REGISTRATION NO. 2-35439
REGISTRATION NO. 811-1800
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ 82 ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [ 82 ]
U.S. GLOBAL INVESTORS FUNDS
(Exact Name of Registrant as Specified in Charter)
7900 Callaghan Road
San Antonio, Texas 78229
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (210) 308-1234
Frank E. Holmes, President
U.S. Global Investors Funds
7900 Callaghan Road
San Antonio, Texas 78229
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[x ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
The Registrant hereby declares that, pursuant to Rule 24f-2 promulgated under
the Investment Company Act of 1940, an indefinite number of shares of beneficial
interest, no par value, in Gold Shares Fund, World Gold Fund, Global Resources
Fund, China Region Opportunity Fund, All American Equity Fund, Income Fund, Real
Estate Fund, Tax Free Fund, Near-Term Tax Free Fund, U.S. Government Securities
Savings Fund and U.S. Treasury Securities Cash Fund have previously been
registered. The Rule 24f-2 Notice for the most recent fiscal year of U.S. Global
Investors Funds will be filed before September 28, 1998.
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PART A -- PROSPECTUS
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PROSPECTUS
GOLD AND NATURAL RESOURCES FUNDS
Gold Shares Fund
World Gold Fund
Global Resources Fund
EQUITY FUNDS
China Region Opportunity Fund
All American Equity Fund
Income Fund
Real Estate Fund
TAX-FREE FUNDS
Tax Free Fund
Near-Term Tax Free Fund
GOVERNMENT SECURITIES MONEY MARKET FUNDS
U.S. Government Securities Savings Fund
U.S. Treasury Securities Cash Fund
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PROSPECTUS
November 2, 1998
This prospectus gives vital information about these no-load funds. For your own
benefit and protection, please read it before you invest, and keep it on hand
for future reference.
You can find more detailed information in the current Statement of Additional
Information (SAI). For a free copy, call 1-800-US-FUNDS. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
prospectus by reference.
Please note that shares of these funds:
o Are not insured, guaranteed, sponsored, recommended, or approved by
the United States government or any agency thereof
o may not be able to maintain a stable $1 share price (only applicable
to government securities money market funds)
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
U.S. GLOBAL INVESTORS FUNDS
P. O. Box 781234
San Antonio, Texas 78278-1234
PHONE: 1-800-US-FUNDS
INTERNET: http://www.us-global.com
GOLD AND NATURAL RESOURCES FUNDS
Gold Shares Fund
World Gold Fund
Global Resources Fund
EQUITY FUNDS
China Region Opportunity Fund
All American Equity Fund
Income Fund
Real Estate Fund
TAX-FREE FUNDS
Tax Free Fund
Near-Term Tax Free Fund
GOVERNMENT SECURITIES MONEY MARKET FUNDS
U.S. Government Securities Savings Fund
U.S. Treasury Securities Cash Fund
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CONTENTS
OVERVIEW
A LOOK AT EXPENSES AND FINANCIAL HISTORY
Investor expenses
Shareholder transaction expenses.........................................
Annual fund operating expenses ..........................................
Example..................................................................
Financial highlights.....................................................
A FUND-BY-FUND REVIEW OF INVESTMENT GOALS, STRATEGIES AND RISKS
Investment objectives & policies .......................................
Common investment practices.............................................
Risk considerations ....................................................
Strategic transactions..................................................
INSTRUCTIONS AND POLICIES FOR OPENING, MAINTAINING AND CLOSING AN ACCOUNT
Your account
Buying shares...........................................................
Exchanging between funds................................................
Selling (redeeming) shares..............................................
Transaction policies.........................................................
Valuation of shares
Execution of requests
Trader's fee paid to the fund
Telephone transactions
Dividends and account policies...............................................
Account statements
Dividend reinvestment
Taxability of dividends
Taxability of transactions
Performance information
Small accounts
DETAILS THAT APPLY TO THE FUNDS AS A GROUP
Fund details............................................................
How the funds are organized
The management firm (the adviser)
The transfer agent
Other service providers
For more information....................................................
