[PHOTOGRAPH OF NBA BASKETBALL GAME IN BACKGROUND W/LIPPER PERFORMANCED
ACHIEVEMENT CERTIFICATES AS BANNERS]
SHAREHOLDER REPORT [U.S. GLOBAL LOGO]
Published for the fund shareholders of U.S. Global Investors 2nd Quarter 1997
Frank Holmes discusses strategies for today's market
Page 2
Learn the latest on your investments
Page 6-8
Discover opportunity in Eastern Europe
Page9
SCORE A U.S. Government Securities
HIGHER YIELD Savings Fund LIPPER'S #1
Government Money Market
Fund For 5 Years
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SHAREHOLDER REPORT
[THE FOLLOWING SECTION IS ON THE LEFT MARGAIN OF THIS PAGE]
STABILITY AND TAX-FREE INCOME
[LINEAR GRAPH PLITTED FROM DATA IN TABLE BELOW]
<TABLE>
<C> <C> <C> <C>
1/29/93 ....................... 1.0507% 0.8352%
2/26/93 ....................... 4.3030% 1.3625%
3/31/93 ....................... -1.4670% 2.1085%
4/30/93 ....................... 1.0282% -2.4169%
5/31/93 ....................... -0.0896% 2.6684%
6/30/93 ....................... 1.3120% 0.2919%
7/30/93 ....................... 0.2815% -0.4025%
8/31/93 ....................... 1.0187% 3.7859%
9/30/93 ....................... 0.7464% -0.7669%
10/29/93 ...................... 0.2759% 2.0671%
11/30/93 ...................... -0.2830% -0.9530%
12/31/93 ...................... 1.3005% 1.2090%
1/31/94 ....................... 0.6536% 3.3965%
2/28/94 ....................... -1.0204% -2.7118%
3/31/94 ....................... -1.5933% -4.3513%
4/29/94 ....................... 0.1905% 1.2811%
5/31/94 ....................... 0.3881% 1.6348%
6/30/94 ....................... 0.0947% -2.4471%
7/29/94 ....................... 0.8672% 3.2814%
8/31/94 ....................... 0.2814% 4.0905%
9/30/94 ....................... -0.0935% -2.4434%
10/31/94 ...................... -0.2886% 2.2434%
11/30/94 ...................... -0.1956% -3.6373%
12/30/94 ...................... 0.6820% 1.4813%
1/31/95 ....................... 0.6774% 2.5916%
2/28/95 ....................... 0.5800% 3.8933%
3/31/95 ....................... 0.6766% 2.9462%
4/28/95 ....................... 0.2902% 2.9423%
5/31/95 ....................... 1.0509% 3.9909%
6/30/95 ....................... 0.3843% 2.3187%
7/31/95 ....................... 0.5780% 3.3146%
8/31/95 ....................... 0.4702% 0.2497%
9/29/95 ....................... 0.2897% 4.2178%
10/31/95 ...................... 0.3778% -0.3573%
11/30/95 ...................... 0.6642% 4.3849%
12/29/95 ...................... 0.2859% 1.9263%
1/31/96 ....................... 0.7602% 3.3995%
2/29/96 ....................... 0.0000% 0.9304%
3/29/96 ....................... -0.4716% 0.9628%
4/30/96 ....................... 0.0000% 1.4729%
5/31/96 ....................... 0.0948% 2.5746%
6/28/96 ....................... 0.5826% 0.3812%
7/31/96 ....................... 0.5720% -4.4156%
8/30/96 ....................... 0.2880% 2.1126%
9/30/96 ....................... 0.6748% 5.6232%
10/31/96 ...................... 0.4848% 2.7570%
11/29/96 ...................... 1.2418% 7.5522%
12/31/96 ...................... 0.0000% -1.9810%
1/31/97 ....................... 0.3855% 6.2442%
2/28/97 ....................... 0.4748% 0.7851%
3/31/97 ....................... -0.6671% -4.1011%
</TABLE>
NEED A HIGH-YIELDING
ALTERNATIVE TO A MONEY MARKET
FUND?
*****
As an alternative to a money market
fund, you should consider our United
Services Near-Term Tax Free Fund for a
rewarding return with minimal risk. This
short-term tax-free fund has received
Morningstar's highest rating--FIVE
STARS--for one and three years.** The
fund provides monthly tax-free dividend
income and has demonstrated low
volatility. Compare! This fund's
tax-equivalent yield for the 39.6% tax
bracket is significantly higher than the
average money market yield.***
United Services
Near-Term Tax Free Fund
(tax-equivalent yield) 7.78%
Lipper Average
Goverment
Money Market Fund 4.64%
MESSAGE FROM THE PRESIDENT
Dear Shareholder,
Did you love making money in the stock market last year? The 23%
dividend-adjusted returns of the S&P 500 made investing a dream last year. Do
you wish you could have the same kind of success this year? How would you like
to buy some of last year's hottest stocks this year, now that the market has
slashed prices up to 15% or even 25%?
Of course, prices are low thanks to the correction brought on by the Fed's
interest rate hike. But many stocks which were the best thing going four months
ago are now trading at the same or lower prices. And don't you, as a consumer,
demand better value? Are you always looking for a better deal? Do you drive all
the way to Wal-Mart to find a better price on things you could easily buy at the
grocery store for just a little bit more? Think about this: stock market
corrections present excellent buying opportunities for these funds--you'll be
buying your shares "on sale." It's like shopping for stock funds at Sam's Club.
OK, so you're probably thinking, "But what if I buy right now and my stocks
don't do as well as I hoped?" If you bought stocks just because they're cheap,
you might very well be sorry later. Yet over the long term, there has been no
better financial asset than stocks for maximum growth of capital. So let our
professional mutual fund managers work full-time to select the right stocks for
you and to strive to make sure your portfolio is secure.
Don't let downturns shift your focus from the long-term trend. Ignore the
market "experts" who debate whether the market's recent decline will turn out to
be a short-term correction or a bear market beginning. Only time will tell. And
we expect that sooner or later the market will return to its high mark and then
rise above it.
