To: Shareholder Services
From: Victor Flores
re: Investor Alert for the week ended April 18, 1997
The bulls took the upper hand on Wall Street this week, bowling over the
grizzlies and their allies, also known as economists. Ignoring dire warnings
from those selfless gnomes who pore over reams of numbers and minutiae, stocks
and bonds staged a strong comeback. On a related note, the Clinton
administration announced that it will nominate University of Michigan economist
Edward Gramlich to fill one of the vacancies at the Federal Reserve Board. While
the move would presumably strengthen the President's hand on the Fed, biologists
have not been able to confirm whether wolverines are more closely related to
bulls or bears.
The bears appeared to be ahead in the game last week when the core Producer
Price Index showed unexpected strength, but this week's muted inflation number
certainly took the jitters out of the bond market. The big Wall Street houses
did pick up the ball, however, and backed off their earlier predictions of big
rate hikes. The news on the corporate front was positive, as well. Microsoft
posted an 85% increase in quarterly profits, well above analysts' expectations.
Ford also surprised the street when it announced that $800 million in cost
savings had more than doubled the bottom line. On Wall Street, both Merill Lynch
and Paine Webber posted greater than expected earnings. The broad-based nature
of first quarter earnings evidences the ongoing strength in the U.S. economy.
The Dow Jones Industrial Average gained over 300 points to close at 6703.55, an
impressive rally that put almost 5% on the index. The S&P 500 gained 3.89% to
close the week at 766.34. The market's performance, however, was weighted
towards the larger issues, with the small caps posting weaker gains. The Russell
2000 gained less than three quarters of a percent to close at 341.74, while the
NASDAQ Composite gained 1.3% to close at 1222.56. The S&P Utilities were
particularly weak, adding only 0.25% to close at 184.19. In overseas markets,
the Hang Seng Index gained 0.20% to close at 12541.18. Despite fears of further
tightening by the Fed, the bond market rallied sharply, with the yield on the 30
year Treasury falling by 11 basis points to close at 7.05%.
But the real winner this week, of course, was Uncle Sam, who scoffed his
traditional red and blue suit and patriotic top hat in exchange for a fuzzy red
outfit and a cap with a bell on it, reminiscent of that legendary fellow from
the North Pole. But instead of delivering gifts to all the good boys and girls
throughout the land, he dressed up Postal employees as elves and had them
collect checks until the midnight hour on the 15th of April. The game was over,
and those who had received interest free loans from the government over the last
year had to pay up.
The gold market finished in the red this week, with Comex gold for June delivery
falling by $6 to close at $343.30 per ounce. Gold was battered by unrelenting
short sales, even as the head of Germany's central bank announced that Germany
was opposed to gold sales and voiced his opinion that other European central
banks should refrain from selling gold. Crude oil gained a nickel to close at
$19.67.
Despite the volatile performance of the markets in the first quarter of 1997, a
number of the Funds managed by US Global Investors received 4 and 5 star
rankings from Morningstar. The latest edition of Morningstar Mutual Funds
awarded 5 star ranking for one year to the US All American Equity Fund, the
China Region Opportunity Fund, the US Real Estate Fund, the US Tax Free Fund,
and the US Near Term Tax Free Fund. The US Global Resources Fund earned 4 stars
for the one year period. The US Near Term Term Tax Free Fund also earned 5 stars
for three years, while the US Tax Free Fund and US All American Fund each earned
4 stars for three years. Two of our Funds earned 4 stars for five years: the US
Tax Free and US Near Term Tax Free Funds.
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INVESTORS ALERT LEGENDS 01/24/97
Past performance is no guarantee of future results. Net asset value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. No investment in any mutual fund is either insured nor
guaranteed by the U.S. Government. There can be no assurance that the money
market funds will be able to maintain a stable net asset value of $1.00 per
share.
Morning star, a nationally recognized mutual fund rating service, awards ratings
which reflect historical risk-adjusted performance. Five stars are awarded to
funds in the top 10% of their category, four stars are awarded to funds in the
next 22.5%, three stars are awarded to funds in the next 35%, two stars are
awarded to funds in the next 22.5%, and one star is awarded to funds in the
bottom 10%.
Morningstar Rankings as of 12/31/96
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Near Term Tax Free Fund 5* 4* NA
1751 funds 601 funds
U.S. Tax Free Fund 5* 4* 3*
1751 funds 601 funds 267 funds
U.S. Real Estate Fund 5* 1* NA
3048 funds 1076 funds
U.S. Global Resources Fund 4* 2* 1*
3048 funds 1076 funds 601 funds
U.S. All American Fund 5* 3* 1*
3048 funds 1076 funds 601 funds
China Region Opportunity Fund 5* NA NA
939 funds