Reports to shareholders
Statement of additional information (SAI)
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U.S. Global Investors Funds are designed to make available to mutual fund
investors the expertise of the investment professionals at U.S. Global
Investors, Inc., the adviser. The adviser is the organization employed by the
funds to give professional advice on its investments and asset management
practices.
GOLD & NATURAL RESOURCES FUNDS
U.S. Global Investors offers three gold and natural resources funds:
Gold Shares Fund
World Gold Fund
Global Resources Fund
EQUITY FUNDS
U.S. Global Investors offers four diversified equity funds:
China Region Opportunity Fund (China Region Fund)
All American Equity Fund (All American Fund)
Income Fund
Real Estate Fund
TAX-FREE FUNDS
U.S. Global Investors offers two tax-free funds:
Tax Free Fund
Near-Term Tax Free Fund
GOVERNMENT SECURITIES MONEY MARKET FUNDS
U.S. Global Investors offers two money market funds that invest principally in
government securities:
U.S. Government Securities Savings Fund (Government Securities Savings
Fund)
U.S. Treasury Securities Cash Fund (Treasury Securities Cash Fund)
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INVESTOR EXPENSES
The figures below summarize an investor's maximum transaction costs and expenses
for the most recent fiscal year. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge..................................................None
Redemption fee (does not include wire redemption......................None
fee -- currently $10)
Deferred sales charge.................................................None
Administrative exchange fee.............................................$5
Account closing fee (does not apply to exchanges) .....................$10
Trader's fee (paid if shares are redeemed or exchanged
before a required number of calendar days)
Gold and natural resources fund shares held less than 30 days........0.25%
Income Fund, Real Estate Fund, All American Fund shares
held less than 30 days ........................................0.10%
China Region Fund shares held less than 180 days..................1.00%
Tax-free and government securities money market fund shares .......None
ANNUAL FUND OPERATING EXPENSES
Annual fund operating expenses are based on historical expenses, adjusted to
reflect current fees and calculated as a percentage of average fund net assets.
The adviser has guaranteed that total fund operating expenses will not exceed
1.00% for the All American Fund, 0.70% for the Tax Free Fund and Near-Term Tax
Free Funds and 0.40% for the Government Securities Savings Fund on an annualized
basis through June 30, 1999, and until such later date as the adviser
determines. Expense offset arrangements have been made with the Funds' custodian
so the custodian fees are paid indirectly by credits earned on the Funds' cash
balances.
GOLD AND NATURAL RESOURCES FUNDS
Gold World Globnal
Shares Gold Resources
Fund Fund Fund
Management fee (OPERATING EXPENSES TO BE
Other expenses PROVIDED FOR EACH FUND WITH
(after reduction) DEFINITIVE FILING)
Total fund operating expenses
(after reduction)
In the absence of offset arrangements, other expenses and total fund operating
expenses would have been 1.09% and 1.84% for the Gold Shares Fund, 0.55% and
1.54% for the World Gold Fund and 1.34% and 2.34% for the Global Resources Fund.
3
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EQUITY FUNDS
China All Real
Region American Income Estate
Fund Fund Fund Fund
Management fee (OPERATING EXPENSES TO BE
Other expenses PROVIDED FOR EACH FUND WITH
(after reduction) DEFINITIVE FILING)
Total fund operating expenses
(after reduction)
In the absence of expense guarantees and offset arrangements, management fees,
other expenses and total fund operating expenses would have been 1.25%, 1.29%
and 2.54% for the China Region Fund, 0.75%, 1.06% and 1.81% for the All American
Fund, 0.75%, 1.45% and 2.20% for the Income Fund, and 0.75%, 1.07% and 1.82% for
the Real Estate Fund.
TAX-FREE AND GOVERNMENT SECURITIES MONEY MARKET FUNDS
Government
Tax Near-Term Securities Treasury
Free Tax Free Savings Cash
Fund Fund Fund Fund
Management fee (OPERATING EXPENSES TO BE
Other expenses PROVIDED FOR EACH FUND WITH
(after reduction) DEFINITIVE FILING)
Total fund operating expenses
(after reduction)
In the absence of expense guarantees and offset arrangements, management fees,
other expenses and total fund operating expenses would have been 0.75%, 0.71%
and 1.46% for the Tax Free Fund, 0.50%, 1.42% and 1.92% for the Near-Term Tax
Free Fund, and 0.42%, 0.28% and 0.70% for the Government Securities Savings
Fund.
