND, GLOBAL RESOURCES FUND, WORLD GOLD FUND, AND REAL ESTATE FUND
CONCENTRATION. Because the investment alternatives of the GOLD SHARES FUND are
restricted by its policy of normally maintaining 65% of its total assets in
securities of companies involved in gold operations, the GLOBAL RESOURCES FUND's
and the WORLD GOLD FUND's policy of concentrating its investments in companies
involved in natural resources (including gold and silver), the REAL ESTATE
FUND's policy of concentrating at least 65% of the Fund's total assets in
companies in the real estate industry, investors should understand that
investment in these four Funds may be subject to greater risk and market
fluctuation than an investment in a portfolio of securities representing a
broader range of investment alternatives.
GOLD SHARES FUND, GLOBAL RESOURCES FUND AND WORLD GOLD FUND
VOLATILITY OF GOLD COMPANY STOCKS. The net asset value of GOLD SHARES FUND,
GLOBAL RESOURCES FUND and the WORLD GOLD FUND will be affected by the volatility
of securities of companies involved in gold operations. The volatility of
securities of companies involved in gold operations is reflected by the
performance of the GOLD SHARES FUND's net asset value for the last ten years.
Page 11
<PAGE>
<TABLE>
<CAPTION>
CALENDAR YEAR
----------------------------------------------------------------------------------------------------------
1996(1) 1995 1994 1993 1992 1991 1991 1990 1989 1993
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High $2.60 $2.65 $3.26 $2.91 $3.01 $3.84 $6.44 $5.49 $5.48 $7.98
Low $1.84 $1.91 $2.12 $1.25 $1.31 $2.75 $3.08 $3.29 $3.00 $4.41
<FN>
- --------------------
(1) Through June 30, 1996
</FN>
</TABLE>
It is not possible to predict, with assurance, the timing or extent of future
changes in the market price of gold or the extent to which changes in the market
price of gold will continue to affect the value of shares of companies involved
in gold operations.
Approximately 30% of the world's output of gold is produced in the Republic of
South Africa. A substantial portion of the GOLD SHARES FUND's net assets are
invested in securities of South African issuers engaged in mining of,
exploration for, processing of, or dealing in gold because such securities
generally offer a higher rate of return than securities of domestic issuers
involved in gold operations.
The production and marketing of gold may be affected by the actions of the
International Monetary Fund and certain governments, or by changes in existing
governments. In the current order of magnitude of production of gold bullion,
the four largest producers of gold are the Republic of South Africa, the United
States, Australia and Russia. Economic and political conditions prevailing in
these countries may have direct effects on the production and marketing of newly
produced gold and sales of central bank gold holdings. In South Africa, the
activities of companies engaged in gold mining are subject to the policies
adopted by the Ministry of Mines. The Reserve Bank of South Africa, as the sole
authorized sales agent for South African gold, has an influence on the price and
timing of sales of South African gold. The GOLD SHARES FUND has significant
investments in South African issuers. The unsettled political and social
conditions in South Africa may have disruptive effects on the market prices of
the investments of the GOLD SHARES FUND and may impair its ability to hold
investments in South African issuers.
GOLD SHARES FUND AND WORLD GOLD FUND
INVESTMENT IN GOLD AND GOLD BULLION. Because gold and gold bullion do not
generate investment income, the return to a Fund from such investments will be
derived solely from the gains and losses realized by the Fund upon the sale of
the gold and gold bullion. The Funds may also incur storage and other costs
relating to their investments in gold and gold bullion. Under certain
circumstances, these costs may exceed the custodial and brokerage costs
associated with investments in portfolio securities.
The GOLD SHARES FUND and the WORLD GOLD FUND have qualified in the past, and
expect to qualify in the future, as regulated investment companies under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
qualifying under Subchapter M of the Code, neither Fund is required to pay
Federal income tax on net investment income or capital gains that are
distributed to shareholders. To qualify as a regulated investment company under
Subchapter M of the Code, at least ninety percent (90%) of a Fund's gross income
for any taxable year must be derived from dividends, interest, gains from the
disposition of securities, and gains from certain other specified transactions
(the "Gross Income Test"). Gains from the disposition of gold and gold bullion
will not qualify for purposes of satisfying the Gross Income Test. Additionally,
to qualify under Subchapter M of the Code, at the close of each quarter of each
Fund's taxable year, at least fifty percent (50%) of the value of the Fund's
total assets must be represented by cash, Government securities and certain
other specified assets (the "Asset Value Test"). Investments in gold and gold
bullion will not qualify for purposes of satisfying the Asset Value Test. To
maintain each Fund's qualification as a regulated investment company under the
Code, each Fund will establish procedures to monitor its investments in gold and
gold bullion for purposes of satisfying the Gross Income Test and the Asset
Value Test.
BORROWING. The GOLD SHARES FUND and WORLD GOLD FUND have to deal with
unpredictable cash flows as shareholders purchase and redeem shares. Under
adverse conditions, the Funds might have to sell portfolio securities to raise
cash to pay for redemptions at a time when investment considerations would not
favor such sales. In addition, frequent purchases and sales of portfolio
securities tend to decrease the Funds' performance by increasing transaction
expenses.
Page 12
<PAGE>
The GOLD SHARES FUND and WORLD GOLD FUND may deal with unpredictable cash flows
by borrowing money. Through such borrowings the GOLD SHARES FUND and WORLD GOLD
FUND may avoid selling portfolio securities to raise cash to pay for redemptions
at a time when investment considerations would not favor such sales. In
addition, the Funds' perfor mance may be improved due to a decrease in the
number of portfolio transactions. After borrowing money, if subsequent
shareholder purchases do not provide sufficient cash to repay the borrowed
monies, the Fund will liquidate portfolio securities in an orderly manner to
repay the borrowed monies.
To the extent that a Fund borrows money prior to selling securities, the Fund
would be leveraged such that the Fund's net assets may appreciate or depreciate
in value more than an unleveraged portfolio of similar securities. Since
substantially all of a Fund's assets will fluctuate in value and whereas the
interest obligations on borrowings may be fixed, the net asset value per share
of the Fund will increase more when the Fund's portfolio assets increase in
value and decrease more when the Fund's portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the returns which the Funds earn on portfolio securities. Under adverse
conditions, the Funds might be forced to sell portfolio securities to meet
interest or principal payments at a time when market conditions would not be
conducive to favorable selling prices for the securities.
Neither the GOLD SHARES FUND nor the WORLD GOLD FUND will purchase any security
while borrowings represent more than 5% of their total assets outstanding.
GLOBAL RESOURCES FUND AND WORLD GOLD FUND
INVESTMENT IN SMALL ISSUERS. Many companies involved in the exploration for and
mining, processing, fabrication and distribution of gold, silver and other
natural resources are small and unseasoned, and investments in their securities
by a Fund involves certain risks not present with investments in larger
companies. For example, such securities may not have readily available market
quotations, or may not otherwise be readily marketable, making it difficult for
a Fund to dispose of such securities when it is deemed advisable to do so.
However, each of the GLOBAL RESOURCES FUND and the WORLD GOLD FUND has adopted
investment restrictions limiting its investment in securities which have legal
or contractual limitations, are not readily marketable, or do not have readily
available market quotations to 10% of its net assets. The GLOBAL RESOURCES FUND
and the WORLD GOLD FUND are also limited with respect to investments in
unseasoned issuers, i.e., issuers with a record of less than three years'
continuous operation (including predecessors), to 5% of their respective total
net assets.
The Funds may invest in companies for which it is difficult to obtain reliable
information and financial data. There may be little or no information available
regarding these companies relative to geological data, mining or engineering
information, extent of proved and probable reserves, appraisals, and other
relevant data. As a consequence, investments will often be made based upon the
reputation and experience of the management of a company rather than upon
information concerning its fundamental investment characteristics.
Certain of the issuers in which a Fund may invest may face difficulties in
obtaining the capital necessary to continue in operation and may go into
bankruptcy, which may result in a complete loss of a Fund's investment.
GOLD SHARES FUND, GLOBAL RESOURCES FUND AND WORLD GOLD FUND
INVESTMENTS IN GOLD AND SILVER SECURITIES. While investment in securities of
issuers involved in gold and silver mining and in natural resources operations
generally involves risks not present with most investment companies, investment
in such securities may offer a greater return than shares of industrial issuers.
Since the market action of such securities has tended to move against, or
independently of, the market trend of industrial stock, the addition of stock of
companies involved in gold, silver and other natural resources operations to an
investor's portfolio may increase the return and reduce overall fluctuations in
the value of the portfolio. An investment in the GOLD SHARES FUND, the GLOBAL
RESOURCES FUND or the WORLD GOLD FUND should be considered part of an overall
investment program, which may include investments in the other Funds managed by
the Advisor, rather than as a complete investment program.
Page 13
<PAGE>
GOLD SHARES FUND, GLOBAL RESOURCES FUND, WORLD GOLD FUND, INCOME FUND, AND REAL
ESTATE FUND
EQUITY PRICE FLUCTUATIONS. Equity securities are subject to price fluctuations
depending on a variety of factors, including market, business and economic
conditions. Particularly, the equity securities of companies involved in natural
resources may be subject to greater than average price fluctuations because of
the scarcity or surplus of the natural resources in which such companies are
engaged, governmental policies in the countries in which such natural resources
are located, technological changes and speculation by traders in such resources.
Furthermore, extreme fluctuations in the prices of such natural resources may
limit the marketability of the securities in which the GOLD SHARES FUND, the
GLOBAL RESOURCES FUND and the WORLD GOLD FUND may invest.
GOLD SHARES FUND, GLOBAL RESOURCES FUND AND WORLD GOLD FUND
PURCHASING PUT OPTIONS. WORLD GOLD FUND, GLOBAL RESOURCES FUND and GOLD SHARES
FUND may purchase put options that are listed on domestic or foreign securities
exchanges or quoted on NASDAQ. A put option gives the holder the right to sell a
security to the seller of the put option at a fixed price within a specified
time period. The initial purchaser of an option pays the seller a premium for
undertaking the obligation to purchase, which premium is retained by the seller
whether or not the option is exercised.
Each of these Funds may purchase puts on securities it owns ("protective puts")
or on securities it does not own ("non-protective puts"). Buying a protective
put permits each of these Funds to protect itself against a decline in the value
of the underlying securities, during the put period, below the exercise price by
selling the securities (or other securities which it may purchase) on the
exercise of the put. Buying a non-protective put permits the WORLD GOLD FUND,
GLOBAL RESOURCES FUND and GOLD SHARES FUND if the market price of the underlying
securities is below the put price during the put period, either to resell the
put or to buy the underlying securities and sell them at the exercise price. If
the market price of the underlying securities is not below the exercise price
and the put is not exercised or resold (whether or not at a profit), the put
will become worthless at its expiration date.
A put option purchased by the WORLD GOLD FUND, GLOBAL RESOURCES FUND or GOLD
SHARES FUND, other than in a closing transaction, exposes the Fund to loss of
the amount paid for the option if the market price of the underlying security is
above the exercise price of the put option at the option's expiration date. For
the purchase of an option to become profitable, the price change of the
underlying stock must be sufficient to cover the premium paid (including commis
sions). There can be no assurance that such a price change will result in a
profit for the option purchaser; profit will depend on the market price of the
underlying stock when the option was purchased, the remaining life of the option
and other factors.
A put option position may be closed out only on an exchange (or NASDAQ) that
provides a secondary market for options on the same series, and there is no
assurance that a liquid secondary market will exist for any particular option.
The option activities of the WORLD GOLD FUND, GLOBAL RESOURCES FUND and GOLD
SHARES FUND may affect their turnover rate and the amount of brokerage
commission paid by the Fund. The exercise of options may cause these Funds to
sell portfolio securities, thus increasing the Funds' turnover rates. Holding a
protective put may cause the Funds to sell the underlying securities for reasons
that may not exist in the absence of the put. Holding a non-protective put may
cause the Funds to purchase the underlying securities to permit the Funds to
exercise the put.
The Funds will pay a brokerage commission each time they buy an option or buy or
sell a security in connection with the exercise of an option. Such commission
may be higher than the commission that would apply to direct purchases or sales
of portfolio securities.
The trading of put options will not constitute a dominant investment practice of
the above-listed Funds. Accordingly, it is not anticipated that any decrease in
potential capital appreciation that may result from this activity will be
inconsistent to any material extent with the overall realization of any Fund's
primary investment objective.
Not more than 2% of the total net assets of WORLD GOLD FUND, GLOBAL RESOURCES
FUND or GOLD SHARES FUND may be invested in premiums on such put options and not
more than 25% of each of such Fund's total net assets may be subject to options.
Page 14
<PAGE>
GOLD SHARES FUND, GLOBAL RESOURCES FUND, WORLD GOLD FUND, REAL ESTATE FUND AND
INCOME FUND
OPTIONS ON STOCK INDEXES. Options on stock indexes are based on indexes of stock
prices that change in value according to the market values of the underlying
stock. Some stock index options are based on a broad market index such as the
New York Stock Exchange composite index of Standard & Poor's Corporation. Other
index options are based on a market segment or on stocks in a single industry.
Stock index options are traded primarily on securities exchanges. Options on
stock indexes differ from options on securities in that the exercise of an
option on a stock index does not involve delivery of the actual underlying
security. Index options are settled in cash only. The purchaser of an option
receives a cash settlement amount and the writer of an option is required, in
return for the premium received, to make delivery of a certain amount if the
option is exercised. A position in a stock index option may be offset by either
the purchaser or writer by entering into a closing transaction, or the purchaser
may terminate the option by exercising it or allowing it to expire. A Fund will
write (sell) call options, write put options, purchase put options, and purchase
call options on stock indexes when appropriate to hedge investments against a
decline in value, or to reduce the risk of missing a broad market advance or an
advance in an industry or market segment.
The risks associated with the purchase and sale of options on stock indexes is
generally the same as those relating to options on securities. However, the
value of a stock index option depends primarily on movements in the value of an
index rather than in the price of a single security. Accordingly, the Fund will
realize a gain or loss from purchasing or writing an option on a stock index as
a result of movements in the level of stock prices in the stock market
generally, or in the case of certain indexes, in an industry or market segment,
rather than changes in the price for a particular security. Therefore,
successful use of stock index options by the Fund will depend on the Advisor's
ability to predict movements in the direction of the stock market generally, or
in a particular industry. The ability to predict these movements requires
different skills and techniques than predicting changes in the value of
individual securities.
Because index options are settled in cash, the Fund cannot be assured of
covering its potential settlement obligations under call options it writes on
indexes by acquiring and holding the underlying securities. Unless the Fund has
cash on hand that is sufficient to cover the cash settlement amount, it would be
required to sell securities owned in order to satisfy the exercise of the
option.
The Funds will adhere to the following non-fundamental limitations with respect
to investments in options on stock indexes: (1) the Funds will purchase or write
only those options on stock indexes that are traded on United States securities
exchanges or quoted on NASDAQ; and (2) the Funds will not invest more than 5% of
their total net assets in options on stock indexes.