So how can you avoid the natural tendency to make emotional investment
decisions when market volatility increases? First, embrace a dollar-cost
averaging strategy. The strategy only succeeds if you stick with it in both good
times and bad. That means putting money into an equity fund even when the stock
market is falling. Of course, no system can guarantee you a profit. If you sell
at a bottom, no system will give you a gain. But over the long term--typically
ten years or more--the ABC Investment Plan(R) can help you come out ahead
because the stock market historically moves up over time. To start a dollar-cost
averaging strategy, simply sign up for Plan today. It's easy.
And second, keep an account in America's #1 money market fund--the U.S.
Government Securities Savings Fund. Consistently ranked number one by Lipper for
five years, the Fund offers shareholders superior performance and stability.
Your account will earn a high yield which could rise thanks to the further rate
increases we expect from Mr. Greenspan. If you decide you can't risk having all
of your assets in the markets because you may need the money in five years or
less, store your holdings in this fund. You can even have immediate access to
your money by writing a
2
<PAGE>
check drawn on your account. When you want to protect some of your profits, this
fund provides an ideal parking place.
I believe the U.S. stock market will continue to handsomely reward devoted
investors, especially those who use a money market fund to protect profits along
the way. The U.S. stock market has made more money for more people than any
other type of investment. It reflects the success of America's economy and
thrives because of our nation's dynamic, inventive, independent spirit. America
is the world's center of creativity, the model of free enterprise, the
inspiration for entrepreneurism.
You can participate in the growth and prosperity of American enterprise
through our U.S. All American Equity Fund and Bonnel Growth Fund. The U.S. All
American Equity Fund focuses on the blue-chip stocks of the nation's most
established companies while the Bonnel Growth Fund concentrates on America's
dynamic, mid-size companies with outstanding growth potential.
If every stock demonstrated the same growth profile as the overall market,
investing would be easy. Of course they don't. Some have performed far better
and others far worse. This is why diversification--spreading your investments
around instead of investing in only one thing--is your best protection against
risk. Stock mutual funds make it possible for individual investors to affordably
own a truly diversified stock portfolio which is professionally managed on their
behalf. Overseas funds give investors easy access to markets they couldn't
comfortably enter on their own. They also offer protection against downturns in
the domestic market, because the world's markets rarely move in synch.
I'm delighted to deliver you two new global investment opportunities which
can enhance your portfolio's diversification: the Regent Eastern European Fund
and the Adrian Day Global Opportunity Fund. Regent Fund Management Ltd., a
subsidiary of the Regent Pacific Group, is the sub-advisor and portfolio manager
of the Regent Eastern European Fund which capitalizes on the dynamic companies
in the emerging markets of Eastern Europe. Regent has extensive experience in
Eastern Europe, is the largest investor in Russia and has regional offices in
Moscow, Kiev and Warsaw.
Renowned newsletter editor Adrian Day manages his namesake Adrian Day
Global Opportunity Fund for which he seeks out stocks of blue-chip and emerging
companies. Both of these funds are designed for long-term investors who are
comfortable with the inherent risks of investing abroad.
Did you know you can easily open a new account in these or any of our funds
by telephone? Simply call 1-800-US-FUNDS. Ask your Education and Service
Representative for additional information on our free lifetime IRA opportunity.
Sincerely,
/S/ FRANK HOLMES
Frank Holmes
Chairman & CEO
[GRAPHIC: FULL LENGTH PHOTO OF FRANK HOLMES]
[THE FOLLOWING SECTION IS ON THE RIGHT MARGAIN OF THIS PAGE]
A FRIEND PASSES ON
Irving Weiss passed away on April 9,
1997, at the age of 89. Mr. Weiss was a
good friend, an innovator and an
individualist thinker. A man before his
time, he created the concept of the
money market fund in the 1960s. In 1990,
just after I had purchased control of
United Services, he flew to San Antonio
from Florida at the age of 81 to share
his invaluable advice with me.
We will miss him dearly.
For more information, including charges
and expenses, call 1-800-US-FUNDS.
Please read the prospectus carefully
before investing. Past performance is no
guarantee of future results. Investment
returns and principal will fluctuate so
that you may have a gain or loss when
you sell shares. U.S. stands for United
Services.
* The first chart illustrates that the
volatility of the NAV of our municipal
bond fund is significantly less than
that of the S&P 500, a measure of
large-cap American stocks. The expected
long-term returns of the S&P 500,
however, may be higher than those of
investment-grade municipal bonds.
**Morningstar, a nationally recognized
mutual fund rating service, awards
ratings which reflect historical
risk-adjusted performance. It awards
five stars to funds in the top 10% of
their category, four stars to funds in
the next 22.5%, three stars to the next
35%, two stars to the next 22.5% and one
star to funds in the bottom 10%. The
United Services Near-Term Tax Free Fund
received five stars out of 1,739 funds
for one year and four stars out of 580
funds for five years.
***While the United Services Near-Term
Tax Free Fund's high-grade, short-term
bond portfolio is relatively safe, money
market funds are designed to maintain a
stable NAV of $1 per share. The yields
quoted are 12-month yields as reported
by Lipper Analytical Services on
3/31/97. Tax-equivalent yield is the
rate of interest of a tax-exempt
security which a taxable one would have
to pay in order to compensate for the
former's tax advantage. The Advisor has
guaranteed total fund operating expenses
(as a percentage of net assets) will not
exceed 0.40% until 6/97. The Advisor
subsidized certain fund expenses,
enhancing the yield by approximately
1.51%. Some income may be subject to
state, federal or AMT taxes for certain
investors. Average annual total returns
for 1 and 5 years and since inception on
12/4/90 are 4.28%, 5.49% and 5.83%.