The example below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
GOLD AND NATURAL RESOURCES FUNDS
Gold World Global
Shares Gold Resources
Fund Fund Fund
1 year (OPERATING EXPENSES
3 years TO BE PROVIDED FOR
5 years EACH FUND WITH DEFINI-
10 years TIVE FILING)
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EQUITY FUNDS
China All Real
Region American Income Estate
Fund Fund Fund Fund
1 year (OPERATING EXPENSES
3 years TO BE PROVIDED FOR
5 years EACH FUND WITH DEFINI-
10 years TIVE FILING)
TAX-FREE AND GOVERNMENT SECURITIES MONEY MARKET FUNDS
Government
Tax Near-Term Securities Treasury
Free Tax Free Savings Cash
Fund Fund Fund Fund
1 year (OPERATING EXPENSES
3 years TO BE PROVIDED FOR
5 years EACH FUND WITH DEFINI-
10 years TIVE FILING)
These estimates include an account closing fee of $10 for each period. The All
American Fund also includes account maintenance fees of $12, $36, $60, and $120,
respectively, for the periods shown.
The account closing and maintenance fees are flat charges that do not vary with
the size of your investment. Therefore, for investments larger than $1,000,
total expenses will be much lower than this example implies.
In conformance with SEC regulations, the example is based on a $1,000
investment. The minimum investment, however, is $5,000 for most of the funds. In
practice, a $1,000 account would be assessed a monthly $1.00 small account
charge ($5.00 in the tax free funds and China Region Fund), which is not
reflected in the example. See Small Accounts section.
The example does not represent past or future expenses. Actual expenses may be
more or less than those shown.
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FINANCIAL HIGHLIGHTS
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose unqualified report is included in the Annual
Report to Shareholders, which is incorporated by reference into the Statement of
Additional Information. The Financial Highlights should be read in conjunction
with the financial statements and notes included in the Annual Report.
GOLD SHARES FUND
Per share for each year ended June 30, 1998 1997 1996
NET ASSET VALUE, BEGINNING OF YEAR (FINANCIAL HIGHLIGHTS TO BE
Investment activities PROVIDED FOR EACH FUND WITH
Net investment income (loss) DEFINITIVE FILING)
Net realized and unrealized gain (loss)
Total from investment activities
Distributions
From net investment income
In excess of net investment income
From net realized gains
Total distributions
NET ASSET VALUE, END OF YEAR
TOTAL RETURN (EXCLUDING ACCOUNT FEES)
Ratios to average net assets (a)
Net investment income
Total expenses
Expenses reimbursed or offset
Net expenses
Average commission rate (b)
Portfolio turnover rate
Net assets, end of year (in thousands)
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INVESTMENT OBJECTIVES & POLICIES
As a group the funds offer a complete range of investment options. However, no
single fund can be a complete investment program, and a prospective investor
should take into account personal objectives and other investments when
considering the purchase of fund shares.
The funds' investment objectives may not be changed without shareholder
approval, except for the China Region and All American Funds that can be changed
only by a vote of the board of trustees. Shareholders will be notified in
writing at least 30 days before any material change in either fund's investment
objective.
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GOLD AND NATURAL RESOURCES FUNDS
GOLD SHARES FUND
WORLD GOLD FUND
GLOBAL RESOURCES FUND
All three gold and natural resources funds seek long-term growth of capital plus
protection against inflation and monetary instability. The Gold Shares Fund
pursues current income as a secondary objective. All three funds may invest,
without limitation, in issuers in any part of the world. The gold and natural
resources funds may be subject to risks not present with other mutual funds and
are highly speculative.
The three funds use different strategies in pursuing their investment
objectives. The Gold Shares Fund focuses on selecting world class, senior gold
mining companies, most of which are in South Africa, Australia and North
America. The World Gold Fund includes junior and intermediate exploration and
development gold companies from around the world to give the fund added growth
potential. The Global Resources Fund invests in natural resource-related
businesses all over the globe such as those in energy, metals, minerals and
other similar industries.