PORTFOLIO TRANSACTIONS
The Advisory Agreement between the Trust and the Advisor requires that the
Advisor, in executing portfolio transactions and selecting brokers or dealers,
seek the best overall terms available. In assessing the terms of a transaction,
consideration may be given to various factors, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer (for a specified transaction and on
a continuing basis), the reasonableness of the commission, if any, and the
brokerage and research services provided to the Trust and/or other accounts over
which the Advisor or an affiliate of the Advisor exercises investment
discretion. Under the Advisory Agreement, the Advisor is permitted, in certain
circumstances, to pay a higher commission than might otherwise be obtained in
order to acquire brokerage and research services. The Advisor must determine in
good faith, however, that such commission is reasonable in relation to the value
of the brokerage and research services provided -- viewed in terms of that
particular transaction or in terms of all the accounts over which investment
discretion is exercised. In such case, the Board of Trustees will review the
commissions paid by each Fund of the Trust to determine if the commissions paid
over representative periods of time were reasonable in relation to the benefits
obtained. The advisory fee of the Advisor would not be reduced by reason of its
receipt of such brokerage and research services. To the extent that research
services of value are provided by broker/dealers through or with whom the Trust
places portfolio transactions the Advisor may be relieved of expenses which it
might otherwise bear.
The Trust may, in some instances, purchase securities that are not listed on a
national securities exchange or quoted on NASDAQ, but rather are traded in the
over-the-counter market. When the transactions are executed in the
over-the-counter market, it is intended generally to seek first to deal with the
primary market makers. However, the services of
Page 15
<PAGE>
brokers will be utilized if it is anticipated that the best overall terms can
thereby be obtained. Purchases of newly issued securities for the TAX FREE FUND
and NEAR-TERM TAX FREE FUND usually are placed with those dealers from which it
appears that the best price or execution will be obtained. Those dealers may be
acting as either agents or principals.
The brokerage fees paid by the following Funds for the three fiscal periods
ended June 30, 1996, were as follows:
1994 1995 1996
--------- --------- ---------
Gold Shares Fund $ 271,782 $ 456,685 $ 261,378
Global Resources Fund 69,952 66,061 130,955
World Gold Fund 349,091 408,918 383,831
Income Fund 5,580 5,600 30,965
Real Estate Fund 158,335 60,630 75,940
In seeking its primary investment objective of capital appreciation, each of the
GOLD SHARES FUND, GLOBAL RESOURCES FUND and WORLD GOLD FUND expects that it
generally will hold investments for at least six months. However, if the Advisor
concludes that economic, market or industry conditions warrant major adjustments
in any Fund's investment positions or if unusual market conditions or
developments of the type discussed under the heading "Special Risk
Considerations" dictate the taking of a temporary defensive position in
short-term money market instruments, changes may be made without regard to the
length of time an investment has been held, or whether a sale results in profit
or loss, or a purchase results in the reacquisition of an investment which may
have only recently been sold by the Fund.
MANAGEMENT OF THE FUNDS
The Trustees and Officers of the Trust and their principal occupations during
the past five years are set forth below. Except as otherwise indicated, the
business address of each is 7900 Callaghan Road, San Antonio, Texas 78229.
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- --------------------- -------------- -------------------------------------
John P. Allen Trustee President, Deposit Development
5600 San Pedro Associates Inc., a bank marketing
San Antonio, TX firm. President, Paragon Press.
Partner, Rio Cibolo Ranch, Inc.
William A. Fagan, Jr. Chairman of Chairman of the Board of Trustees
P.O. Box 17903 the Board of since January 1, 1989. Business
San Antonio, TX Trustees consultant since 1976.
E. Douglas Hodo Trustee Chief Executive Officer of Houston
7706 Fondren Baptist University. Formerly Dean and
Houston, TX Professor of Economics and Finance,
College of Business, University of
Texas at San Antonio.
Charles Z. Mann Trustee Business consultant since January 1,
Turning Point 1993. Chairman, Bermuda Monetary
13 Knapton Estates Rd. Authority from 1986 to 1992.
Smiths, Bermuda Executive Vice President of
HS01 International Median Limited, a
private investment holding company,
from 1979 to 1985 and previously
general manager of Bank of N.T.
Butterfield & Son, Ltd., a
Bermuda-based bank. Currently a
Director of Bermuda Electric Light
Company, Ltd.; Overseas Imports,
Ltd.; Tyndall International (Bermuda)
Ltd.; Old Court International
Reserves Ltd.; XL Investments
Limited, Glaxo (Bermuda) Limited.
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<PAGE>
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- --------------------- -------------- -------------------------------------
W.C.J. van Rensburg Trustee Professor of Geological Science and
6010 Sierra Arbor Ct. Petroleum Engineering, University of
Austin, TX Texas at Austin. Former Associate
Director, Bureau of Economic Geology,
University of Texas. Former Chairman,
Department of Geosciences, West Texas
State University. Former technical
director of South African Minerals
Bureau and British Petroleum
Professor of Energy Economics at the
Ran Afrikaans University,
Johannesburg, South Africa.
Frank E. Holmes(1) Trustee, Chairman of the Board of Directors,
President, Chief Executive Officer and Chief
Chief Financial Officer of the Advisor.
Executive Since October 1989 Mr. Holmes has
Officer served and continues to serve in
various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Director of
Franc-Or Resource Corp. from November
1994 to November 1996. Director of
Marleau, Lemire Inc. from January
1995 to December 1995. Director of
United Services Canada, Inc.
(formerly United Services Advisors
Wealth Management Corp.) since
February 1995 and Chief Executive
Officer from February to August 1995.
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Secretary, Advisor. Since September 1992 Ms.
General McGee as served and continues to
Counsel serve in various positions with the
Advisor, its subsidiaries, and the
investment companies it sponsors.
Before September 1992 Ms. McGee was a
student at St. Mary's Law School.
Thomas D. Tays Vice President, Vice President, Securities
Securities Specialist, Director of Compliance
Specialist, and Assistant Secretary of the
Director of Advisor. Chief Financial Officer,
Compliance Vice President, Securities
Specialist, Director of Compliance
and Assistant Secretary of the Trust.
Since September 1993 Mr. Tays has
served and continues to serve in
various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Before
September 1993 Mr. Tays was an
attorney in private practice.
- ------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
PRINCIPAL HOLDERS OF SECURITIES
As of August 26, 1996, the officers and Trustees of the Funds as a group owned
less than 1% of the outstanding shares of each Fund. The Trust is aware of the
following persons who owned of record, or beneficially, more than 5% of the
outstanding shares of any Fund at August 26, 1996:
NAME OF FUND PERSON/INSTITUTION % OWNED NOTES
- -------------- -------------------------- ------- ---------
U.S. GLOBAL Charles Schwab & Co., Inc. 8.47% Record(1)
RESOURCES FUND San Francisco, CA 94104
U.S. REAL ESTATE FUND Charles Schwab & Co., Inc. 18.35% Record(1)
San Francisco, CA 94104
National Financial Services Corp. 8.51% Record(2)
New York, NY 10008-3908
Charles Schwab & Co., Inc. 6.55% Record(1)
San Francisco, CA 94104
Page 17
<PAGE>
NAME OF FUND PERSON/INSTITUTION % OWNED NOTES
- -------------------- ------------------------------------ ------- --------
U.S. REAL Donaldson Lufkin Jenrette Securities 5.83% Record(3)
ESTATE FUND Corp.
Jersey City, NJ 07303-2052
U.S. INCOME FUND Charles Schwab & Co., Inc. 17.92% Record(1)
San Francisco, CA 94104
U.S. WORLD GOLD FUND Charles Schwab & Co., Inc. 21.07% Record(1)
San Francisco, CA 94104
National Financial Services Corp. 6.34% Record(2)
New York, NY 10008-3908
UNITED SERVICES David R. Hinkle IRA Rollover 5.17% Record
INTERMEDIATE TREASURY Winston Salem, NC 27101-3622
FUND
UNITED SERVICES Louisa Kellam 5.42% Record
NEAR-TERM TAX FREE Sun City West, AZ 85375-5417
FUND
U.S. TAX FREE FUND North Pursel North Investments 6.20% Record(4)
Palm Beach, FL 33480-2132
- ----------------------
(1) Charles Schwab & Co., Inc., a broker-dealer, has advised that no individual
client owns more than 5% of the Fund.
(2) National Financial Corp., a broker-dealer, has advised that no individual
client owns more than 5% of the Fund.
(3) Donaldson Lufkin Jenrette Securities Corp., a broker-dealer, has advised
that no individual client owns more than 5% of the Fund.
(4) North Pursel North Investments, a broker-dealer, has advised that no
individual client owns more than 5% of the Fund.
INVESTMENT ADVISORY SERVICES
The investment adviser to the Funds is U.S. Global Investors, Inc. (formerly
United Services Advisors, Inc.) (the "Advisor"), a Texas corporation, pursuant
to an Advisory Agreement dated as of October 27, 1989. Frank E. Holmes, Chief
Executive Officer and a Director of the Advisor, as well as a Trustee, President
and Chief Executive Officer of the Trust, beneficially owns more than 25% of the
outstanding voting stock of the Advisor and may be deemed to be a controlling
person of the Advisor.
In addition to the services described in each Fund's prospectus, the Advisor
will provide the Trust with office space, facilities and simple business
equipment, and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
Officers and Trustees of the Trust if such persons are employees of the Advisor
or its affiliates, except that the Trust will reimburse the Advisor for a
portion of the compensation of the Advisor's employees who perform certain legal
services for the Trust, including state securities law regulatory compliance
work, based upon the time spent on such matters for the Trust. The Advisor pays
the expense of printing and mailing prospectuses and sales materials used for
promotional purposes.
The Trust pays all other expenses for its operations and activities. Each of the
Funds of the Trust pays its allocable portion of these expenses. The expenses
borne by the Trust include the charges and expenses of any transfer agents and
dividend disbursing agents, custodian fees, legal and auditors' expenses,
bookkeeping and accounting expenses, brokerage commissions for portfolio
transactions, taxes, if any, the advisory fee, extraordinary expenses, expenses
of issuing and redeeming shares, expenses of shareholder and trustee meetings,
preparing, printing and mailing proxy statements, reports and other
communications to shareholders, expenses of registering and qualifying shares
for sale, fees of Trustees who are not "interested persons" of the Advisor,
expenses of attendance by Officers and Trustees at
Page 18
<PAGE>
professional meetings of the Investment Company Institute, the No-Load Mutual
Fund Association or similar organizations, and membership or organization dues
of such organizations, expenses of preparing and setting in type prospectuses
and periodic reports and expenses of mailing them to current shareholders, cost
of fidelity bond premiums, cost of maintaining the books and records of the
Trust, and any other charges and fees not specifically enumerated.
For the services and facilities provided to each of the Funds by the Advisor,
each Fund may pay to the Advisor a monthly fee at the rate set forth below based
upon the monthly average daily net assets of such Fund for such calendar month.
Some of these fees have been voluntarily reduced or waived until further notice.
See the prospectus section, "The Investment Advisor."
ADVISORY FEE SCHEDULE
<TABLE>
<CAPTION>
- ----------------------------------- -------------------------------- ------------
MONTHLY
NAME OF FUND MONTHLY NET ASSETS RATE
- ----------------------------------- -------------------------------- ------------
<S> <C> <C>
GOLD SHARES FUND UP TO AND INCLUDING $250 MILLION 1/12 OF .75%
OVER $250 MILLION 1/12 OF .50%
GLOBAL RESOURCES FUND UP TO AND INCLUDING $250 MILLION 1/12 OF 1%
OVER $250 MILLION 1/12 OF .50%
WORLD GOLD FUND UP TO AND INCLUDING $250 MILLION 1/12 OF 1%
OVER $250 MILLION 1/12 OF .50%
U.S. TREASURY SECURITIES CASH FUND UP TO AND INCLUDING $250 MILLION 1/12 OF .50%
OVER $250 MILLION 1/12 OF .375%
TAX FREE FUND UP TO AND INCLUDING $250 MILLION 1/12 OF .75%
OVER $250 MILLION 1/12 OF .50%
INCOME FUND UP TO AND INCLUDING $250 MILLION 1/12 OF .75%
OVER $250 MILLION 1/12 OF .50%
U.S. GOVERNMENT SECURITIES SAVINGS FUND UP TO AND INCLUDING $250 MILLION 1/12 OF .50%
OVER $250 MILLION 1/12 OF .375%
REAL ESTATE FUND UP TO AND INCLUDING $250 MILLION 1/12 OF .75%
OVER $250 MILLION 1/12 OF .50%
UNITED SERVICES NEAR-TERM TAX FREE FUND 1/12 OF .50%
</TABLE>
The Advisor may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for Fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client Fund shares. The Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. However, in the Advisor's opinion, such laws should not preclude a
bank from performing shareholder administrative and servicing functions as
contemplated herein.
The securities laws of certain states in which shares of the Trust may, from
time to time, be qualified for sale require that the Advisor reimburse the Trust
for any excess of a Fund's expenses over prescribed percentages of the Fund's
average net assets. Thus, the Advisor's compensation under the Advisory
Agreement is subject to reduction in any fiscal year to the extent that total
expenses of the Fund for such year (including the Advisor's compensation but
exclusive of taxes, brokerage commission, extraordinary expenses, and other
permissible expenses) exceed the most restrictive applicable expense limitation
prescribed by any state in which the Trust's shares are qualified for sale. The
Advisor may obtain waivers of these state expense limitations from time to time.
Such limitation is currently 2.5% of the first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5% of the
remaining average net assets.
Page 19
<PAGE>
The Board of Trustees of the Trust (including a majority of the disinterested
Trustees) recently approved continuation of the October 27, 1989 Advisory
Agreement through October 1997. The Advisory Agreement provides that it will
continue initially for two years, and from year to year thereafter, with respect
to each Fund, as long as it is approved at least annually both (i) by a vote of
a majority of the outstanding voting securities of such Fund (as defined in the
Investment Company Act of 1940 ) or by the Board of Trustees of the Trust, and
(ii) by a 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 may be terminated on 60-day written notice by either party and will
terminate automatically if it is assigned.
The Trust pays the Advisor a separate management fee for each Portfolio in the
Trust. Such fee is based on varying percentages of average net assets. For the
three fiscal periods ended June 30, 1994, June 30, 1995 and June 30, 1996, the
Trust incurred advisory fees (net of expenses paid by the Advisor or voluntary
fee waivers) of $5,021,807, $5,233,507, and $5,216,589, respectively, for all
funds. For the three fiscal periods ended June 30, 1994, June 30, 1995 and June
30, 1996, the Funds paid the Advisor the following advisory fees (net of
expenses paid by the Advisor or voluntary fee waivers):
NAME OF FUND 1994 1995 1996
- --------------------------------- ---------- ---------- ----------
GOLD SHARES FUND $2,011,687 $1,969,645 $1,727,462
GLOBAL RESOURCES FUND 240,719 218,438 219,018
WORLD GOLD FUND 1,753,641 1,900,764 2,238,255
TREASURY SECURITIES CASH FUND 760,423 894,643 835,252
INCOME FUND 99,688 80,223 73,521
TAX FREE FUND -0- -0- -0-
GOVERNMENT SECURITIES SAVINGS FUND -0- -0- -0-
REAL ESTATE FUND 140,661 85,225 64,381
NEAR-TERM TAX FREE FUND -0- -0- -0-
TRANSFER AGENCY AND OTHER SERVICES
In addition to the services performed for the Funds and the Trust under the
Advisory Agreement, the Advisor, through its subsidiary USSI, provides transfer
agent and dividend disbursement agent services pursuant to the Transfer Agency
Agreement as described in the Funds' prospectuses under "Management of the Funds
- -- The Investment Advisor." In addition, lockbox and statement printing services
are provided by USSI. The Board of Trustees recently approved the Transfer
Agency and related agreements through October 1997. For the three fiscal years
ended June 30, 1994, 1995 and 1996, the Trust paid USSI total transfer agency,
lockbox and printing fees of, $2,313,933, $2,557,846 and $2,707,293
respectively, for all funds.