3
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SHAREHOLDER REPORT
[GRAPHIC: WATERMARK PHOTO OF THE STATUE OF LIBERTY]
FUND FOCUS: U.S. ALL AMERICAN EQUITY FUND
[THE FOLLOWING SECTION IS ON THE LEFT MARGAIN OF THIS PAGE]
[GRAPHIC: PHOTOGRAPH OF BIN SHI]
Bin Shi manages the U.S. All American
Equity Fund and the China Region
Opportunity Fund. A native of Shanghai,
Bin has conducted extensive research on
the S&P 500. He is an expert on the
Chinese markets and on large-cap
American stocks.
U.S. ALL AMERICAN
EQUITY FUND
OBJECTIVE:
capital appreciation
MIN. INITIAL INVESTMENT:
$1,000
ABC INVESTMENT PLAN(R):
$100 initial investment, $30
or more each month thereafter
RISK/REWARD POTENTIAL:
Low --------*---------- High
Call 1-800-873-8637 today for a
free investment guide on the U.S.
All Americ an Equity Fund.
For a free Fact Kit containing more
complete information, including charges
and expenses, call 1-800-US-FUNDS or
visit our web site at www.usfunds.com.
Read the prospectus carefully before
investing. It details the special risks,
such as currency, political and business
risks, of investing in emerging markets.
Q: INDEX FUNDS HAVE COME INTO VOGUE IN THE PAST YEAR AS THE S&P 500 HAS POSTED
LARGE GAINS IN 1995 AND 1996. WHAT MAKES THE U.S. ALL AMERICAN EQUITY FUND STAND
OUT AMONG THIS CATEGORY?
A: Our fund is an enhanced index fund, which means that while we use the S&P 500
as our benchmark, we manage our fund actively to beat the index.
Passively-managed index funds simply buy a portfolio of precisely the same
securities as are in the S&P--all of them--and change the holdings when stocks
are added to or dropped from the index itself. Those funds, because of their
brokerage costs, can never outperform the index. We select those S&P 500 stocks
which we believe offer the best growth potential at the right price. We
supplement these core holdings with other stocks which offer even greater growth
prospects, and we hold some cash most of the time so that if the market or a
favorite stock goes down, we can take advantage of the opportunity to buy more
stocks at good prices. Passive index funds are popular right now because the S&P
has been hot for two years. But when the S&P has a down year, those funds will
decline in tandem with the market, and the fund managers won't be able to
reallocate portfolios. The U.S. All American Equity Fund benefits shareholders
by offering greater potential in up markets and more defensive measures in down
markets.
Q: WHAT ADVANTAGES DOES YOUR FUND HAVE OVER ACTIVELY-MANAGED GROWTH FUNDS WHICH
DON'T USE THE S&P AS A GUIDELINE FOR INVESTING?
A: The U.S. All American Equity Fund is more stable than many of the popular
growth funds. In my experience, people interested in mutual funds will compare
the past performance of several funds and invest in the ones that have the best
recent performance. Unfortunately, many investors don't consider the risks some
of these funds took in order to achieve higher returns. A lot of the funds which
can outperform an enhanced index fund are aggressive growth funds investing in
small- to mid-cap stocks, often concentrating heavily in single sectors. Many
others are straight sector funds, which invest only in one industry group, and
some are funds which take big bets on just a few stocks. By offering a
diversified portfolio of many of America's largest and best-known stocks, our
fund offers relative stability in a market full of volatile growth funds.
Q: WHAT KIND OF INVESTOR DO YOU THINK HAS THE MOST TO GAIN FROM INVESTING IN
YOUR FUND?
A: The Fund is ideal for people with long investment horizons, for investors who
need a conservative growth stock element in their portfolio and especially for
people who need more exposure to stocks. Few average Americans can afford to
invest on their own in a broadly diversified portfolio of stocks, particularly
in a portfolio like that of the U.S. All American Equity Fund. When investors
read about the stock market's performance, they might want to invest in that
market. But unless they buy a large number of stocks, their returns and their
level of risk will be very different from the market's.
4
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SHAREHOLDER REPORT
[GRAPHIC: WATERMARK OF THE UNITED STATES FLAG]
Q: THE RECENT INTEREST RATE INCREASE BY THE FEDERAL RESERVE CAUSED A CORRECTION
IN LARGE-CAP STOCKS. WHAT MEASURES HAVE YOU TAKEN TO FIND GROWTH OPPORTUNITIES
AND TO DEFEND THE FUND AGAINST STOCK MARKET CORRECTIONS?
A: We do everything we can to anticipate changes in the stock market rather than
responding to new developments because once market sentiment shifts, stock
prices can move quite a bit. That's what we have seen in the past few weeks. The
stock market was up 10% at one time year-to-date, and now it's up only 2%. We
have been cautious about the stock market's valuation because we think many
stocks, even though they are good companies with solid long-term fundamentals,
are too expensive and are very sensitive to the market's mood swings. When the
market changes its mind about stocks, the hot momentum stocks with high
price-to-earnings ratios are often the hardest hit. We have been keeping 10% of
the Fund in cash so that we would have less exposure to that volatility. That
protects shareholders from a drop in the S&P, and when it does drop, we can buy
more stocks at lower prices. Yes, we do expect the market to fall from time to
time. But in the long run, there is historically no better financial asset than
stocks, and we want to buy those stocks at the lowest price possible.
Q: HOW DOES THE FED'S ACTION AFFECT YOUR OUTLOOK FOR THE REST OF THE YEAR?
A: We don't think the Fed will raise interest rates by much more. We saw the
recent increase as a pre-emptive measure against the possibility of inflation,
and we think that inflationary signs in the economy will disappear after the
Fed's next rate increases. By the end of the year, in my estimation, the Fed
will raise rates further by no more than 50 to 75 basis points. As long as the
Fed does not raise rates drastically, large-cap stocks will deliver good returns
this year. Not as much as last year, but still good returns.
Q: WILL THIS MARKET PROVIDE THE KIND OF OPPORTUNITIES YOU WANT TO INVEST IN?