The Gold Shares Fund concentrates its investments in common stocks of companies
involved in mining, processing, or dealing in gold. Normally, at least 65% of
the Gold Shares Fund's total assets will be invested in securities of companies
involved in gold operations. The Gold Shares Fund has significant investments in
South African issuers. The unstable political and social conditions in South
Africa and the unsettled political conditions in neighboring countries 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.
The World Gold Fund concentrates its investments in the equity securities of
companies primarily engaged in the exploration, mining, processing, fabrication
and distribution of gold or other metals, such as silver, platinum, uranium and
strategic metals. The World Gold Fund invests at least 25% of its total assets
in the securities of companies principally engaged in natural resource
operations. Under normal circumstances, at least 65% of its total assets will be
invested in the securities of companies involved in the exploration for, mining
and processing of, or dealing in, gold.
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The Gold Shares and World Gold Funds may invest up to 10% of each fund's
respective total assets in gold or gold bullion.
The Global Resources Fund concentrates its investments in the equity securities
of large capitalization companies primarily engaged in the exploration, mining,
processing, fabrication and distribution of natural resources of any kind,
including timber, hydrocarbons, minerals and metals such as platinum, uranium,
strategic metals, gold, silver, diamonds, coal, oil and phosphates. Consistent
with its investment objectives, the Global Resources Fund may diversify its
investments substantially among all natural resources.
PORTFOLIO MANAGER
Gil Atzmon is a gold stock analyst and leader of the portfolio team managing the
World Gold and Gold Shares Funds. Mr. Atzmon, portfolio manager for the World
Gold and Global Resources Funds from 1987 to 1990, rejoined the company in June
1998. From 1990 to 1993 he was vice president of investor relations for Dayton
Mining Corporation where he raised $50 million in equity. From 1993 to 1998 he
ran his own consulting and management firm advising money managers on investment
decisions and strategies and mining companies on financing and corporate
development. Mr. Atzmon holds a master's degree in energy and mineral resources
from The University of Texas and a bachelor's degree in geology and geography
from Columbia University.
Michael Chapman, a Chartered Financial Analyst, leads the portfolio team
managing the Global Resources Fund. Mr. Chapman joined the adviser as a senior
research analyst in November 1995. From 1992 to 1995 he was a petroleum
engineer. Mr. Chapman has earned a master's degree in energy and mineral
resources and a bachelor's degree in petroleum engineering from The University
of Texas.
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EQUITY FUNDS
The investment objective of the China Region, All American, and Real Estate
Funds is long-term capital appreciation (current income is a secondary
consideration for the Real Estate Fund). They each take a different approach,
offering unique advantages, in seeking to achieve their investment objectives.
The Income Fund seeks preservation of capital and, consistent with that
objective, production of current income. Long-term capital appreciation is a
secondary consideration.
CHINA REGION FUND
The China Region Fund invests primarily in equity securities in the China
region, which consists of the People's Republic of China (PRC or China), Hong
Kong, Taiwan, Korea, Singapore, Thailand and Malaysia. At least 65% of the China
Region Fund's total assets will be invested in equity securities issued by China
region companies that (1) are organized under the laws of the countries within
the China region, or (2) have at least 50% of their assets in one or more China
region countries or derive at least 50% of their gross revenues or profits from
providing goods or services to or from one or more China region countries.
Investments by the China Region Fund in the securities of China region companies
may provide the potential for above-average capital appreciation, but are
subject to special risks. The China Region Fund is designed for long-term
investors who can accept the special risks of investing in the China region not
typically associated with investing in other more established economies or
securities markets. These risks include political, economic and legal
uncertainties, as well as currency fluctuations. Investors should carefully
consider their ability to assume these risks before making an investment in the
China Region Fund. An investment in shares of the China Region Fund should be
considered speculative and thus may not be appropriate for all investors. An
investment in shares of the fund should not be considered a complete investment
program.