USSI also maintains the books and records of the Trust and of each Fund of the
Trust and calculates their daily net asset value as described in the Funds'
prospectuses under "Management of the Funds -- The Investment Advisor." Total
fees for such services for the fiscal years ending June 30, 1994, 1995 and 1996
were $354,278, $502,994, and $499,465 respectively, for all funds.
All fees paid to the Advisor during the fiscal year ended June 30, 1996,
(including management, transfer agency, lockbox, printing and accounting fees
but net of reimbursements) totaled $8,423,347.
Page 20
<PAGE>
A & B Mailers, Inc., a wholly-owned corporation of the Advisor, provides the
Trust with certain mail handling services. The charges for such services have
been negotiated by the Audit Committee and A & B Mailers, Inc. Each service is
priced separately.
CERTAIN PURCHASES OF SHARES OF THE FUNDS
Shares of all the Funds are continuously offered by the Trust at their net asset
value next determined after an order is accepted. The methods available for
purchasing shares of the Funds are described in the Prospectus. In addition,
shares of each Fund, except the TREASURY SECURITIES CASH FUND, the TAX FREE
FUND, the GOVERNMENT SECURITIES SAVINGS FUND, may be purchased using stock, so
long as the securities delivered to the Trust meet the investment objectives and
concentration policies of the appropriate Fund, and are otherwise acceptable to
the Advisor, which reserves the right to reject all or any part of the
securities offered in exchange for shares of such Funds. On any such "in kind"
purchase, the following conditions will apply:
1. the securities offered by the investor in exchange for shares of the
Fund must not be in any way restricted as to resale or otherwise be
illiquid;
2. securities of the same issuer must already exist in the Fund's
portfolio;
3. the securities must have a value which is readily ascertainable (and
not established only by evaluation procedures) as evidenced by a
listing on the AMEX and the NYSE, or NASDAQ;
4. any securities so acquired by any Fund will not comprise more than 5%
of that Fund's net assets at the time of such exchange;
5. no over-the-counter securities will be accepted unless the principal
over-the-counter market is in the United States; and
6. the securities are acquired for investment and not for resale.
The Trust believes that this ability to purchase shares of each Fund, except the
TREASURY SECURITIES CASH FUND, the TAX FREE FUND, and the GOVERNMENT SECURITIES
SAVINGS FUND using securities provides a means by which holders of certain
securities may obtain diversification and continuous professional management of
their investments without the expense of selling those securities in the public
market.
An investor who wishes to make an "in kind" purchase should furnish (either in
writing or by telephone) to the Trust a list with a full and exact description
of all of the securities which he or she proposes to deliver. The Trust will
advise him or her as to those securities which it is prepared to accept and will
provide the investor with the necessary forms to be completed and signed by the
investor. The investor should then send the securities, in proper form for
transfer, with the necessary forms to the Trust and certify that there are no
legal or contractual restrictions on the free transfer and sale of the
securities. The securities will be valued as of the close of business on the day
of receipt by the Trust in the same manner as portfolio securities of the GOLD
SHARES, GLOBAL RESOURCES, WORLD GOLD, INCOME, and REAL ESTATE FUNDS are valued.
See the section entitled "How Shares Are Valued" in the prospectus. The number
of shares of the appropriate Fund, having a net asset value as of the close of
business on the day of receipt equal to the value of the securities delivered by
the investor, will be issued to the investor, less applicable stock transfer
taxes, if any.
The exchange of securities by the investor pursuant to this offer will
constitute a taxable transaction and may result in a gain or loss for Federal
income tax purposes. Each investor should consult his or her tax adviser to
determine the tax consequences under Federal and state law of making such an "in
kind" purchase.
ADDITIONAL INFORMATION ON REDEMPTIONS
WIRE REDEMPTIONS--TREASURY SECURITIES CASH FUND AND GOVERNMENT SECURITIES
SAVINGS FUND ONLY: When shares of the TREASURY SECURITIES CASH FUND are redeemed
by wire, proceeds will normally be wired on the next
Page 21
<PAGE>
business day after receipt of the telephone instruction. To place a request for
a wire redemption, the shareholder may instruct USSI by telephone (if this
option was elected on the application accompanying the prospectus), or by
mailing instructions to U.S. Global Investors Funds, P.O. Box 781234, San
Antonio, Texas 78278-1234. A bank processing fee for each bank wire will be
charged to the shareholder's account. The shareholder may change the account
which has been designated to receive amounts withdrawn under this procedure at
any time by writing to USSI with signature(s) guaranteed as described in the
prospectus. Further documentation will be required to change the designated
account when shares are held by a corporation or other organization, fiduciary
or institutional investor.
CHECK REDEMPTIONS--TREASURY SECURITIES CASH FUND AND GOVERNMENT SECURITIES
SAVINGS FUND ONLY: Upon receipt of a completed application indicating election
of the check writing feature, shareholders will be provided with a free supply
of temporary checks. A shareholder may order additional checks for a nominal
charge.
The checkwriting withdrawal procedure enables a shareholder to receive dividends
declared on the shares to be redeemed until such time as the check is processed.
For this reason, checks should never be used to close an account, since the
shareholder cannot know what the exact balance in the account will be on the
date that the check clears. If there are not sufficient shares to cover a check,
the check will be returned to the payee and marked "insufficient funds." Checks
written against shares which have been in the account less than seven days and
were purchased by check will be returned as uncollected funds. A shareholder may
avoid this 7-day requirement by purchasing by bank wire or cashiers check.
The Trust reserves the right to terminate generally, or alter generally, the
checkwriting service or to impose a service charge upon 30 days' prior notice to
shareholders.
REDEMPTION IN KIND: The Trust reserves the right to redeem shares of the GOLD
SHARES FUND in cash or in kind. However, the Trust has elected to be governed by
Rule 18f-1 under the Investment Company Act of 1940, pursuant to which the Trust
is obligated to redeem shares of the GOLD SHARES FUND solely in cash up to the
lesser of $250,000 or one percent (1%) of the net asset value of the Trust
during any 90-day period for any one shareholder. Any shareholder of the GOLD
SHARES FUND receiving a redemption in kind would then have to pay brokerage fees
in order to convert his Fund investment into cash. All redemptions in kind will
be made in marketable securities of the Fund.
SUSPENSION OF REDEMPTION PRIVILEGES: The Trust may suspend redemption privileges
or postpone the date of payment for up to seven days, but cannot do so for more
than seven days after the redemption order is received except during any period
(1) when the NYSE is closed, other than customary weekend and holiday closings,
or trading on the Exchange is restricted as determined by the Securities and
Exchange Commission ("SEC"), (2) when an emergency exists, as defined by the
SEC, which makes it not reasonably practicable for the Trust to dispose of
securities owned by it or fairly to determine the value of its assets, or (3) as
the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
TREASURY SECURITIES CASH FUND and GOVERNMENT SECURITIES SAVINGS FUND
shareholders and prospective investors in these Funds will be interested in
learning, from time to time, the current yield of the Funds, based on dividends
declared daily from net investment income. To obtain a current yield quotation,
call the Advisor toll free at 1-800-873-8637 (local residents call 308-1222).
The yield of that Fund is calculated by determining the net change in the value
of a hypothetical pre-existing account in the Fund having a balance of one share
at the beginning of a historical seven- calendar-day period, dividing the net
change by the value of the account at the beginning of the period to obtain the
base period return, and multiplying the base period return by 365/7. The net
change in the value of an account in the Fund reflects the value of additional
shares purchased with dividends from the original share and any such additional
shares, and all fees charged to all shareholder accounts in proportion to the
length of the base period and the Fund's average account size, but does not
include realized gains and losses, or unrealized appreciation and depreciation.
The Funds may also calculate their effective annualized yield (in effect, a
compound yield) by dividing the base period return (calculated as above) by
seven, adding one, raising the sum to the 365th power and subtracting one.
The TREASURY SECURITIES CASH FUND'S and the GOVERNMENT SECURITIES SAVINGS FUND's
net income, from the time of the immediately preceding dividend declaration,
consists of interest accrued or discount earned during such period (including
both original issue and market discount) on the Fund's securities, less
amortization of premium and the
Page 22
<PAGE>
estimated expenses of the Fund applicable to that dividend period. The yield
quoted at any time represents the amount being earned on a current basis and is
a function of the types of instruments in the Fund's portfolio, their quality
and length of maturity, their relative values, and the Fund's operating
expenses. The length of maturity for the portfolio is the average
dollar-weighted maturity of the portfolio. This means that the portfolio has an
average maturity of a stated number of days for all of its issues.
The yield fluctuates daily as the income earned on the investments of the
TREASURY SECURITIES CASH FUND and the GOVERNMENT SECURITIES SAVINGS FUND
fluctuates. Accordingly, there is no assurance that the yield quoted on any
given occasion will remain in effect for any period of time, nor is there any
guarantee that the net asset value or any stated rate of return will remain
constant. A shareholder's investment in the TREASURY SECURITIES CASH FUND and
the GOVERNMENT SAVINGS FUND is not insured, although the underlying portfolio
securities are, of course, backed by the United States Government or, in the
case of the GOVERNMENT SECURITIES SAVINGS FUND, by a government agency.
Investors comparing results of the TREASURY SECURITIES CASH FUND and GOVERNMENT
SECURITIES SAVINGS FUND with investment results and yields from other sources,
such as banks or savings and loan associations, should understand this
distinction.
The seven-day yield and effective yield for the TREASURY SECURITIES CASH FUND
and the GOVERNMENT SECURITIES SAVINGS FUND, respectively, with an average
weighted maturity of investments on that date of 51 and 75 days, respectively.
TOTAL RETURN: The GOLD SHARES FUND, GLOBAL RESOURCES FUND, WORLD GOLD FUND,
INCOME FUND, TAX FREE FUND, the REAL ESTATE FUND and the NEAR-TERM TAX FREE FUND
may each advertise performance in terms of average annual total return for 1-,
5- and 10-year periods, or for such lesser periods as any of such Funds have
been in existence. Average annual total return is computed by finding the
average annual compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, 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
ERV ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
the 1, 5 or 10 year periods at the end
of the year or period.
The calculation assumes all charges are deducted from the initial $1,000 payment
and assumes all dividends and distributions by each Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period, and
includes all recurring fees that are charged to all shareholder accounts.
The average annual compounded rate of return for each Fund for the following
years ended as of June 30, 1996 is as follows:
1 YEAR 5 YEARS 10 YEARS
-------- -------- --------
Gold Shares Fund (11.73)% (9.95)% (1.70)%
Global Resources Fund 22.80% 6.82% 7.72%
World Gold Fund 34.35% 16.21% 10.08%
Income Fund 16.60% 10.75% 9.08%
Tax Free Fund 5.25% 6.84% 7.09%
Real Estate Fund (since 17.34% 7.30% 4.67%
7/2/87)
Near-Term Tax Free Fund 3.68% 6.35% 5.97%
(since 12/1/90)
Page 23
<PAGE>
YIELD: The GOLD SHARES FUND, GLOBAL RESOURCES FUND, WORLD GOLD FUND, INCOME
FUND, TAX FREE FUND, REAL ESTATE FUND and the NEAR-TERM TAX FREE FUND each may
advertise performance in terms of a 30-day yield quotation. The 30- day yield
quotation is computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula:
A - B
------
YIELD = 2 [ ( 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
D = the maximum offering price per share on the last day
of the period
The 30-day yield for the 30 days ended June 30, 1996 for each Fund was as
follows:
Income Fund 2.40%
Tax Free Fund 5.33%
Real Estate Fund 4.02%
Near-Term Tax Free Fund 4.45%
TAX EQUIVALENT YIELD: The TAX FREE FUND's tax equivalent yield for the 30 days
ended June 30, 1996, was 8.82% based on a Federal income tax rate of 39.6%.
The NEAR-TERM TAX FREE FUND's tax equivalent yield for the 30 days ended June
30, 1996, was 7.37% based on a Federal income tax rate of 39.6%.
The tax equivalent yield is computed by dividing that portion of the yield of
the TAX FREE FUND (computed as described under "Yield" above) which is
tax-exempt, by one minus the Federal income tax rate of 28% (or other relevant
rate) and adding the result to that portion, if any, of the yield of the Fund
that is not tax exempt. The compliment, for example, of a tax rate of 39.6% is
60.4%, that is [1.00 - .396 = .604].
NONSTANDARDIZED TOTAL RETURN: Each Fund may provide the above described standard
total return results for a period which ends as of not earlier than the most
recent calendar quarter end and which begins either twelve months before or at
the time of commencement of each Fund's operations. In addition, each Fund may
provide nonstandardized total return results for differing periods, such as for
the most recent six months. Such nonstandardized total return is computed as
otherwise described under "Total Return" except that no annualization is made.
DISTRIBUTION RATES: In its sales literature, each Fund, except for the money
market funds, may also quote its distribution rate along with the above
described standard total return and yield information. The distribution rate is
calculated by annualizing the latest distribution and dividing the result by the
offering price per share as of the end of the period to which the distribution
relates. A distribution can include gross investment income from debt
obligations purchased at a premium and in effect include a portion of the
premium paid. A distribution can also include gross short-term capital gains
without recognition of any unrealized capital losses. Further, a distribution
can include income from the sale of options by each Fund even though such option
income is not considered investment income under generally accepted accounting
principals.
Because a distribution can include such premiums, capital gains and option
income, the amount of the distribution may be susceptible to control by the
Advisor through transactions designed to increase the amount of such items.
Also, because the distribution rate is calculated in part by dividing the latest
distribution by net asset value, the distribution rate will increase as the net
asset value declines. A distribution rate can be greater than the yield rate
calculated as described above.
EFFECT OF FEE WAIVER AND EXPENSE REIMBURSEMENT: All calculations of performance
data in this section reflect the Advisor's fee waivers or reimbursement of a
portion of the Fund's expenses, as the case may be. See "Management of the
Funds" in the prospectus.
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<PAGE>
TAX STATUS
TAXATION OF THE FUNDS--IN GENERAL: As stated in its Prospectus, each Fund
intends to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, each Fund
will not be liable for Federal income taxes on its taxable net investment income
and capital gain net income that are distributed to shareholders, provided that
a Fund distributes at least 90% of its net investment income and net short-term
capital gain for the taxable year.