A: Yes, because the greater volatility will present the opportunity to buy on
dips. The current lack of confidence affects the willingness of investors to pay
higher P/E ratios for stocks. As confidence expands and contracts, the market
goes up and down accordingly. So the trick in a market like this, where good
stocks are punished just like bad stocks based on myopic perceptions, is to buy
stocks with good growth potential and good value and to avoid those which don't.
Pure growth momentum stocks have extraordinary volatility, since their momentum
and high P/Es depend on a stable overall market. A lot of the stocks in the S&P
have great earnings potential, but P/E ratios are high, so finding good value
will be crucial and difficult this year. Value arises when a stock suffers
temporary setbacks. For example, when an earnings report is slightly lower than
wildly optimistic analysts' estimates, the stock might suffer in the short term.
This is because the market will perceive this negatively, even though the
company is still doing well and earnings may rise to match those optimistic
estimates for the next quarter. I'm looking for companies like this which have
sustainable, solid growth prospects for the long term. I encourage investors who
would like this kind of investment opportunity to consider the U.S. All American
Equity Fund for the stock component of their portfolio, since this is our
specialty. This approach will work well in the long term, I believe, and it
should do especially well in the current market environment.
[THE FOLLOWING SECTION IS ON THE RIGHT MARGAIN OF THIS PAGE]
TOP TEN HOLDINGS (3/31/97)
General Electric Co.
Coca-Cola Co.
Microsoft Corp.
Intel Corp.
Philip Morris Inc.
Johnson & Johnson
Merck & Co. Inc.
IBM Corp.
Procter & Gamble Co.
First Data Corp.
NOTE: FUND HOLDINGS MAY CHANGE.
HOW TO BUY SHARES EASILY AND WITH LESS
RISK WITH THE ABC IVESTMENT PLAN(R)
You can start investing in the U.S. All
American Equity Fund with even less than
our minimum initial investment of
$1,000. Just use our ABC Investment
Plan(R) to open an account for only
$100. After that, we transfer $30 or
more each month automatically from your
checking account to your fund account
with us.
When you buy shares each month, you
reduce the risk that you buy in at a
market high. Of course, no system can
guarantee you a profit. If you sell at a
bottom, no system will give you a gain.
The Plan can get you started on an
investment program which can help you
achieve your long-term financial goals.
ATTENTION PARENTS AND GRANDPARENTS:
This Fund is ideal for teaching children
the benefits of investing. They'll even
recognize many of the companies in which
the Fund invests.
5
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SHAREHOLDER REPORT
[THE FOLLOWING SECTION IS ON THE LEFT MARGAIN OF THIS PAGE]
FUND NOTES
[GRAPHIC: PHOTO OF VICTOR FLORES]
VICTOR FLORES, CFA
Chief Investment Officer
Portfolio Manager of the
U.S. World Gold Fund and the
U.S. Gold Shares Fund
DID YOU KNOW?
Portfolio manager Victor Flores is
regularly interviewed by these and
other well-known publications for
his opinions as an expert gold
stock analyst.
Fortune
The Wall Street Journal
The Globe and Mail
Dow Jones
L.A. Business Channel
CNN Business News
CNBC
Barron's
Institutional Investor
Kiplinger's
Forbes
La Nacion
For a free Fact Kit containing more
complete information, including charges
and expenses, call 1-800-US-FUNDS or
visit our web site at www.usfunds.com.
Read the prospectus carefully before
investing. It details the special risks,
such as currency, political and business
risks, of investing in emerging markets.
[GRAPHIC: PICTURE OF THE COVER OF THE GOLD & NATURAL RESOURCES FUNDS PROSPECTUS]
U.S. WORLD GOLD FUND & U.S. GOLD SHARES FUND
The South African gold stocks fell in response to a weaker gold price, which has
significantly affected the operating margins of most mines. Meanwhile, the
mining houses continue their efforts to restructure their operations. As the
South African gold mining industry evolves, we are repositioning the U.S. Gold
Shares Fund to prepare for the changes taking place in that country.
The non-South African gold stocks were actually up during most of the first
quarter, but succumbed to the uncertainty surrounding Bre-X's Busang discovery
in Indonesia. After a drawn out political process, the government of Indonesia
picked Freeport McMoran Copper and Gold to develop the deposit. The trouble
began when Freeport's preliminary (and by no means conclusive) work indicating
that Bre-X may have overestimated the size of the deposit was leaked to the
press. In the ensuing confusion, not only Bre-X, but most exploration stocks
fell dramatically. Independent auditors have been brought in to clear the matter
up, but in the meantime investors are treating the junior mining sector with
caution. While the U.S. World Gold Fund routinely invests in junior exploration
and mining companies, the Fund is well diversified and holds many
well-capitalized mid-size and senior gold stocks.
U.S. GLOBAL RESOURCES FUND
The first quarter of the year saw short-term weakness in oil prices and spot
natural gas prices, which caused many momentum players to sell their positions
in energy-related stocks. Their retreat from the market put a strong downward
pressure on many stocks in the oil sector. Excellent value opportunities arose
in unfairly maligned stocks because of this weakness, which we saw as
short-lived. In the end we proved correct, since oil stocks have had a solid
rebound in recent weeks. The metals and industrials sectors have also performed
well this quarter. We anticipate that the Fund's diversification throughout
these sectors will maximize growth prospects for shareholders. We are very
bullish long-term on natural resources prices as the world continues to grow its
economies.
[GRAPHIC: PICTURE OF THE COVER OF THE BONNEL GROWTH FUND PROSPECTUS]
BONNEL GROWTH FUND
The Federal Reserve's interest rate hike has brought about great concern that
the party is over for stock investors. Yet the Fed's 25-basis-point hike is
really only a pre-emptive move against inflation, not a measure against
inflation already in the economy. So there is no reason today why the bull
market should not survive these corrections.