To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); (b) derive in each taxable year less
than 30% of its gross income from the sale or other disposition of stock,
securities or certain options, futures or foreign currencies held less than
three months (the "30% test"), and (c) satisfy certain diversification
requirements at the close of each quarter of the Fund's taxable year.
Furthermore, in order to be entitled to pay tax-exempt interest income dividends
to shareholders, the TAX FREE FUND and NEAR-TERM TAX FREE FUND must satisfy the
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of obligations the interest of which
is exempt from Federal income tax. The TAX FREE and NEAR-TERM TAX FREE FUNDS
intend to satisfy this requirement.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its capital gain net income for the twelve-month period ending on
October 31 of the calendar year and (3) any portion not taxable to the Fund of
the respective balance from the preceding calendar year. Because the excise tax
is based upon undistributed taxable income, it will not apply to tax exempt
income received by the TAX FREE and NEAR- TERM TAX FREE FUNDS. The Funds intend
to make such distributions as are necessary to avoid imposition of this excise
tax.
TAXATION OF THE FUNDS' INVESTMENTS: A Fund's ability to make certain investments
may be limited by provisions of the Code that require inclusion of certain
unrealized gains or losses in the Fund's income for purposes of the 90% test,
the 30% test and the distribution requirements of the Code, and by provisions of
the Code that characterize certain income or loss as ordinary income or loss
rather than capital gain or loss. Such recognition, characterization and timing
rules generally apply to investments in certain forward currency contracts,
foreign currencies and debt securities denominated in foreign currencies.
For Federal income tax purposes, debt securities purchased by a Fund may be
treated as having original issue discount. Original issue discount can generally
be defined as the excess of the stated redemption price at maturity of a debt
obligation over the issue price. Original issue discount is treated as interest
for Federal income tax purposes as earned by a Fund, whether or not any income
is actually received, and therefore, is subject to the distribution requirements
of the Code. However, original issue discount with respect to tax-exempt
obligations generally will be excluded from a Fund's taxable income, although
such discount will be included in gross income for purposes of the 90% test and
the 30% test described above. Original issue discount with respect to tax-exempt
securities is accrued and added to the adjusted tax basis of such securities for
purposes of determining gain or loss upon sale or at maturity. Generally, the
amount of original issue discount is determined on the basis of a constant yield
to maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
will result in original issue discount.
Debt securities may be purchased by a Fund at a discount which exceeds the
original issue price plus previously accrued original issue discount remaining
on the securities, if any, at the time a Fund purchases the securities. This
additional discount represents market discount for income tax purposes. To the
extent that a Fund purchases municipal bonds at a market discount, the
accounting accretion of such discount may generate taxable income for the Fund
and its shareholders. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest income for purposes of the 90% test to the extent it does not exceed
the accrued market discount on the security (unless the Fund elects to include
such accrued market discount in income in the tax year to which it is
attributable). Generally, market discount is accrued on a daily basis.
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A Fund whose portfolio is subject to the market discount rules may be required
to capitalize, rather than deduct currently, part or all of any direct interest
expense incurred to purchase or carry any debt security having market discount,
unless the Fund makes the election to include market discount currently. Because
a Fund must take into account all original issue discount for purposes of
satisfying various requirements for qualifying as a regulated investment company
under Subchapter M of the Code, it will be more difficult for a Fund to make the
distributions required under Subchapter M of the Code and to avoid the 4% excise
tax described above. To the extent that a Fund holds zero coupon or deferred
interest bonds in its portfolio, or bonds paying interest in the form of
additional debt obligations, the Fund would recognize income currently even
though the Fund received no cash payment of interest, and would need to raise
cash to satisfy the obligations to distribute such income to shareholders from
sales of portfolio securities.
The Funds may purchase debt securities at a premium, i.e., at a purchase price
in excess of face amount. With respect to tax-exempt securities, the premium
must be amortized to the maturity date but no deduction is allowed for the
premium amortization. Instead, the amortized bond premium will reduce the Fund's
adjusted tax basis in the securities. For taxable securities, the premium may be
amortized if the Fund so elects. The amortized premium on taxable securities is
allowed as a deduction, and, generally for securities issued after September 27,
1985, must be amortized under an economic accrual method.
TAXATION OF THE SHAREHOLDER: Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November or December and made payable to
shareholders of record in such a month will be deemed to have been received on
December 31, if a Fund pays the dividends during the following January. Since
none of the net investment income of the TAX FREE FUND, the TREASURY SECURITIES
CASH FUND, the GOVERNMENT SECURITIES SAVINGS FUND or the NEAR-TERM TAX FREE FUND
is expected to arise from dividends on domestic common or preferred stock, none
of these Funds' distributions will qualify for the 70% corporate
dividends-received deduction.
Distributions by a Fund, other than the TREASURY SECURITIES CASH FUND and the
GOVERNMENT SECURITIES SAVINGS FUND, will result in a reduction in the fair
market value of the Fund's shares. Should a distribution reduce the fair market
value below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long-term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares of such Funds just prior to a distribution. The
price of such shares purchased at that time includes the amount of any
forthcoming distribution. Those investors purchasing the Fund's shares just
prior to a distribution may receive a return of investment upon distribution
which will nevertheless be taxable to them.
To the extent that the TAX FREE FUND's and the NEAR-TERM TAX FREE FUND's
dividends distributed to shareholders are derived from interest income exempt
from Federal income tax and are designated as "exempt-interest dividends" by the
Fund, they will be excludable from a shareholder's gross income for Federal
income tax purposes. Shareholders who are recipients of Social Security benefits
should be aware that exempt-interest dividends received from the Fund are
includable in their "modified adjusted gross income" for purposes of determining
the amount of such Social Security benefits, if any, that are required to be
included in their gross income.
All distributions of investment income during the year will have the same
percentage designated as tax exempt. This method is called the "average annual
method." Since the TAX FREE FUND and the NEAR-TERM TAX FREE FUND invest
primarily in tax-exempt securities, the percentage is expected to be
substantially the same as the amount actually earned during any particular
distribution period.
A shareholder of a Fund should be aware that a redemption of shares (including
any exchange into another U.S. Global Investors Fund) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
TAX FREE FUND or the NEAR-TERM TAX FREE FUND receives an exempt-interest
dividend with respect to any share and such share has been held for six months
or less, any loss on the redemption or exchange will be disallowed to the extent
of such exempt-interest dividend. Similarly, if a shareholder of a Fund receives
a distribution taxable as long-term capital gain with respect to shares of the
Fund and redeems or exchanges shares before he has held them for more than six
months, any loss on the redemption or exchange (not otherwise disallowed as
attributable to an exempt-interest dividend) will be treated as long-term
capital loss to the extent of the long-term capital gain recognized.
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<PAGE>
The TAX FREE FUND and the NEAR-TERM TAX FREE FUND may invest in private activity
bonds. Interest on private activity bonds issued after August 7, 1986, is
subject to the Federal alternative minimum tax ("AMT"), although the interest
continues to be excludable from gross income for other purposes. AMT is a
supplemental tax designed to ensure that taxpayers pay at least a minimum amount
of tax on their income, even if they make substantial use of certain tax
deductions and exclusions (referred to as "tax preference items"). Interest from
private activity bonds is one of the tax preference items that is added into
income from other sources for the purposes of determining whether a taxpayer is
subject to the AMT and the amount of any tax to be paid. Prospective investors
should consult their own tax advisors with respect to the possible application
of the AMT to their tax situation.
Opinions relating to the validity of tax-exempt securities and the exemption of
interest thereon from Federal income tax are rendered by recognized bond counsel
to the issuers. Neither the Advisor's nor the Fund's counsel makes any review of
proceedings relating to the issuance of tax-exempt securities or the basis of
such opinions.
CUSTODIAN
Bankers Trust Company acts as Custodian for all Funds of the Trust described in
this Statement of Additional Information. With respect to the GOLD SHARES FUND,
GLOBAL RESOURCES FUND, and WORLD GOLD FUND, Bankers Trust Company may hold
securities of the funds outside the United States pursuant to sub-custody
arrangements separately approved by the Trust. Services with respect to the
retirement accounts will be provided by Security Trust and Financial Company of
San Antonio, Texas, a wholly owned subsidiary of the Advisor.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Price Waterhouse LLP, One Riverwalk Place, Suite 900, San Antonio, Texas 78205
serves as the independent accountants for the Trust.
Goodwin, Procter & LLP, Exchange Place, Boston, Massachusetts 02109, are legal
counsel to the Trust.
INFORMATION ABOUT SECURITIES RATINGS
DEBT SECURITY RATINGS, INCLUDING MUNICIPAL BONDS
MOODY'S INVESTORS SERVICE, INC. Aaa--the "best quality." Aa--"high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat larger than Aaa rated municipal bonds. A--"upper medium grade
obligation." Security for principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Baa--"medium grade obligations." Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
STANDARD & POOR'S CORPORATION. AAA--"obligation of the highest quality."
AA--issues with investment characteristics "only slightly less marked than
those of the prime quality issues." A--"the third strongest capacity for payment
of debt service." Principal and interest payments on the bonds in this category
are considered safe. It differs from the two higher ratings, because with
respect to general obligation bonds, there is some weakness which, under certain
adverse circumstances, might impair the ability of the issuer to meet debt
obligations at some future date. With respect to revenue bonds, debt service
coverage is good but not exceptional, and stability of the pledged revenues
could show some variations because of increased competition or economic
influences on revenues. BBB--"regarded as having adequate capacity to pay
interest and repay principal." Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal.
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FINANCIAL STATEMENTS
The financial statements for year ended June 30, 1996, are hereby incorporated
by reference from the Annual Report to Shareholders of that date which has been
delivered with this Statement of Additional Information [unless previously
provided, in which event the Trust will promptly provide another copy, free of
charge, upon request to: U.S. Global Investors, Inc., P.O. Box 29467, San
Antonio, Texas 78229-0467, 1-800-873-8637 or (210) 308-1234].
Page 28
================================================================================
U.S. GLOBAL INVESTORS FUNDS
CHINA REGION OPPORTUNITY FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. You should read it
with the prospectus issued November 1, 1996 (the "Prospectus"), which you may
request from U. S. Global Investors, Inc. (the "Advisor"), 7900 Callaghan Road,
San Antonio, Texas 78229, or 1-800-US-FUNDS (1-800-873-8637).
The date of this Statement of Additional Information is November 1, 1996,
amended February 24 and June 16, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION..........................................................3
INVESTMENT OBJECTIVES AND POLICIES...........................................3
Investment Restrictions.................................................4
SPECIAL RISK CONSIDERATIONS..................................................4
PORTFOLIO TRANSACTIONS.......................................................8
MANAGEMENT OF THE FUND.......................................................9
PRINCIPAL HOLDERS OF SECURITIES.............................................10
INVESTMENT ADVISORY SERVICES................................................10
TRANSFER AGENCY AND OTHER SERVICES..........................................11
ADDITIONAL INFORMATION ON REDEMPTIONS.......................................12
CALCULATION OF PERFORMANCE DATA.............................................12
TAX STATUS..................................................................12
Taxation of the Fund--In General.......................................12
Taxation of the Fund's Investments.....................................13
Taxation of the Shareholder............................................13
CUSTODIAN...................................................................13
INDEPENDENT ACCOUNTANT .....................................................14
FINANCIAL STATEMENTS........................................................14
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GENERAL INFORMATION
U.S. Global Investors Funds (the "Trust") is an open-end management investment
company and is a voluntary association known as a "business trust" organized
under the laws of the Commonwealth of Massachusetts. The China Region
Opportunity Fund (the "Fund") is one of several series of the Trust, each of
which represents a separate, diversified portfolio of securities.
The assets received by the Trust from the issue or sale of shares of each of the
funds, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are separately allocated to such fund. They constitute
the underlying assets of each fund, are required to be segregated on the books
of accounts, and are to be charged with the expenses with respect to such fund.
Any general expenses of the Trust, not readily identifiable as belonging to a
particular fund, will be allocated by or under the direction of the Board of
Trustees in such manner as the Board determines to be fair and equitable.
Each share of each of the funds represents an equal proportionate interest in
that fund with each other share and is entitled to such dividends and
distributions, out of the income belonging to that fund, as are declared by the
Board. Upon liquidation of the Trust, shareholders of each fund are entitled to
share pro rata in the net assets belonging to the fund available for
distribution.
The Trustees have exclusive power, without the requirement of shareholder
approval, to issue series of shares without par value, each series representing
interests in a separate portfolio, or divide the shares of any portfolio into
classes, each class having such different dividend, liquidation, voting and
other rights as the Trustees may determine, and may establish and designate the
specific classes of shares of each portfolio. Before establishing a new class of
shares in an existing portfolio, the Trustees must determine that the
establishment and designation of separate classes would not adversely affect the
rights of the holders of the initial or previously established and designated
class or classes.
As described under "The Trust" in the prospectus, under the Trust's First
Amended and Restated Master Trust Agreement (the "Master Trust Agreement"), no
annual or regular meeting of shareholders is required. In addition, after the
Trustees were initially elected by the shareholders, the Trustees became a
self-perpetuating body. Thus, there will ordinarily be no shareholder meetings
unless otherwise required by the Investment Company Act of 1940.
On any matter submitted to shareholders, the holder of each share is entitled to
one vote per share (with proportionate voting for fractional shares). On matters
affecting any individual fund, a separate vote of that fund would be required.
Shareholders of any fund are not entitled to vote on any matter which does not
affect their fund but which requires a separate vote of another fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objectives and policies discussed in the Fund's prospectus.
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<PAGE>
INVESTMENT RESTRICTIONS: The Fund will not change any of the following
investment restrictions, without the affirmative vote of a majority of the
outstanding voting securities of the Fund, which, as used herein, means the
lesser of (1) 67% of the Fund's outstanding shares present at a meeting at which
more than 50% of the outstanding shares of the Fund are represented either in
person or by proxy, or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. Issue senior securities.
2. Borrow money, except that the Fund may borrow not in excess of 5% of
its total assets from banks as a temporary measure for extraordinary
purposes and may borrow up to 33 1/3% of the amount of its total
assets (reduced by the amount of all liabilities and indebtedness
other than such borrowing) when deemed desirable or appropriate to
effect redemptions. However, the Fund may not purchase additional
securities while borrowing exceeds 5% of the total assets of the Fund.
3. Underwrite the securities of other issuers.
4. Invest in real estate.
5. Engage in the purchase or sale of commodities or commodity futures
contracts, except that the Fund may invest in futures contracts and
options thereon.
6. Lend its assets, except that the Fund may purchase money market debt
obligations and repurchase agreements secured by money market
obligations, and except for the purchase or acquisition of bonds,
debentures or other debt securities of a type customarily purchased by
institutional investors and except that the Fund may lend portfolio
securities with an aggregate market value of not more than one-third
of the Fund's total net assets. (Accounts receivable for shares
purchased by telephone will not be deemed loans.)
7. Purchase any security on margin, except that it may obtain such
short-term credits as are necessary for clearance of securities
transactions.
8. Make short sales.
9. Invest more than 15% of net assets in illiquid securities, including
securities which are subject to legal or contractual restrictions on
resale.
10. Invest more than 25% of its total assets in securities of companies
principally engaged in any one industry (other than obligations issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities). For purposes of this restriction, a foreign
government is deemed to be an "industry."
11. (a) Invest more than 5% of the value of its total assets in securities
of any one issuer, except such limitation will not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities, or (b) acquire more than 10% of the
voting securities of any one issuer as discussed in the prospectus,
such limitations apply to only 75% of the value of the Fund's total
assets.
SPECIAL RISK CONSIDERATIONS
The following discussion of some of the most significant risks associated with
an investment in the Fund supplements the discussion in the prospectus.
FOREIGN INVESTMENTS: Investing in securities issued by companies whose principal
business activities are outside the United States may involve significant risks
not present in domestic investments. For example, there is generally less
publicly available information about foreign companies, particularly those not
subject to the disclosure and reporting requirements of the United States
securities laws. Foreign issuers are generally not bound by uniform accounting,
auditing and financial reporting requirements and standards of practice
comparable to those applicable to domestic issuers. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
of the removal of funds or other assets of the Fund, political or financial
instability or diplomatic and other developments which could affect such
investment. Further,
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economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States. It is anticipated that in
most cases the best available market for foreign securities will be on exchanges
or in over-the-counter markets located outside of the United States. Foreign
stock markets, while growing in volume and sophistication, are generally not as
developed as those in the United States, and such markets may periodically close
for extended periods (e.g., two weeks during the Chinese New Year), affecting
the liquidity and pricing of portfolio securities. Securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable United States companies. In
addition, foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities markets, broker-dealers and issuers than in the United States.
CHINA'S LEGAL SYSTEM: China does not have a comprehensive system of laws,
although substantial changes have occurred in this regard in recent years. The
corporate form of organization has only recently been permitted in China. Laws
regarding fiduciary duties of officers and directors and the protection of
shareholders are not well developed. China's judiciary is relatively
inexperienced in enforcing the laws that exist, leading to a higher than usual
degree of uncertainty as to the outcome of any litigation.
TAIWAN INVESTMENT LIMITATIONS: As of the date of this registration statement,
Taiwan limits a foreign institution's investments in Taiwan to no more than $
400 million.
FUTURES CONTRACTS: The Fund may sell futures contracts to hedge against a
decline in the market price of securities which it owns or purchase futures
contracts to remain more fully invested (but not to leverage the portfolio) to
defend the portfolio against currency fluctuations. When the Fund purchases or
sells a futures contract, the Fund will be required to deposit an amount of cash
or U.S. Treasury bills equal to approximately 5% of the contract amount
("initial margin") with the broker. The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all of the Fund's
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker will be made on a daily basis as the
price of the underlying currency, stock or stock index fluctuates making the
futures contract more or less valuable, a process known as "marking-to-market."
For example, when the Fund has sold a currency futures contract and the prices
of the stocks included in the underlying currency have fallen, that position
will have increased in value and the Fund will receive a variation margin
payment from the broker equal to that increase in value. Conversely, when the
Fund has sold a currency futures contract and the prices of the underlying
currency have risen, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Fund's position
in the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and it
realizes a loss or a gain.
There is a risk that futures price movements will not correlate perfectly with
movements in the value of the underlying stock or stock index. For a number of
reasons, the price of the future may move more than or less than the price of
the securities that make up the index. First, all participants in the futures
market are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Secondly, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the stock market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions.
There is a further risk that a liquid secondary trading market may not exist at
all times for these futures contracts, in which event the Fund might be unable
to terminate a futures position at a desired time. Positions in stock index
futures may be closed out only on an exchange or board of trade which provides a
secondary market for such futures. Although the Fund intends to purchase or sell
futures only on exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. If there is not a liquid secondary market at a particular time,
it may not be possible to close a futures position at such time, and in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin.
Page 5
<PAGE>
OPTIONS: The Fund may sell call options or purchase put options on futures
contracts to hedge against a decline in the market price of securities which it
owns or to defend the portfolio against currency fluctuations. The Fund may also
purchase call options or sell put options on futures contracts to remain more
fully invested until suitable investments can be made in individual equity
securities. Options on futures contracts differ from options on individual
securities in that the exercise of an option on a futures contract does not
involve delivery of an actual underlying security. Options on futures contracts
are settled in cash only. The purchaser of an option receives a cash settlement
amount and the writer of an option is required, in return for the premium
received, to make delivery of a certain amount if the option is exercised. A
position in an option on a futures contract may be offset by either the
purchaser or writer by entering into a closing transaction, or the purchaser may
terminate the option by exercising it or allowing it to expire.
The risks associated with the purchase and sale of options on futures contracts
are generally the same as those relating to options on individual securities.
However, the value of an option on a futures contract depends primarily on
movements in the value of the currency, stock or the stock index underlying the
futures contract rather than in the price of a single security. Accordingly, the
Fund will realize a gain or loss from purchasing or writing an option on a
futures contract as a result of movements in the related currency or in the
stock market generally, rather than changes in the price for a particular
security. Therefore, successful use of options on futures contracts by the Fund
will depend on the Advisor's ability to predict movements in the direction of
the currency or stock market underlying the futures contract. The ability to
predict these movements requires different skills and techniques than predicting
changes in the value of individual securities.
Because index options are futures contracts settled in cash, the Fund cannot be
assured of covering its potential settlement obligations under call options it
writes on futures contracts by acquiring and holding the underlying securities.
Unless the Fund has cash on hand that is sufficient to cover the cash settlement
amount, it would be required to sell securities owned in order to satisfy the
exercise of the option.
As a non-fundamental policy, the Fund will neither purchase nor write an options
contract if immediately thereafter the aggregate market value of all outstanding
options purchased and written by the Fund would exceed 5% of the Fund's total
assets. In the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
As a non-fundamental policy, the China Fund will not purchase a futures contract
(except for closing transactions) if, immediately thereafter, the market value
of all open futures contracts is greater than the market value of the China
Fund's cash and cash equivalents (including cash, repurchase agreements, and
high quality fixed income securities with a final maturity of less than one
year)..
SEGREGATED ASSETS AND COVERED POSITIONS: When purchasing or selling a futures
contract, purchasing or selling an uncovered option, or purchasing securities on
a when-issued or delayed delivery basis, the Fund will restrict cash, which may
be invested in repurchase obligations, or liquid securities. When purchasing a
futures contract, the amount of restricted cash or liquid securities, when added
to the amount deposited with the broker as margin, will be at least equal to the
notional value of the futures contract and not less than the market price at
which the futures contract was established. In addition, to prevent leveraging,
the Fund will not purchase a futures contract unless it has cash or cash
equivalents (whether segregated or not) at least equal to the notional value of
the futures contract. The Fund may sell futures either to hedge existing
portfolio positions or to close out long transactions. When purchasing a futures
contract, the amount of restricted cash or liquid securities, when added to the
amount deposited with the broker as margin, will be at least equal to the market
value of the futures contract and not less than the market price at which the
futures contract was established. When selling an uncovered call option, the
amount of restricted cash or liquid securities, when added to the amount
deposited with the broker as margin, will be at least equal to the value of
securities underlying the call option and not less than the strike price of the
call option. When selling an uncovered put option, the amount of restricted cash
or liquid securities, when added to the amount deposited with the broker as
margin, will be at least equal to the value of securities underlying the put
option and not less than the strike price of the put option. When purchasing
securities on a when-issued or delayed delivery basis, the amount of restricted
cash or liquid securities will be at least equal to the Fund's when-issued or
delayed delivery commitments.
The restricted cash or liquid securities will either be identified as restricted
in the Fund's accounting records or be physically segregated in a separate
account at Bankers Trust Company, the Fund's custodian. For the purpose of
determining the adequacy of the liquid securities which have been restricted,
the securities will be valued at market or
Page 6
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fair value. If the market or fair value of such securities declines, additional
cash or liquid securities will be restricted on a daily basis so that the value
of the restricted cash or liquid securities, when added to the amount deposited
with the broker as margin, equals the amount of such commitments by the Fund.
Fund assets need not be segregated if the Fund "covers" the futures contract,
call option, or put option sold. For example, the Fund could cover a futures or
forward contract which it has sold short by owning the securities or currency
underlying the contract. The Fund may also cover this position by holding a call
option permitting the Fund to purchase the same futures or forward contract at a
price no higher than the price at which the sell position was established.
The Fund could cover a call option which it has sold by holding the same
currency or security (or, in the case of a stock index, a portfolio of stock
substantially replicating the movement of the index) underlying the call option.
The Fund may also cover by holding a separate call option of the same security
or stock index with a strike price no higher than the strike price of the call
option sold by the Fund. The Fund could cover a call option which it has sold on
a futures contract by entering into a long position in the same futures contract
at a price no higher than the strike price of the call option or by owning the
securities or currency underlying the futures contract. The Fund could also
cover a call option which it has sold by holding a separate call option
permitting it to purchase the same futures contract at a price no higher than
the strike price of the call option sold by the Fund.
FOREIGN CURRENCY TRANSACTIONS: Investments in foreign companies usually involve
use of currencies of foreign countries. The Fund also may hold cash and
cash-equivalent investments in foreign currencies. The value of the Fund's
assets as measured in U.S. dollars will be affected by changes in currency
exchange rates and exchange control regulations. The Fund may, as appropriate
markets are developed, but is not required to, engage in currency transactions
including cash market purchases at the spot rates, forward currency contracts,
exchange listed currency futures, exchange listed and over-the-counter options
on currencies, and currency swaps for two purposes. One purpose is to settle
investment transactions. The other purpose is to try to minimize currency risks.
All currency transactions involve a cost. Although foreign exchange dealers
generally do not charge a fee, they do realize a profit based on the difference
(spread) between the prices at which they are buying and selling various
currencies. Commissions are paid on futures options and swaps transactions, and
options require the payment of a premium to the seller.
A forward contract involves a privately negotiated obligation to purchase or
sell at a price set at the time of the contract with delivery of the currency
generally required at an established future date. A futures contract is a
standardized contract for delivery of foreign currency traded on an organized
exchange that is generally settled in cash. An option gives the right to enter
into a contract. A swap is an agreement based on a nominal amount of money to
exchange the differences between currencies.
The Fund will generally use spot rates or forward contracts to settle a security
transaction or handle dividend and interest collection. When the Fund enters
into a contract for the purchase or sale of a security denominated in a foreign
currency or has been notified of a dividend or interest payment, it may desire
to lock in the price of the security or the amount of the payment in dollars. By
entering into a spot rate or forward contract, the Fund will be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between different currencies from the date the security is
purchased or sold to the date on which payment is made or received or when the
dividend or interest is actually received.
The Fund may use forward or futures contracts, options, or swaps when the
investment manager believes the currency of a particular foreign country may
suffer a substantial decline against another currency. For example, it may enter
into a currency transaction to sell, for a fixed amount of dollars, the amount
of foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the securities transactions and the value of securities involved generally
will not be possible. The projection of short-term currency market movements is
extremely difficult and successful execution of a short-term strategy is highly
uncertain.
The Fund may cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to decline in value relative to
other currencies in which the Fund has (or expects to have) portfolio exposure.
Page 7
<PAGE>
The Fund may engage in proxy hedging. Proxy hedging is often used when the
currency to which a fund's portfolio is exposed is difficult to hedge. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and simultaneously buy U.S. dollars. The amount of
the contract would not exceed the value of the Fund's securities denominated in
linked securities.
The Fund will not enter into a currency transaction or maintain an exposure as a
result of the transaction when it would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. The Fund will designate cash or
securities in an amount equal to the value of the Fund's total assets committed
to consummating the transaction. If the value of the securities declines,
additional cash or securities will be designated on a daily basis so that the
value of the cash or securities will equal the amount of the Fund's commitment.
On the settlement date of the currency transaction, the Fund may either sell
portfolio securities and make delivery of the foreign currency or retain the
securities and terminate its contractual obligation to deliver the foreign
currency by purchasing an offsetting position. It is impossible to forecast what
the market value of portfolio securities will be on the settlement date of a
currency transaction. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the securities is less than the amount of
foreign currency the Fund is obligated to deliver and a decision is made to sell
the securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver. The Fund will realize gains
or losses on currency transactions.
The Fund may also buy put options and write covered call options on foreign
currencies to try to minimize currency risks. The risk of buying an option is
the loss of premium. The risk of selling (writing) an option is that the
currency option will minimize the currency risk only up to the amount of the
premium, and then only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy the
underlying currency at the loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund may also
be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements on exchange rates. All options
written on foreign currencies will be covered; that is, the Fund will own
securities denominated in the foreign currency, hold cash equal to its
obligations or have contracts that offset the options.
The Fund may construct a synthetic foreign currency investment, sometimes called
a structured note, by (a) purchasing a money market instrument which is a note
denominated in one currency, generally U.S. dollars, and (b) concurrently
entering into a forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future date and at a
specified rate of exchange. Because the availability of a variety of highly
liquid short-term U.S. dollar market instruments, or notes, a synthetic money
market position utilizing such U.S. dollar instruments may offer greater
liquidity than direct investment in foreign currency.
PORTFOLIO TRANSACTIONS
The Advisory Agreement between the Trust and the Advisor requires that the
Advisor, in executing portfolio transactions and selecting brokers or dealers,
seeks the best overall terms available. In assessing the terms of a transaction,
consideration may be given to various factors, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer (for a specified transaction and on
a continuing basis), the reasonableness of the commission, if any, and the
brokerage and research services provided to the Trust and/or other accounts over
which the Advisor or an affiliate of the Advisor exercises investment
discretion. Under the Advisory Agreement, the Advisor is permitted, in certain
circumstances, to pay a higher commission than might otherwise be obtained in
order to acquire brokerage and research services. The Advisor must determine in
good faith, however, that such commission is reasonable in relation to the value
of the brokerage and research services provided -- viewed in terms of that
particular transaction or in terms of all the accounts over which investment
discretion is exercised. In such case, the Board of Trustees will review the
commissions paid by each Fund of the Trust to determine if the commissions paid
over representative periods of time were reasonable in relation to the benefits
obtained. The advisory fee of the Advisor would not be reduced by reason of its
receipt of such brokerage and research services. To the extent that research
services of value are provided by broker-dealers through or with whom the Trust
places portfolio transactions, the Advisor may be relieved of expenses which it
might otherwise bear.
The Trust may, in some instances, purchase securities that are not listed on a
national securities exchange or quoted on NASDAQ, but rather are traded in the
over-the-counter market. When the transactions are executed in the
over-the-counter market, it is intended generally to seek first to deal with the
primary market makers. However, the services
Page 8
<PAGE>
of brokers will be utilized if it is anticipated that the best overall terms can
thereby be obtained. The Fund paid a total of $78,918 in brokerage fees for the
year ended June 30, 1996.
MANAGEMENT OF THE FUND
The Trustees and Officers of the Trust and their principal occupations during
the past five years are set forth below. Except as otherwise indicated, the
business address of each is 7900 Callaghan Road, San Antonio, Texas 78229-0467.