We have said many times that corrections are to be expected and that they are
healthy for investors. After all, we plan to buy more stocks, so why not do it
when everything's on sale? Over the long term, the stock market has a funny way
of making money for patient investors. Our advice to you: Leave your money in
the market. Don't sell stocks and stock funds at a loss now only to wait until
they have gone back up to get back in. If you can afford to, and you can stomach
the risks, consider buying more shares now. Do not be intimidated because prices
are falling--great, good and poor companies all decline in corrections. We
expect technology, health care and retail stocks will be the
6
<PAGE>
market leaders once the correction is over. These sectors are full of companies
with high potential whose stocks are undervalued by the markets.
U.S. REAL ESTATE FUND
The volatility of the broader stock market, the greater liquidity among REITs
and the superiority of REITs and other real estate stocks over investing
directly in property have been the primary drivers of market performance in the
past quarter. The performance and investment advantages of real estate stocks
are attracting more interest and capital to the sector, which has provided
companies with capital strength and put momentum behind their stocks. A chief
advantage is that dividend yields of many REITs are outperforming even 3-month
T-bills. On top of that high current income, REITs have offered very competitive
growth in the past year. New investors have been buying REITs because of their
high yields and their growing dividends as well as for their continued
attractiveness as growth stocks.
More money in the market has driven up prices and reduced REITs' cost of
capital, a primary factor in their acquisition and development of new
properties. These companies can now structure their balance sheets with a
variety of advantageous capital sources and can be aggressive and successful
bidders on properties. This allows them to diversify their property portfolios
and to grow their cash flows. Unless the Federal Reserve ratchets up rates too
quickly, we expect this trend to continue throughout 1997.
[GRAPHIC: PICTURE OF THE COVER OF THE U.S. ALL AMERICAN EQUITY FUND PROSPECTUS]
U.S. ALL AMERICAN EQUITY FUND
Although the first quarter was difficult for all S&P 500 stock funds, the market
correction offered the opportunity to buy stocks of excellent growth companies
whose share prices are at bargain prices in this volatile market.
Concern about profit margins and slowing revenue growth hurt technology stocks
throughout the first quarter, though the market has been very nearsighted about
the future of these stocks. Several recognized leaders in the industry will
inevitably profit from the long-term technology boom, so smart investors used
the weak prices to buy shares of their favorite companies.
[GRAPHIC: PICTURE OF THE COVER OF THE CHINA REGION OPPORTUNITY FUND PROSPECTUS]
CHINA REGION OPPORTUNITY FUND
During the quarter, the markets of the China region calmly received the news of
paramount leader Deng Xiaoping's death. The market had been speculating on his
death weeks before it was officially announced, so it was priced into Chinese
stocks well in advance. We believe that the economic and political reform
spearheaded by Deng is very much entrenched in China and we see little risk of
China reverting to a planned economy now that he is gone.
Hong Kong stocks reacted negatively to the interest rate hike in the U.S., but
not enough to hamper their performance for the quarter. The fundamentals for the
Chinese and Hong Kong markets remain strong as economic reforms in China
continue. Our outlook for the rest of the year is positive. The economy is doing
well, corporate earnings are set to rebound, interest rates and inflation are
declining and the economic environment is ideal for the stock market in the
China region.
[THE FOLLOWING SECTION IS ON THE RIGHT MARGAIN OF THIS PAGE]
DID YOU KNOW?
The U.S. Government Securities Savings
Fund is Lipper's #1 government money
market fund for five years. Discover its
consistent superior performance.
[GRAPHIC: PICTURE OF THE 1996
PERFORMANCE ACHIEVEMENT CERTIFCATE]
Lipper Analytical Services, a nationally
recognized mutual fund rating service,
awards ratings which reflect historical
risk-adjusted performance. Lipper ranked
the U.S. Government Securities Savings
Fund #5 and #1 for the one- and
five-year periods ended 3/31/97, out of
115 and 79 government money market
funds, respectively. Past performance is
no guarantee of future results. Like all
other mutual funds, Fund shares are not
backed by the U.S. government or its
agencies, though the securities they
invest in are. The Fund is managed to
maintain a stable $1 per share value,
though there is no assurance that it
will be able to do so.
THE WALL STREET JOURNAL REPORTS:
The China Region Opportunity Fund ranked
Number 1 out of all Asia ex Japan Funds
for the 12-month period ended 3/31/97.
AVERAGE ANNUAL TOTAL RETURNS:
1 year 21.30%
Since inception -6.68%
Inception date 2/10/94
Past performance is no guarantee of
future results.
7
<PAGE>
SHAREHOLDER REPORT
[THE FOLLOWING SECTION IS ON THE LEFT MARGAIN OF THIS PAGE]
[GRAPHIC: PHOTO OF STEPHEN LEEB]
CHECK OUT STEPHEN LEEB'S NEWEST BOOK
Renowned newsletter editor and
investment advisor Stephen Leeb has
published his latest book on investing.
In The Agile Investor, he discusses the
trends which will drive the global
securities markets well into the next
century and shares his strategy for
meeting with the challenges and
opportunities ahead. Published by Harper
Business, The Agile Investor is
available at major bookstores
nationwide.
For a free Fact Kit containing more
complete information, including charges
and expenses, call 1-800-US-FUNDS or
visit our web site at www.usfunds.com.
Read the prospectus carefully before
investing. It details the special risks,
such as currency, political and business
risks, of investing in emerging markets.
[GRAPHIC: PICTURE OF THE COVER OF THE ADRIAN DAY GLOBAL OPPORTUNITY FUND
PROSPECTUS]
ADRIAN DAY GLOBAL OPPORTUNITY FUND
This year, for the first time in over a decade, all major industrialized nations
are expected to see positive economic growth. Interest rates in Europe and
elsewhere, including most of the emerging markets, have the potential for
further decline. In addition, the last five years have been highly unusual in
that the U.S. stock market underperformed the average foreign market. Because of
this combination of factors, the current period of underperformance may be
coming to an end for foreign markets.
However, most major stock markets around the world are trading at or close to
all-time record highs in terms of prices and valuations, so a cautious and
selective bottom-up approach, looking company by company for value, is best.
Successful investors are finding it in a diverse range of industries in many
disparate countries, inlcuding Thailand and Korea. These two emerging markets
have been severely beaten down to the point where they now represent good value.
Good opportunities also exist in natural resources in the broadest sense,
including gold, paper and chemicals, as well as in financial institutions in
fast-growth areas. In coming months, we will continue to look for companies with
high growth prospects that represent solid value at current prices.
FIXED-INCOME FUNDS
In the last Shareholder Report, we anticipated the Fed would raise interest
rates by 25 basis points. Our prediction was right on target. In light of the
low jobless numbers, we expect one more increase will be made, also of 25 basis
points, at the May meeting of the Federal Open Market Committee. The Goldilocks
economy remains, though low unemployment does suggest that inflation, while not
immediately present, may be on the horizon for the economy. By taking
pre-emptive action, the Fed will very likely have stopped that inflation before
it ever happens. On the other hand, in order for this pre-emptive measure to be
effective, the Fed will probably conclude that another rate increase will be
necessary.
When investors expect a rate hike, it is best to keep high cash positions in a
portfolio as it rolls out of maturing securities. With rates now rising, it will
be possible to buy higher-yield securities to maximize yields in bond and money
market funds. Investors concerned about the volatility and uncertainty of the
equity markets should consider that fixed-income funds offer yields which will
rise as the Fed raises interest rates.
[GRAPHIC: PICTURE OF THE COVER OF THE UNITED SERVICES EQUITY FUNDS PROSPECTUS]
U.S. INCOME FUND
The interest rate increase at the end of March hurt utility stocks and other
interest-rate sensitive securities, since new bond issues will offer higher
coupon rates and yields. While diversification into other industries offered a
measure of protection, the increase in rates prompted a broad sell-off in the
stock market which left few stocks untouched. However, if interest rates do not
rise dramatically in coming months, utility stocks should have strong upside
potential. In keeping with the objectives of the U.S. Income Fund, we will
continue to diversify our assets throughout sectors with dividend-paying stocks
with stable growth potential.
8
<PAGE>
SHAREHOLDER REPORT
[GRAPHIC: PICTURE OF THE COVER OF THE REGION EASTERN EUROPEAN FUND PROSPECTUS]
REGENT EASTERN EUROPEAN FUND
The latest fund in the U.S. Global Investors collection seeks growth
opportunities throughout Eastern Europe and the former Soviet Union, primarily
in Russia, Poland, Hungary, Romania, the Czech Republic and Slovakia. Economic
reform in these countries has given rise to many investments with outstanding
growth potential. The stock prices of many companies in the region understate
the true value of the underlying assets they control, which presents a unique
opportunity for adventurous investors willing to take the risks of investing in
these volatile markets. These risks include the special currency, business and
political risks of investing in emerging markets.
Eastern Europe holds much of the world's resources and wealth. Russia alone has
a huge share of the world's reserves of many natural resources, and the
companies which control them are very inexpensive compared to their Western
counterparts. The Russian national gas company Gazprom, for example, is thirteen
times the size of Exxon in terms of hydrocarbon reserves yet its market value in
early 1997 was just 11% of Exxon's. Many stocks in Eastern Europe are similarly
undervalued, relative to the assets they own. All great opportunities have more
risks than investing in Treasury securities, so it is important that you realize
that securities in emerging markets like Eastern Europe can be illiquid and
trade at a discount to assets. As these markets mature, valuation usually
improves substantially. Also, the Fund may not be able to invest directly in
shares of companies like Gazprom.
Still opportunities like this do exist in Russia and elsewhere in Eastern
Europe. The Fund opened for trading on 3/31/97 and is available for immediate
investment.
GLOBAL IQ QUIZ --
Yes, the Quiz is back. If you can answer all these questions, you'll win a free
U.S. Global Investors t-shirt. When you've finished the Quiz, just call
1-800-US-FUNDS to find out your Global IQ.
1. How many of U.S. Global Investors' funds have significant holdings overseas?
2. In what region of the world does the newest U.S. Global Investors fund
specialize?
3. Hong Kong will revert from British to Chinese control in June of 1997. What
Asian country will revert to Chinese control in 1999, and what country
controls it now?
4. If a mutual fund has returns of 20% in one year and a 25% loss in the second
year, what gain in the third year will produce overall returns of 20% for the
whole period (i.e., not annualized)?
5. What is the northernmost capital city in the world?
[THE FOLLOWING SECTION IS ON THE RIGHT MARGAIN OF THIS PAGE]
REGENT EASTERN EUROPEAN FUND
Regent Fund Management Ltd. manages the
Fund from their offices in Moscow and
London. Long-time specialists in the
emerging markets of Asia, Regent is now
the largest foreign investor in Russia.
OBJECTIVE:
long-term growth of capital
MIN. INITIAL INVESTMENT:
$5,000
ABC INVESTMENT PLAN(R):
$1,000 initial investment, $100 or more
each month thereafter
RISK/REWARD POTENTIAL:
Low ------------------------ High* ---
Call 1-800-873-8637 today for a free
investment guide on the Regent Eastern
European Fund.
9
<PAGE>
SHAREHOLDER REPORT
NEWS & NOTES FROM
SHAREHOLDER SERVICES
[THE FOLLOWING SECTION IS ON THE LEFT MARGAIN OF THIS PAGE]
MEET THE U.S. GLOBAL INVESTORS TEAM
May 28th to 29th
NORTHEAST INVESTMENT IN MINING CONFERENCE
New York Marriott Marquis
New York, New York
June 14th to 16th
CHICAGO MONEY SHOW
Hyatt Regency
Chicago, Illinois
Call 1-800-US-FUNDS for your free tickets.
[GRAPHIC: PICTURE OF AN "ADMIT ONE" TICKET]
The Shareholder Report is published four
times a year by U.S. Global Investors as
a service to shareholders of our funds.