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- --------------------- -------------- -------------------------------------
John P. Allen Trustee President, Deposit Development
5600 San Pedro Associates Inc., a bank marketing
San Antonio, TX firm. President, Paragon Press.
Partner, Rio Cibolo Ranch, Inc.
William A. Fagan, Jr. Chairman of Chairman of the Board of Trustees
P.O. Box 17903 the Board of since January 1, 1989. Business
San Antonio, TX Trustees consultant since 1976.
E. Douglas Hodo Trustee Chief Executive Officer of Houston
7706 Fondren Baptist University. Formerly Dean and
Houston, TX Professor of Economics and Finance,
College of Business, University of
Texas at San Antonio.
Charles Z. Mann Trustee Business consultant since January 1,
Turning Point 1993. Chairman, Bermuda Monetary
13 Knapton Estates Rd. Authority from 1986 to 1992.
Smiths, Bermuda Executive Vice President of
HS01 International Median Limited, a
private investment holding company,
from 1979 to 1985 and previously
general manager of Bank of N.T.
Butterfield & Son, Ltd., a
Bermuda-based bank. Currently a
Director of Bermuda Electric Light
Company, Ltd.; Overseas Imports,
Ltd.; Tyndall International (Bermuda)
Ltd.; Old Court International
Reserves Ltd.; XL Investments
Limited, Glaxo (Bermuda) Limited.
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<PAGE>
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- --------------------- -------------- -------------------------------------
W.C.J. van Rensburg Trustee Professor of Geological Science and
6010 Sierra Arbor Ct. Petroleum Engineering, University of
Austin, TX Texas at Austin. Former Associate
Director, Bureau of Economic Geology,
University of Texas. Former Chairman,
Department of Geosciences, West Texas
State University. Former technical
director of South African Minerals
Bureau and British Petroleum
Professor of Energy Economics at the
Ran Afrikaans University,
Johannesburg, South Africa.
Frank E. Holmes(1) Trustee, Chairman of the Board of Directors,
President, Chief Executive Officer and Chief
Chief Financial Officer of the Advisor.
Executive Since October 1989 Mr. Holmes has
Officer served and continues to serve in
various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Director of
Franc-Or Resource Corp. from November
1994 to November 1996. Director of
Marleau, Lemire Inc. from January
1995 to December 1995. Director of
United Services Canada, Inc.
(formerly United Services Advisors
Wealth Management Corp.) since
February 1995 and Chief Executive
Officer from February to August 1995.
- --------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
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<PAGE>
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- --------------------- -------------- -------------------------------------
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Secretary, Advisor. Since September 1992 Ms.
General McGee as served and continues to
Counsel serve in various positions with the
Advisor, its subsidiaries, and the
investment companies it sponsors.
Before September 1992 Ms. McGee was a
student at St. Mary's Law School.
Thomas D. Tays Vice President, Vice President, Securities
Securities Specialist, Director of Compliance
Specialist, and Assistant Secretary of the
Director of Advisor. Chief Financial Officer,
Compliance Vice President, Securities
Specialist, Director of Compliance
and Assistant Secretary of the Trust.
Since September 1993 Mr. Tays has
served and continues to serve in
various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Before
September 1993 Mr. Tays was an
attorney in private practice.
PRINCIPAL HOLDERS OF SECURITIES
As of August 26, 1996, the officers and trustees of the Fund, as a group, owned
less then 1% of the outstanding shares of the Fund. The Fund is aware of the
following person who owned of record, or beneficially, more than 5% of the
outstanding shares of the Fund at August 26, 1996:
NAME AND ADDRESS TYPE OF
OF OWNER % OWNED OWNERSHIP
---------------------------- ------- ---------
Charles Schwab & Co., Inc. 27.43% Record(1)
San Francisco, CA 94104-4175
- ------------------
(1) Charles Schwab & Co., Inc., a broker-dealer, has advised that no individual
client owns more than 5% of the Fund.
INVESTMENT ADVISORY SERVICES
The investment adviser to the Funds is U.S. Global Investors, Inc. (formerly
United Services Advisors, Inc.) (the "Advisor"), a Texas corporation, pursuant
to an Advisory Agreement dated October 27, 1989. Frank E. Holmes, Chief
Executive Officer and Director of the Advisor, as well as a Trustee, President
and Chief Executive Officer of the Trust, beneficially owns more than 25% of the
outstanding voting stock of the Advisor and may be deemed to be a controlling
person of the Advisor.
In addition to the services described in the Fund's prospectus, the Advisor will
provide the Trust with office space, facilities and simple business equipment,
and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
officers and Trustees of the Trust if such persons are employees of the Advisor
or its affiliates, except that the Trust will reimburse the Advisor for a
portion of the compensation of the Advisor's employees who perform certain legal
services for the Trust, including state securities law regulatory compliance
work, based upon the time spent on such matters for the Trust. The Advisor pays
the expense of printing and mailing prospectuses and sales materials used for
promotional purposes.
The Trust pays all other expenses for its operations and activities. Each of the
funds of the Trust pays its allocable portion of these expenses. The expenses
borne by the Trust include the charges and expenses of any transfer agents and
dividend disbursing agents, custodian fees, legal and auditors' expenses,
bookkeeping and accounting expenses, brokerage commissions for portfolio
transactions, taxes, if any, the advisory fee, extraordinary expenses, expenses
of issuing and redeeming shares, expenses of shareholder and trustee meetings,
the expenses of preparing, printing and mailing proxy statements, reports and
other communications to shareholders, expenses of registering and qualifying
shares for sale, fees of Trustees who are not "interested persons" of the
Advisor, expenses of attendance by officers and Trustees at professional
meetings of the Investment Company Institute, the No-Load Mutual Fund
Association or similar
Page 10
<PAGE>
organizations, and membership or organizational dues of such organizations,
expenses of preparing and setting in type prospectuses and periodic reports and
expenses of mailing them to current shareholders, cost of fidelity bond
premiums, cost of maintaining the books and records of the Trust, and any other
charges and fees not specifically enumerated.
For the services and facilities provided to the Fund by the Advisor, the Fund
may pay to the Advisor a monthly fee at the rate of 1/12 of 1.25% based upon the
monthly average net assets of the Fund for such calendar month. The Advisor has
voluntarily agreed to bear certain Fund expenses. See the prospectus section -
"The Investment Advisor."
The Advisor may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for Fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client Fund shares. The Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. However, in the Advisor's opinion, such laws should not preclude a
bank from performing shareholder administrative and servicing functions as
contemplated herein.
The securities laws of certain states in which shares of the Trust may, from
time to time, be qualified for sale require that the investment adviser
reimburse the Trust for any excess of the Fund's expenses over prescribed
percentages of the Fund's average net assets. Thus, the Advisor's compensation
under the agreements is subject to reduction in any fiscal year to the extent
that total expenses of the Fund for such year (including an investment advisor's
compensation but exclusive of taxes, brokerage commissions, extraordinary
expenses, and other permissible expenses) exceed the most restrictive applicable
expense limitation prescribed by any state in which the Trust's shares are
qualified for sale. The Advisor may obtain waivers of these state expense
limitations from time to time. Such limitation is currently 2.5% of the first
$30 million of average net assets, 2% of the next $70 million of average net
assets and 1.5% of the remaining average net assets.
The Board of Trustees of the Trust (including a majority of the "disinterested
Trustees") recently approved continuation of the Advisory Agreement through
October 1997. The Advisory Agreement provides that it will continue initially
for two years, and from year to year thereafter, with respect to each Fund, as
long as it is approved at least annually both (I) by a vote of a majority of the
outstanding voting securities of such Fund (as defined in the Investment Company
Act of 1940) or by the Board of Trustees of the Trust, and (ii) by a 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 may be
terminated on 60-day written notice by either party and will terminate
automatically if it is assigned.
The Trust pays the Advisor a separate management fee for each Portfolio in the
Trust. Such fee is based on varying percentages of average net assets. For the
three fiscal periods ended June 30, 1994, June 30, 1995 and June 30, 1996, the
Trust incurred advisory fees (net of expenses paid by the Advisor or voluntary
fee waivers) of, $5,021,807 $5,233,507 and $5,216,589, respectively.
TRANSFER AGENCY AND OTHER SERVICES
In addition to the services performed for the funds and the Trust under the
Advisory Agreement, the Advisor, through its subsidiary USSI, provides transfer
agent and dividend disbursement agent services pursuant to the Transfer Agency
Agreement as described in the Fund's prospectus under "Management of the Fund --
The Investment Advisor." In addition, lockbox and statement printing services
are provided by USSI. The Board of Trustees approved the Transfer Agency and
related agreements through October 31, 1996. For the three fiscal years ended
June 30, 1994, 1995, and 1996, the Trust paid USSI total transfer agency,
lockbox and printing fees of $2,313,933, $2,557,846, and $2,707,293
respectively.
USSI also maintains the books and records of the Trust and of each Fund of the
Trust and calculates their daily net asset value as described in the Fund's
prospectus under "Management of the Fund -- The Investment Advisor." Total
reimbursements and fees for such services for the fiscal years ending June 30,
1994, 1995, and 1996 were $354,278, $502,944, and $499,465 respectively.
Page 11
<PAGE>
A & B Mailers, Inc., a wholly-owned subsidiary of the Advisor, provides the
Trust with certain mail handling services. The charges for such services are
compared to bids from competitive services on a periodic basis by the Board of
Trustees. Each service is priced separately.
ADDITIONAL INFORMATION ON REDEMPTIONS
SUSPENSION OF REDEMPTION PRIVILEGES: The Trust may suspend redemption privileges
or postpone the date of payment for up to seven days, but cannot do so for more
than seven days after the redemption order is received except during any period
(1) when the NYSE is closed, other than customary weekend and holiday closings,
or trading on the Exchange is restricted as determined by the Securities and
Exchange Commission ("SEC"), (2) when an emergency exists, as defined by the
SEC, which makes it not reasonably practicable for the Trust to dispose of
securities owned by it or fairly to determine the value of its assets, or (3) as
the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN: The Fund may advertise performance in terms of average annual
total return for 1-, 5- and 10-year periods, or for such lesser periods as the
Fund has been in existence. Average annual total return is computed by finding
the average annual compounded rates of return over the periods that would equate
the initial amount invested to the ending redeemable value, 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
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods at the end of the
year or period.
The calculation assumes all charges are deducted from the initial $1,000 payment
and assumes all dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period, and
includes all recurring fees that are charged to all shareholder accounts.
The rate of return for the Fund for the year ended June 30, 1996, was (2.07%).
NONSTANDARDIZED TOTAL RETURN: The Fund may provide the above described standard
total return results for a period which ends as of not earlier than the most
recent calendar quarter end and which begins either twelve months before or at
the time of commencement of the Fund's operations. In addition, the Fund may
provide nonstandardized total return results for differing periods, such as for
the most recent six months. Such nonstandardized total return is computed as
otherwise described under "Total Return" except that no annualization is made.
EFFECT OF FEE WAIVER AND EXPENSE REIMBURSEMENT: All calculations of performance
data in this section reflect the Advisor's fee waivers or reimbursement of a
portion of the Fund's expenses, as the case may be. See "Management of The
Fund(s)" in the prospectus.
TAX STATUS
TAXATION OF THE FUND--IN GENERAL: As stated in its prospectus, the Fund intends
to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund
will not be liable for Federal income taxes on its taxable net investment income
and capital gain net income that are distributed to shareholders, provided that
the Fund distributes at least 90% of its net investment income and net
short-term capital gain for the taxable year.
Page 12
<PAGE>
To qualify as a regulated investment company, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies (the "90% test"); (b) derive in each taxable year less than 30% of
its gross income from the sale or other disposition of stock or securities held
less than three months (the "30% test"), and (c) satisfy certain diversification
requirements at the close of each quarter of the Fund's taxable year.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute, during each calendar year, an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its capital gain net income for the twelve-month period ending on
October 31 of the calendar year and (3) any portion of the respective balance of
ordinary income or capital gain net income of the prior year that was not
previously distributed. The Fund intends to make such distributions as are
necessary to avoid imposition of this excise tax.
TAXATION OF THE FUND'S INVESTMENTS: The Fund's ability to make certain
investments may be limited by provisions of the Code that require inclusion of
certain unrealized gains or losses in the Fund's income for purposes of the 90%
test, the 30% test and the distribution requirements of the Code, and by
provisions of the Code that characterize certain income or loss as ordinary
income or loss rather than capital gain or loss. Such recognition,
characterization and timing rules generally apply to investments in certain
forward currency contracts, foreign currencies and debt securities denominated
in foreign currencies.
TAXATION OF THE SHAREHOLDER: Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November or December and made payable to
shareholders of record in such a month will be deemed to have been received on
December 31 if a Fund pays the dividends during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing the Fund's shares just prior to a distribution may
receive a return of investment upon distribution which will nevertheless be
taxable to them.
A shareholder of the Fund should be aware that a redemption of shares (including
any exchange into another U.S. Global Investors Fund) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
Fund receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long-term capital loss to the extent of any long-term capital gain recognized.
OTHER TAX CONSIDERATIONS: Distributions to shareholders may be subject to
additional state, local and non-U.S. taxes, depending on each shareholder's
particular tax situation. Shareholders subject to tax in certain states may be
exempt from state income tax on distributions made by the Fund to the extent
such distributions are derived from interest on direct obligations of the United
States Government. Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in
shares of the Fund.
CUSTODIAN
Bankers Trust Company acts as custodian for the Fund and, pursuant to
sub-custodian agreements, the Fund will maintain its foreign securities and cash
in the custody of certain eligible non-United States banks and securities
depositories. Services with respect to the retirement accounts will be provided
by Security Trust and Financial Company of San Antonio, Texas, a wholly-owned
subsidiary of the Advisor.
Page 13
<PAGE>
INDEPENDENT ACCOUNTANT
Price Waterhouse LLP, One Riverwalk Place, Ste. 900, San Antonio, Texas 78205
serves as the independent accountants for the Trust.
FINANCIAL STATEMENTS
The Fund was established on October 20, 1993. The audited financial statement
for the year ended June 30, 1996 is herein incorporated by reference from the
Annual Report to Shareholders of that date which has been delivered with this
Statement of Additional Information [unless previously provided, in which event
the Trust will promptly provide another copy, free of charge, upon request to:
U.S. Global Investors, Inc., P.O. Box 29467, San Antonio, Texas 78229-0467, 1-
800-873-8637 or (210) 308-1234].
Page 14
================================================================================
U.S. GLOBAL INVESTORS FUNDS
U.S. ALL AMERICAN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the prospectus issued November 1, 1996 (the "Prospectus"),
which you may request from U. S. Global Investors, Inc. (the "Advisor"), 7900
Callaghan Road, San Antonio, Texas 78229, or 1-800-US-FUNDS (1-800-873-8637).