Please send any comments, suggestions or
questions to:
EDITOR, SHAREHOLDER REPORT
U.S. GLOBAL INVESTORS
P.O. BOX 781234
SAN ANTONIO, TX 78278-1234
SUSAN FILYK, Editor
MARK TALBOT-KELLY, Creative Director
CHRIS SMITH, Senior Editor
STEPHANIE LINKOUS, Associate Editor
For a free Fact Kit containing more
complete information, including charges
and expenses, call 1-800-US-FUNDS or
visit our web site at www.usfunds.com.
Read the prospectus carefully before
investing. It details the special risks,
such as currency, political and business
risks, of investing in emerging markets.
GET TO KNOW THE U.S. GLOBAL INVESTORS EDUCATION AND SERVICE TEAM
Our dynamic Education and Service Team of mutual fund specialists is dedicated
to helping you maximize your investments. Known throughout the mutual fund
industry for offering the highest level of personalized customer service, the
Education and Service Team can answer your questions about our funds and discuss
strategies for getting the most out of your investments with us.
THE EDUCATION AND SERVICE TEAM'S GUARANTEE TO YOU
+ We guarantee that with every phone call, you will receive the most
current, honest and extensive knowledge available on our funds and the
market. The information we provide can help you make highly informed
investment decisions for your portfolio.
+ We guarantee accurate, efficient and personalized service to every
investor.
+ We guarantee immediate, informative answers to all your questions with
minimal waiting.
HOW TO BUY SHARES RIGHT WHEN YOU WANT THEM
To buy shares immediately, without waiting for a check to reach us, call us to
make a Telephone Purchase in any non-money market or non-retirement account. You
can buy shares up to ten times the value of your assets with us at the closing
price for the trading day on which you call. Then just send us a check for the
amount of your purchase within seven business days. We recommend the Telephone
Purchase as a convenient way to open a new account in the Regent Eastern
European Fund or the Adrian Day Global Opportunity Fund.
DISCOVER TOUCH-TONE TRADING
You can now exchange up to $50,000 on our automated system without waiting to
speak to a representative. Exchanges can be made between any accounts which have
identical registration. Just call 1-800-US-FUNDS and select menu option 2.
NEED NEWS FAST?
Our automated system delivers the latest market news and investment insights of
our portfolio managers 24 hours a day. Every six weeks you can hear a new report
on each fund, and every week a new analysis of the markets. After calling
1-800-US-FUNDS, select menu option 6 for Portfolio Direct and option 4 for the
weekly Investor Alert.
PAY YOUR BILLS DIRECTLY FROM YOUR ACCOUNT
If you have an account in either of our money market funds, you can have any
bills paid automatically. Imagine the convenience: no checks to write, no stamps
to buy, no envelopes to mail--all absolutely free with a minimum balance of
$1,000. For more information, call us today.
10
<PAGE>
SHAREHOLDER REPORT
THE WORLD OF RETIREMENT
The world of retirement planning can sometimes be complex and intimidating. It's
difficult to always know the latest rules and regulations. Once you think you
understand them, they will probably change. We receive many questions from
shareholders and private investors asking how they can best prepare for
retirement. Here are some of the most common questions--and
misconceptions--people have about retirement planning:
AM I LIMITED AS TO THE AMOUNT OF MONEY I CAN ROLL OVER FROM MY COMPANY'S
RETIREMENT PLAN TO AN IRA?
No. Unlike a regular annual contribution to an IRA, which is restricted to
$2,000, there is no dollar limit on the amount of money that you can roll over
from your employer's plan. If you transfer $10,000 or more to a U.S. Global
Investors IRA, you will never pay a custodial fee for the life of that account.
If you transfer $2,000 in any calendar year, we will waive your custodial fee
for that year.
MAY I HAVE MORE THAN ONE IRA?
Yes. You are allowed to open as many IRAs as you choose, since the Internal
Revenue Code governs the aggregate size of all your IRA accounts. The maximum
overall contribution you can make to your aggregate IRA for a given tax year is
$2,000, but your $2,000 contribution may be allocated across several
investments, in several IRA accounts.
MUST I INVEST MY IRA IN A CD?
No. Although a certificate of deposit (CD) is a commonly used savings vehicle,
there are many other appropriate and IRS-approved investments for your IRA. If
you're searching for investments that have the ability to beat inflation over
the long term and provide growth potential, then you may want to pursue other
investments, such as stock and bond mutual funds.
IF I PARTICIPATE IN MY COMPANY'S RETIREMENT PLAN, MAY I STILL HAVE AN IRA?
Certainly. In fact, by utilizing both an IRA and your company's plan, you give
yourself even more opportunity to take advantage of tax-deferred growth. By
participating in your company's retirement plan, you may limit the amount of IRA
tax deduction you are able to take for your contribution, but you can still
contribute up to $2,000 each year.
I'VE HEARD THAT IF I CAN'T TAKE A TAX DEDUCTION, THEN I CAN NO LONGER CONTRIBUTE
TO AN IRA. IS THAT TRUE?
Not at all. Remember, everyone who is under age 70 1/2 and has earned income is
eligible to make an IRA contribution--only the deduction is limited for some
people. But even if you can't take the deduction, you should still contribute to
your IRA. The real benefit of an IRA is tax deferral, not tax deduction. While
your money is in an IRA, you do not have to pay taxes on any interest or
earnings you may accrue. This allows all earnings to accumulate in your account
year after year giving you the "power of compounding," which you can see in the
accompanying chart.
[THE FOLLOWING SECTION IS ON THE LEFT MARGAIN OF THIS PAGE]
[GRAPHIC: PHOTO OF HARRIET MARMON]
Harriet C. Marmon, CPA
Vice Chairman, Security Trust &
Financial Company
DID YOU KNOW?
IRAs at U.S. Global have no minimum
investment requirement. Call
1-800-US-FUNDS for a free IRA kit. It's
easy to transfer your IRA from another
financial institution. Call today for a
transfer form.
Tax-Deferral Gives IRAs The Advantage
Since income taxes on IRA earnings are
deferred until withdrawal, IRA
investments grow faster than they would
in a taxable account. This graph
compares the growth of a hypothetical
taxable and tax-deferred account,
assuming $2,000 annual contributions, a
hypothetical 8% annual return, a 31%
federal tax bracket and no withdrawals.
[MOUNTAIN GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Rate of Return Annual Contribution Tax Rate
8% "$2,000 " 31.0%
Year Taxable IRA
1 "$2,110.40 " "$2,160.00 "
2 "$4,337.29 " "$4,492.80 "
3 "$6,687.11 " "$7,012.22 "
4 "$9,166.64 " "$9,733.20 "
5 "$11,783.04 " "$12,671.86 "
6 "$14,543.86 " "$15,845.61 "
7 "$17,457.09 " "$19,273.26 "
8 "$20,531.12 " "$22,975.12 "
9 "$23,774.83 " "$26,973.12 "
10 "$27,197.60 " "$31,290.97 "
11 "$30,809.31 " "$35,954.25 "
12 "$34,620.39 " "$40,990.59 "
13 "$38,641.83 " "$46,429.84 "
14 "$42,885.26 " "$52,304.23 "
15 "$47,362.93 " "$58,648.57 "
16 "$52,087.76 " "$65,500.45 "
17 "$57,073.41 " "$72,900.49 "
18 "$62,334.26 " "$80,892.53 "
19 "$67,885.51 " "$89,523.93 "
20 "$73,743.19 " "$98,845.84 "
21 "$79,924.21 " "$108,913.51 "
22 "$86,446.43 " "$119,786.59 "
23 "$93,328.67 " "$131,529.52 "
24 "$100,590.81 " "$144,211.88 "
25 "$108,253.83 " "$157,908.83 "
26 "$116,339.84 " "$172,701.54 "
27 "$124,872.20 " "$188,677.66 "
28 "$133,875.54 " "$205,931.87 "
29 "$143,375.87 " "$224,566.42 "
30 "$153,400.62 " "$244,691.74 "
31 "$163,978.74 " "$266,427.07 "
32 "$175,140.76 " "$289,901.24 "
33 "$186,918.93 " "$315,253.34 "
34 "$199,347.26 " "$342,633.61 "
35 "$212,461.62 " "$372,204.30 "
36 "$226,299.91 " "$404,140.64 "
37 "$240,902.06 " "$438,631.89 "
38 "$256,310.26 " "$475,882.44 "
39 "$272,568.98 " "$516,113.04 "
40 "$289,725.19 " "$559,562.08 "
"$386,097.84 "
11
<PAGE>
SHAREHOLDER REPORT
[THE FOLLOWING SECTION IS ON THE LEFT MARGAIN OF THIS PAGE]
EXPERT MARKET INSIGHTS
[GRAPHIC: PHOTO OF TOM LYDON]
Tom Lydon is president of Global Trends
Investments, an investment advisory firm
specializing in creating customized
mutual fund portfolios for high net
worth individuals. He is a contributor
to major print, radio and television
media.
(Global Trends Investments is not
affiliated with, nor is Mr. Lydon
compensated by, U.S. Global Investors,
Inc.)
(714) 960-7383
Fax (714) 536-2392
E-mail [email protected]
CONTINUED OPPORTUNITIES FOUND IN U.S. MARKETS
The bull market that began in 1990 is alive and well. And most investors can't
believe it. Those that have participated are concerned that the party will end
soon and their hard-earned gains will slip away. Those that haven't are
frustrated: they aren't inclined to jump into the market now when, for them, it
would surely be the top. Investors seem to look for reasons to worry about the
stock market. A case in point: Federal Reserve Chairman Alan Greenspan's comment
that investors were suffering from "irrational exuberance" resulted in
short-term negative market effects. But in the end, the rate hike will not deter
the momentum of one of the longest uptrends in stock market history.
TRY SMALL- AND MID-CAP STOCKS
Consider small- and mid-capitalization stocks (under $1 billion) that
consistently show improved earnings. After a profitable 1995, small-cap stocks
were left behind in 1996 by the strength and momentum of blue-chip stocks. The
Dow was up 26%, the S&P was up 20% and the Russell 2000 was up only 14.8%. And
so far this year we haven't seen much change. Now is the time to take advantage
of this deviation.
Unfortunately, investors have been selling small- and mid-cap stocks to build
their blue-chip positions. Many investment experts warn against selling such
profitable stocks when they're at the bottom of their cycle. In early March,
Peter Lynch proclaimed it time to give big-cap stocks a rest and let the
small-caps take over. He pointed out that the NASDAQ Composite rose 25% last
year but the average stock in the index was up only 6.9%. The Microsofts and the
Intels of the stock world accounted for most of the gain.
FIND PROOF IN STRONG EARNINGS
To put this opportunity into perspective we need to look at earnings. The S&P
500 currently trades at 17 times its projected 1997 earnings. The Russell 2000
is priced at 15 times earnings. Barron's reported that "analysts expect S&P
operating earnings to grow by only about 15% this year, while the Russell's
earnings are seen exploding upward by 35%."
If the economy remains on a slow-growth pace and interest rates remain
relatively stable, we can be optimistic about the continued profitability of
U.S. companies. Of course, there's always a chance an economic or political
surprise may affect all markets. However, if that occurs, small- and mid-cap
stocks will be even more attractive than they are now.
TAKE ADVANTAGE OF FUND MANAGER EXPERTISE
Identifying the companies which warrant your investment is not always easy.
Fortunately, no-load mutual fund managers--some of the best minds in the
business--offer their hard work and extensive research for the benefit of each
and everyone shareholder. If you're looking to reallocate your portfolio to take
advantage of the coming resurgence in small- and mid-cap stocks, there are many
small- and mid-cap growth funds that deserve consideration.
12
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