The date of this Statement of Additional Information is November 1, 1996,
amended June 16, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION...........................................................3
INVESTMENT OBJECTIVES AND POLICIES............................................3
Investment Restrictions..............................................4
SPECIAL RISK CONSIDERATIONS...................................................5
PORTFOLIO TRANSACTIONS........................................................6
MANAGEMENT OF THE FUND........................................................7
PRINCIPAL HOLDERS OF SECURITIES...............................................8
INVESTMENT ADVISORY SERVICES..................................................8
TRANSFER AGENCY AND OTHER SERVICES............................................9
CERTAIN PURCHASES OF SHARES OF THE FUND.......................................9
ADDITIONAL INFORMATION ON REDEMPTIONS........................................10
CALCULATION OF PERFORMANCE DATA..............................................10
TAX STATUS...................................................................12
Taxation of the Fund--In General....................................12
Taxation of the Fund's Investments..................................12
Taxation of the Shareholder.........................................12
CUSTODIAN....................................................................12
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL....................................13
FINANCIAL STATEMENTS.........................................................13
Page 2
<PAGE>
GENERAL INFORMATION
U.S. Global Investors Funds (the "Trust') is an open-end management investment
company and is a voluntary association of the type known as a "business trust"
organized under the laws of the Commonwealth of Massachusetts. The U.S. All
American Equity Fund (hereinafter sometimes referred to as the "Fund") is one of
numerous series of the Trust, each of which represents a separate, diversified
portfolio of securities (collectively referred to herein as the "Portfolios" and
individually as a "Portfolio").
The assets received by the Trust from the issue or sale of shares of each of the
Funds, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are separately allocated to such Fund. They constitute
the underlying assets of each Fund, are required to be segregated on the books
of accounts, and are to be charged with the expenses with respect to such Fund.
Any general expenses of the Trust, not readily identifiable as belonging to a
particular Fund, will be allocated by or under the direction of the Board of
Trustees in such manner as the Board determines to be fair and equitable.
Each share of each of the Funds represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions, out of the income belonging to that Fund, as are declared by the
Board. Upon liquidation of the Trust, shareholders of each Fund are entitled to
share pro rata in the net assets belonging to the Fund available for
distribution.
The Trustees have exclusive power, without the requirement of shareholder
approval, to issue series of shares without par value, each series representing
interests in a separate portfolio, or divide the shares of any portfolio into
classes, each class having such different dividend, liquidation, voting and
other rights as the Trustees may determine, and may establish and designate the
specific classes of shares of each portfolio. Before establishing a new class of
shares in an existing portfolio, the Trustees must determine that the
establishment and designation of separate classes would not adversely affect the
rights of the holders of the initial or previously established and designated
class or classes.
As described under "The Trust" in the prospectus, under the Trust's First
Amended and Restated Master Trust Agreement (the "Master Trust Agreement"), no
annual or regular meeting of shareholders is required. In addition, after the
Trustees were initially elected by the shareholders, the Trustees became a
self-perpetuating body. Thus, there will ordinarily be no shareholder meetings
unless otherwise required by the Investment Company Act of 1940.
On any matter submitted to shareholders, the holder of each share is entitled to
one vote per share (with proportionate voting for fractional shares). On matters
affecting any individual Portfolio, a separate vote of that Portfolio would be
required. Shareholders of any Portfolio are not entitled to vote on any matter
which does not affect their Fund but which requires a separate vote of another
Portfolio.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objectives and policies discussed in the Fund's prospectus.
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INVESTMENT RESTRICTIONS: The All American Equity Fund will not change any of the
following investment restrictions without the affirmative vote of a majority of
the outstanding voting securities of the Fund, which, as used herein, means the
lesser of (1) 67% of the Fund's outstanding shares present at a meeting at which
more than 50% of the outstanding shares of the Fund are represented either in
person or by proxy, or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. Issue senior securities.
2. Borrow money, except that the Fund may borrow not in excess of 5% of
its total assets from banks as a temporary measure for extraordinary
purposes, may borrow up to 33 1/3% of the amount of its total assets
(reduced by the amount of all liabilities and indebtedness other than
such borrowing) when deemed desirable or appropriate to effect
redemptions, provided, however, that the Fund will not purchase
additional securities while borrowings exceed 5% of the total assets
of the Fund.
3. Underwrite the securities of other issuers.
4. Invest in real estate.
5. Engage in the purchase or sale of commodities or commodity futures
contracts, except that the Fund may invest in futures contracts and
options thereon.
6. Lend its assets, except that the Fund may purchase money market debt
obligations and repurchase agreements secured by money market
obligations, and except for the purchase or acquisition of bonds,
debentures or other debt securities of a type customarily purchased by
institutional investors and except that the Fund may lend portfolio
securities with an aggregate market value of not more than one-third
of the Fund's total net assets. (Accounts receivable for shares
purchased by telephone will not be deemed loans.)
7. Purchase any security on margin, except that it may obtain such
short-term credits as are necessary for clearance of securities
transactions.
8. Make short sales.
9. Invest in securities which are subject to legal or contractual
restrictions on resale ("restricted securities").
10. Invest more than 25% of its total assets in securities of companies
principally engaged in any one industry. 11. _____ (a) Invest more
than 5% of the value of its total assets in securities of any one
issuer, except such limitation will not apply to obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities, or (b) acquire more than 10% of the voting
securities of any one issuer.
The following discussion of the investment objectives, policies and risks
associated with the Fund supplements the discussion in the prospectus.
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS: The Fund may purchase stock
index futures contracts and purchase options thereon in anticipation of an
increase in the market price of the security it intends to acquire. Unlike when
a Fund security is purchased, no price is paid by the Fund upon the purchase of
a futures contract. Initially, the Fund will be required to deposit an amount of
cash or U.S. Treasury bills equal to approximately 5% of the contract amount
("initial margin") with the broker. The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all of the Fund's
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker will be made on a daily basis as the
price of the underlying stock index fluctuates making a long position in the
futures contract more or less valuable, a process known as "mark-to-market." For
example, when the Fund has purchased a stock index futures contract and the
prices of the stocks included in the underlying stock index have risen, that
position will have increased in value and the Fund will receive a variation
margin payment equal to that increase in value from the broker. Conversely, when
the Fund has purchased a stock index futures contract and the prices of the
stocks included in the underlying stock index have declined, the position would
be less valuable and the Fund would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures contract,
the Fund may elect to close the position by taking an opposite position, which
will operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and it realizes a loss or a gain.
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Currently, stock index futures contracts can be purchased with respect to the
Standard & Poor's 500 Index on the Chicago Mercantile Exchange.
There is a risk that futures contract price movements will not correlate
perfectly with movements in the value of the underlying stock index. For a
number of reasons the price of the stock index future may move more than or less
than the price of the securities that make up the index. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the stock market.
Therefore, increased participation by speculators in the futures market may also
cause temporary price distortions.
There is a further risk that a liquid secondary trading market may not exist at
all times for these futures contracts, in which event the Fund might be unable
to terminate a futures position at a desired time. Positions in stock index
futures may be closed out only on an exchange or board of trade which provides a
secondary market for such futures. Although the Fund intends to purchase futures
only on exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. If there is not a liquid secondary market at a particular time,
it may not be possible to close a futures position at such time, and in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin.
When purchasing a stock index futures contract, the Fund will deposit cash or
cash equivalents into a segregated account equal to the purchase price of the
futures contract less any margin on deposit with the broker.
When selling a call option the Fund will deposit cash or cash equivalents into a
segregated account which, when added to the amount deposited with the broker as
margin, equals the market value of the securities or futures contract underlying
call options, but not less than the strike price of the call option.
Fund assets need not be segregated if the Fund "covers" the futures contract
purchased or call option sold. For example, the Fund could purchase a put option
on the same futures contract purchased with a strike price as high or higher
than the price of the futures contract held by the Fund. The Fund could cover a
call option which it has sold by holding the same security (or, in the case of a
stock index, a portfolio or stock substantially replicating the movement of the
index) underlying the call option. The Fund may also cover by holding a separate
call option of the same security or stock index with a strike price no higher
than the strike price of the call option sold by the Fund. The Fund could cover
a call option which it has sold on a futures contract by entering into a long
position in the same futures contract at a price no higher than the strike price
of the call option or by owning the securities futures contract. The Fund could
also cover a call option which it has sold by holding a separate call option
permitting it to purchase the same futures contract at a price no higher than
the strike price of the call option sold by the Fund.
SPECIAL RISK CONSIDERATIONS
The following are among the most significant risks associated with an investment
in the Fund.
EQUITY PRICE FLUCTUATIONS: Equity securities are subject to price fluctuations
depending on a variety of factors, including market, business and economic
conditions. Particularly, the equity securities of companies involved in natural
resources may be subject to greater than average price fluctuations because of
the scarcity or surplus of the natural resources in which such companies are
engaged, governmental policies in the countries in which such natural resources
are located, technological changes and speculation by traders in such resources.
OPTIONS ON STOCK INDEXES: Options on stock indexes are based on indexes of stock
prices that change in value according to the market values of the underlying
stock. Some stock index options are based on a broad market index such as the
New York Stock Exchange composite index of Standard & Poor's Corporation. Other
index options are based on a market segment or on stocks in a single industry.
Stock index options are traded primarily on securities exchanges. Options on
stock indexes differ from options on securities in that the exercise of an
option on a stock index does not involve delivery of the actual underlying
security. Index options are settled in cash only. The purchaser of an
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option receives a cash settlement amount and the writer of an option is
required, in return for the premium received, to make delivery of a certain
amount if the option is exercised. A position in a stock index option may be
offset by either the purchaser or writer by entering into a closing transaction,
or the purchaser may terminate the option by exercising it or allowing it to
expire. The Fund may write (sell) call options, write put options, purchase put
options, and purchase call options on stock indexes when appropriate to hedge
investments against a decline in value, or to reduce the risk of missing a broad
market advance or an advance in an industry or market segment.
The risks associated with the purchase and sale of options on stock indexes is
generally the same as those relating to options on securities. However, the
value of a stock index option depends primarily on movements in the value of an
index rather than in the price of a single security. Accordingly, the Fund will
realize a gain or loss from purchasing or writing an option on a stock index as
a result of movements in the level of stock prices in the stock market
generally, or in the case of certain indexes, in an industry or market segment,
rather than changes in the price for a particular security. Therefore,
successful use of stock index options by the Fund will depend on the Advisor's
ability to predict movements in the direction of the stock market generally, or
in a particular industry. The ability to predict these movements requires
different skills and techniques than predicting changes in the value of
individual securities.
Because index options are settled in cash, the Fund cannot be assured of
covering its potential settlement obligations under call options it writes on
indexes by acquiring and holding the underlying securities. Unless the Fund has
cash on hand that is sufficient to cover the cash settlement amount, it would be
required to sell securities owned in order to satisfy the exercise of the
option.
The Fund will adhere to the following non-fundamental limitations with respect
to investments in options on stock indexes: (1) the Fund will purchase or write
only those options on stock indexes that are traded on U.S. securities exchanges
or quoted on NASDAQ; and (2) the Fund will not invest more than 5% of its total
net assets in options on stock indexes.
PORTFOLIO TRANSACTIONS
The Advisory Agreement between the Trust and the Advisor requires that the
Advisor, in executing portfolio transactions and selecting brokers or dealers,
seeks the best overall terms available. In assessing the terms of a transaction,
consideration may be given to various factors, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer (for a specified transaction and on
a continuing basis), the reasonableness of the commission, if any, and the
brokerage and research services provided to the Trust and/or other accounts over
which the Advisor or an affiliate of the Advisor exercises investment
discretion. Under the Advisory Agreement, the Advisor is permitted, in certain
circumstances, to pay a higher commission than might otherwise be obtained in
order to acquire brokerage and research services. The Advisor must determine in
good faith, however, that such commission is reasonable in relation to the value
of the brokerage and research services provided -- viewed in terms of that
particular transaction or in terms of all the accounts over which investment
discretion is exercised. In such case, the Board of Trustees will review the
commissions paid by each Fund of the Trust to determine if the commissions paid
over representative periods of time were reasonable in relation to the benefits
obtained. The advisory fee of the Advisor would not be reduced by reason of its
receipt of such brokerage and research services. To the extent that research
services of value are provided by broker-dealers through or with whom the Trust
places portfolio transactions the Advisor may be relieved of expenses which it
might otherwise bear.
The Trust may, in some instances, purchase securities that are not listed on a
national securities exchange or quoted on NASDAQ, but rather are traded in the
over-the-counter market. When the transactions are executed in the
over-the-counter market, it is intended generally to seek first to deal with the
primary market makers. However, the services of brokers will be utilized if it
is anticipated that the best overall terms can thereby be obtained.
The brokerage fees paid by the Fund for the three fiscal periods ended June 30,
1994, 1995, and 1996, were $18,741, $20,744 and $9,800, respectively.
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MANAGEMENT OF THE FUND
The Trustees and Officers of the Trust and their principal occupations during
the past five years are set forth below. Except as otherwise indicated, the
business address of each is 7900 Callaghan Road, San Antonio, Texas 78229.
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- --------------------- -------------- -------------------------------------
John P. Allen Trustee President, Deposit Development
5600 San Pedro Associates Inc., a bank marketing
San Antonio, TX firm. President, Paragon Press.
Partner, Rio Cibolo Ranch, Inc.
William A. Fagan, Jr. Chairman of Chairman of the Board of Trustees
P.O. Box 17903 the Board of since January 1, 1989. Business
San Antonio, TX Trustees consultant since 1976.
E. Douglas Hodo Trustee Chief Executive Officer of Houston
7706 Fondren Baptist University. Formerly Dean and
Houston, TX Professor of Economics and Finance,
College of Business, University of
Texas at San Antonio.
Charles Z. Mann Trustee Business consultant since January 1,
Turning Point 1993. Chairman, Bermuda Monetary
13 Knapton Estates Rd. Authority from 1986 to 1992.
Smiths, Bermuda Executive Vice President of
HS01 International Median Limited, a
private investment holding company,
from 1979 to 1985 and previously
general manager of Bank of N.T.
Butterfield & Son, Ltd., a
Bermuda-based bank. Currently a
Director of Bermuda Electric Light
Company, Ltd.; Overseas Imports,
Ltd.; Tyndall International (Bermuda)
Ltd.; Old Court International
Reserves Ltd.; XL Investments
Limited, Glaxo (Bermuda) Limited.
W.C.J. van Rensburg Trustee Professor of Geological Science and
6010 Sierra Arbor Ct. Petroleum Engineering, University of
Austin, TX Texas at Austin. Former Associate
Director, Bureau of Economic Geology,
University of Texas. Former Chairman,
Department of Geosciences, West Texas
State University. Former technical
director of South African Minerals
Bureau and British Petroleum
Professor of Energy Economics at the
Ran Afrikaans University,
Johannesburg, South Africa.
Frank E. Holmes(1) Trustee, Chairman of the Board of Directors,
President, Chief Executive Officer and Chief
Chief Financial Officer of the Advisor.
Executive Since October 1989 Mr. Holmes has
Officer served and continues to serve in
various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Director of
Franc-Or Resource Corp. from November
1994 to November 1996. Director of
Marleau, Lemire Inc. from January
1995 to December 1995. Director of
United Services Canada, Inc.
(formerly United Services Advisors
Wealth Management Corp.) since
February 1995 and Chief Executive
Officer from February to August 1995.
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Secretary, Advisor. Since September 1992 Ms.
General McGee as served and continues to
Counsel serve in various positions with the
Advisor, its subsidiaries, and the
investment companies it sponsors.
Before September 1992 Ms. McGee was a
student at St. Mary's Law School.
- ------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
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NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- --------------------- -------------- -------------------------------------
Thomas D. Tays Vice President, Vice President, Securities
Securities Specialist, Director of Compliance
Specialist, and Assistant Secretary of the
Director of Advisor. Chief Financial Officer,
Compliance Vice President, Securities
Specialist, Director of Compliance
and Assistant Secretary of the Trust.
Since September 1993 Mr. Tays has
served and continues to serve in
various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Before
September 1993 Mr. Tays was an
attorney in private practice.
PRINCIPAL HOLDERS OF SECURITIES
As of August 26, 1996, the officers and Trustees of the Trust, as a group, owned
less than 1% of the outstanding shares of the Fund. The Trust is not aware of
any persons who owned of record, or beneficially, more than 5% of the
outstanding shares of the Fund at August 26, 1996.
INVESTMENT ADVISORY SERVICES
The investment adviser to the Funds is U.S. Global Investors, Inc. (formerly
United Services Advisors, Inc.) (the "Advisor"), a Texas corporation, pursuant
to an Advisory Agreement dated as of October 27, 1989. Frank E. Holmes, Chief
Executive Officer and a Director of the Advisor, as well as a Trustee, President
and Chief Executive Officer of the Trust, beneficially owns more than 25% of the
outstanding voting stock of the Advisor and may be deemed to be a controlling
person of the Advisor.
In addition to the services described in the Fund's prospectus, the Advisor will
provide the Trust with office space, facilities and simple business equipment,
and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
Officers and Trustees of the Trust if such persons are employees of the Advisor
or its affiliates, except that the Trust will reimburse the Advisor for a
portion of the compensation of the Advisor's employees who perform certain legal
services for the Trust, including state securities law regulatory compliance
work, based upon the time spent on such matters for the Trust. The Advisor pays
the expense of printing and mailing prospectuses and sales materials used for
promotional purposes.
The Trust pays all other expenses for its operations and activities. Each of the
Funds of the Trust pays its allocable portion of these expenses. The expenses
borne by the Trust include the charges and expenses of any transfer agents and
dividend disbursing agents, custodian fees, legal and auditor expenses,
bookkeeping and accounting expenses, brokerage commissions for portfolio
transactions, taxes, if any, the advisory fee, extraordinary expenses, expenses
of issuing and redeeming shares, expenses of shareholder and trustee meetings,
preparing, printing and mailing proxy statements, reports and other
communications to shareholders, expenses of registering and qualifying shares
for sale, fees of Trustees who are not "interested persons" of the Advisor,
expenses of attendance by Officers and Trustees at professional meetings of the
Investment Company Institute, the No-Load Mutual Fund Association or similar
organizations, and membership or organization dues of such organizations,
expenses of preparing and setting in type prospectuses and periodic reports and
expenses of mailing them to current shareholders, cost of fidelity bond
premiums, cost of maintaining the books and records of the Trust, and any other
charges and fees not specifically enumerated.
For the services and facilities provided to the Funds by the Advisor, the Fund
may pay to the Advisor a monthly fee at the rate based upon the monthly average
net assets of the Fund for such calendar month up to and including $250 million,
1/12 of 75% and over $250 million, 1/12 of 0.50%. The Advisor has voluntarily
agreed to bear certain Fund expenses. See the prospectus section - "The
Investment Advisor."
The Advisor may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for Fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client Fund shares. The Glass-Steagall Act prohibits banks
from engaging in the business of underwriting,
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selling or distributing securities. However, in the Advisor's opinion, such laws
should not preclude a bank from performing shareholder administrative and
servicing functions as contemplated herein.
The securities laws of certain states in which shares of the Trust may, from
time to time, be qualified for sale require that the Advisor reimburse the Trust
for any excess of the Fund's expenses over prescribed percentages of the Fund's
average net assets. Thus, the Advisor's compensation under the Advisory
Agreement is subject to reduction in any fiscal year to the extent that total
expenses of the Fund for such year (including the Advisor's compensation but
exclusive of taxes, brokerage commission, extraordinary expenses, and other
permissible expenses) exceed the most restrictive applicable expense limitation
prescribed by any state in which the Trust's shares are qualified for sale. The
Advisor may obtain waivers of these state expense limitations from time to time.
Such limitation is currently 2.5% of the first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5% of the
remaining average net assets.
The Board of Trustees of the Trust (including a majority of the "disinterested
Trustees") recently approved continuation of the October 1989 Advisory Agreement
through October 1996. The Advisory Agreement provides that it will continue
initially for two years, and from year to year thereafter, with respect to each
Fund, as long as it is approved at least annually both (I) by a vote of a
majority of the outstanding voting securities of such Fund (as defined in the
Investment Company Act of 1940 [the "Act"]) or by the Board of Trustees of the
Trust, and (ii) by a 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 may be terminated on 60 days' written notice by either party
and will terminate automatically if it is assigned.
The Trust pays the Advisor a separate management fee for each Portfolio in the
Trust. Such fee is based on varying percentages of average net assets. For the
three fiscal periods ended June 30, 1994, June 30, 1995, and June 30, 1996, the
Trust incurred advisory fees (net of expenses paid by the Advisor or voluntary
fee waivers) of $5,021,807, $5,233,507 and $5,216,589, respectively, for all
funds. For the three fiscal periods ended June 30, 1994, June 30, 1995, and June
30, 1996, the Fund paid the Advisor no advisory fees (net of expenses paid by
the Advisor or voluntary fee waivers).
TRANSFER AGENCY AND OTHER SERVICES
In addition to the services performed for the Funds and the Trust under the
Advisory Agreement, the Advisor, through its subsidiary USSI, provides transfer
agent and dividend disbursement agent services pursuant to the Transfer Agency
Agreement as described in the Fund's prospectus under "Management of the Fund --
The Investment Advisor." In addition, lockbox and statement printing services
are provided by USSI. The Board of Trustees recently approved the Transfer
Agency and related agreements through October 30, 1996. For the three fiscal
years ended June 30, 1994, 1995, and 1996, the Trust paid USSI total transfer
agency, lockbox and printing fees of $2,313,933, $2,557,846 and $2,707,293,
respectively.
USSI also maintains the books and records of the Trust and of each Fund of the
Trust and calculates their daily net asset value as described in the Fund's
prospectus under "Management of the Fund -- The Investment Advisor." Total
reimbursements and fees for such services for the fiscal years ending June 30,
1994, 1995, and 1996, were $354,278, $502,994 and $499,465, respectively.
A & B Mailers, Inc., a wholly-owned corporation of the Advisor, provides the
Trust with certain mail handling services. The charges for such services have
been negotiated by the Audit Committee and A & B Mailers, Inc. Each service is
priced separately.
CERTAIN PURCHASES OF SHARES OF THE FUND
Shares of the Fund are continuously offered by the Trust at their net asset
value next determined after an order is accepted. The methods available for
purchasing shares of the Fund are described in the prospectus. In addition,
shares of the Fund may be purchased using stock, so long as the securities
delivered to the Trust meet the investment objectives and concentration policies
of the Fund, and are otherwise acceptable to the Advisor, which reserves the
right to reject all
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or any part of the securities offered in exchange for shares of the Fund. On any
such "in kind" purchase, the following conditions will apply:
1. the securities offered by the investor in exchange for shares of the
Fund must not be in any way restricted as to resale or otherwise be
illiquid;
2. securities of the same issuer must already exist in the Fund's
portfolio;
3. the securities must have a value which is readily ascertainable (and
not established only by/ evaluation procedures) as evidenced by a
listing on the AMEX, the NYSE, or NASDAQ;
4. any securities so acquired by any Fund will not comprise over 5% of
that Fund's net assets at the time of such exchange;
5. no over-the-counter securities will be accepted unless the principal
over-the-counter market is in the United States; and
6. the securities are acquired for investment and not for resale.
The Trust believes that this ability to purchase shares of the Fund using
securities provides a means by which holders of certain securities may obtain
diversification and continuous professional management of their investments
without the expense of selling those securities in the public market.
An investor who wishes to make an "in kind" purchase should furnish a list
(either in writing or by telephone) to the Trust with a full and exact
description of all of the securities which he or she proposes to deliver. The
Trust will advise him or her as to those securities which it is prepared to
accept and will provide the investor with the necessary forms to be completed
and signed by the investor. The investor should then send the securities, in
proper form for transfer, with the necessary forms to the Trust and certify that
there are no legal or contractual restrictions on the free transfer and sale of
the securities. The securities will be valued as of the close of business on the
day of receipt by the Trust in the same manner as portfolio securities of the
Fund are valued. See the section entitled "How Shares Are Valued" in the
prospectus. The number of shares of the Fund, having a net asset value as of the
close of business on the day of receipt equal to the value of the securities
delivered by the investor, will be issued to the investor, less applicable stock
transfer taxes, if any.
The exchange of securities by the investor pursuant to this offer will
constitute a taxable transaction and may result in a gain or loss for Federal
income tax purposes. Each investor should consult his or her tax adviser to
determine the tax consequences under Federal and state law of making such an "in
kind" purchase.
ADDITIONAL INFORMATION ON REDEMPTIONS
SUSPENSION OF REDEMPTION PRIVILEGES: The Trust may suspend redemption privileges
or postpone the date of payment for up to seven days, but cannot do so for more
than seven days after the redemption order is received except during any period
(1) when the NYSE is closed, other than customary weekend and holiday closings,
or trading on the Exchange is restricted as determined by the Securities and
Exchange Commission ("SEC"), (2) when an emergency exists, as defined by the
SEC, which makes it not reasonably practicable for the Trust to dispose of
securities owned by it or fairly to determine the value of its assets, or (3) as
the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN: The Fund may advertise performance in terms of average annual
total return for 1-, 5- and 10-year periods, or for such lesser periods as the
Fund has been in existence. Average annual total return is computed by finding
the average annual compounded rates of return over the periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
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P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods at the end of the
year or period.
The calculation assumes all charges are deducted from the initial $1,000 payment
and assumes all dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period, and
includes all recurring fees that are charged to all shareholder accounts.
The average annual compounded rate of return for the Fund for the following
years ended as of June 30, 1996, is as follows: one year 24.31%; five years
12.31% and ten years 6.58%.
YIELD: The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
A - B
------
YIELD = 2 [ ( 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
D = the maximum offering price per share on the last day
of the period
The Fund's 30-day yield for the 30 days ended June 30, 1996, was 1.66%.
NONSTANDARDIZED TOTAL RETURN: The Fund may provide the above described standard
total return results for a period which ends as of not earlier than the most
recent calendar quarter end and which begins either twelve months before or at
the time of commencement of the Fund's operations. In addition, the Fund may
provide nonstandardized total return results for differing periods, such as for
the most recent six months. Such nonstandardized total return is computed as
otherwise described under "Total Return" except that no annualization is made.
DISTRIBUTION RATES: In its sales literature, the Fund may also quote its
distribution rate along with the above described standard total return and yield
information. The distribution rate is calculated by annualizing the latest
distribution and dividing the result by the offering price per share as of the
end of the period to which the distribution relates. A distribution can include
gross investment income from debt obligations purchased at a premium and in
effect include a portion of the premium paid. A distribution can also include
gross short-term capital gains without recognition of any unrealized capital
losses. Further, a distribution can include income from the sale of options by
the Fund even though such option income is not considered investment income
under generally accepted accounting principals.
Because a distribution can include such premiums, capital gain and option
income, the amount of the distribution may be susceptible to control by the
Advisor through transactions designed to increase the amount of such items.
Also, because the distribution rate is calculated in part by dividing the latest
distribution by net asset value, the distribution rate will increase as the net
asset value declines. A distribution rate can be greater than the yield rate
calculated as described above.
Effective November 1, 1993, the Fund changed investment objectives and policies
from passive to active management of the portfolio.
EFFECT OF FEE WAIVER AND EXPENSE REIMBURSEMENT: All calculations of performance
data in this section reflect the Advisor's fee waivers or reimbursement of a
portion of the Fund's expenses, as the case may be. See "Management of the
Funds" in the prospectus.
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TAX STATUS
TAXATION OF THE FUND--IN GENERAL: As stated in its prospectus, the Fund intends
to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund
will not be liable for Federal income taxes on its taxable net investment income
and capital gain net income that are distributed to shareholders, provided that
the Fund distributes at least 90% of its net investment income and net
short-term capital gain for the taxable year.
To qualify as a regulated investment company, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies (the "90% test"); (b) derive in each taxable year less than 30% of
its gross income from the sale or other disposition of stock or securities held
less than three months (the "30% test"), and (c) satisfy certain diversification
requirements at the close of each quarter of the Fund's taxable year.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its capital gain net income for the twelve-month period ending on
October 31 of the calendar year and (3) any portion (not taxable to the Fund) of
the respective balance from the preceding calendar year. The Fund intends to
make such distributions as are necessary to avoid imposition of this excise tax.
TAXATION OF THE FUND'S INVESTMENTS: The Fund's ability to make certain
investments may be limited by provisions of the Code that require inclusion of
certain unrealized gains or losses in the Fund's income for purposes of the 90%
test, the 30% test and the distribution requirements of the Code, and by
provisions of the Code that characterize certain income or loss as ordinary
income or loss rather than capital gain or loss. Such recognition,
characterization and timing rules generally apply to investments in certain
forward currency contracts, foreign currencies and debt securities denominated
in foreign currencies.
TAXATION OF THE SHAREHOLDER: Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November or December and made payable to
shareholders of record in such a month will be deemed to have been received on
December 31, if a Fund pays the dividends during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing the Fund's shares just prior to a distribution may
receive a return of investment upon distribution which will nevertheless be
taxable to them.
A shareholder of the Fund should be aware that a redemption of shares (including
any exchange into another U.S. Global Investors Fund) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
Fund receives a distribution taxable as long-term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long-term capital loss to the extent of the long-term capital gain recognized.
CUSTODIAN
Bankers Trust Company acts as Custodian for the Fund. Services with respect to
the retirement accounts are provided by Security Trust and Financial Company of
San Antonio, Texas, a wholly-owned subsidiary of the Advisor.
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INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Price Waterhouse LLP, One Riverwalk Place, Ste. 900, San Antonio, Texas 78205,
serves as the independent accountants for the Trust.
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, are
legal counsel to the Trust.
FINANCIAL STATEMENTS
The financial statements for year ended June 30, 1996, are hereby incorporated
by reference from the Annual Report to Shareholders of that date which has been
delivered with this Statement of Additional Information [unless previously
provided, in which event the Trust will promptly provide another copy, free of
charge, upon request to: U.S. Global Investors, Inc. , P.O. Box 29467, San
Antonio, Texas 78229-0467, 1-800-873-8637 or (210) 308-1234].
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