The China Region Fund will invest in both new and existing enterprises
registered and operating in China and the China region. These will include
wholly Chinese-owned enterprises, wholly foreign-owned enterprises and
Sino-foreign joint ventures. While portfolio holdings may be geographically
dispersed, we anticipate that the trading activities of the fund in PRC
securities will be focused in the authorized China securities markets; in
particular, the Hong Kong, Shenzhen and Shanghai stock exchanges.
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PORTFOLIO MANAGER
Bin Shi manages the fund's portfolio. A native of Shanghai, China, Mr. Shi
joined the adviser in January 1994 to provide fundamental stock analysis for the
China Region Fund. Mr. Shi, a Chartered Financial Analyst, has served as
portfolio manager since January 1996. From 1991 to 1994 Mr. Shi earned a
master's degree and pursued his PhD in finance and accounting at Tulane
University. He is also a graduate of the prestigious Fudan University in
Shanghai, China.
ALL AMERICAN FUND
The All American Fund seeks to grow with the American economy, normally
investing at least 75% of its total assets in a broadly diversified portfolio of
domestic common stocks. The All American Fund measures its performance against
the S&P 500 index, investing primarily in large-capitalization stocks while
retaining the flexibility to seek out promising individual stock opportunities.
PORTFOLIO MANAGER
The adviser uses a team approach to manage the assets of the All American Fund.
The team meets regularly to review portfolio holdings and to discuss buy and
sell activity. Bin Shi has been the team leader of the All American Fund since
July 1995. His background is described above under China Region Fund.
REAL ESTATE FUND
The Real Estate Fund primarily seeks long-term capital appreciation (with
current income as a secondary consider ation) by investing at least 65% of its
total assets in equity securities listed on a national securities exchange or
NASDAQ. These securities must have at least 50% of the value of their assets in,
or must derive at least 50% of their revenues from, the ownership, construction,
management or sale of residential, commercial or industrial real estate.
Historically, most of the securities found in the Real Estate Fund are
securities issued by real estate investment trusts (REITs), but the fund also
invests in securities issued by other companies in the real estate industry such
as homebuilders and developers. The Real Estate Fund may also invest in
securities of foreign issuers that are listed on foreign securities exchanges.
PORTFOLIO MANAGER
The adviser has contracted with Goodman & Company N.Y. Ltd. to serve as sub-
adviser to the Real Estate Fund beginning May 1, 1998. It is wholly owned by
Goodman & Company Ltd., which is ultimately wholly owned by Dundee Bancorp Inc.,
an Ontario incorporated Canadian company listed on the Toronto Stock Exchange.
Mr. Ned Goodman, chairman of Goodman & Company Ltd., is the "controlling person"
of Goodman & Company N.Y. Ltd. and Goodman & Company Ltd. ("Goodman & Company").
Goodman & Company is the manager of Dynamic Mutual Funds, a Canadian family of
twenty-six mutual funds with approximately $6.5 billion (Cdn) of funds under
management, more than $500 million of which is in two real estate equity funds.
Goodman & Company uses a team approach to manage the Real Estate Fund. Mr.
Goodman and Ms. Anne MacLean lead the team. Mr. Goodman, Chartered Financial
Analyst, has more than thirty years of investment experience. Since 1979, Mr.
Goodman has served as chairman, president and chief executive officer of Goodman
& Company, an adviser to investment companies operating in Canada. Ms. MacLean,
Chartered Financial Analyst, is a Goodman & Company portfolio manager and
partner responsible for U.S., Latin American and real estate equities. Before
joining Goodman & Company in January 1995, Ms. MacLean had twelve years of
investment experience as a portfolio manager with Gluskin Sheff & Associates and
as an investment analyst with United Bond and Share Company.
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INCOME FUND
The Income Fund invests in a broad range of equity and debt securities with at
least 80% of the fund's total net assets invested in income-producing
securities. The Income Fund focuses on issuers that have a long-established
record of paying cash dividends, including companies that provide essentials
such as electricity, gas and telephone services.
PORTFOLIO MANAGER
The adviser uses a team approach to manage the assets of the Income Fund.
Beginning in 1997, Creston King and Michael Chapman have led the team that meets
regularly to review portfolio holdings and to discuss buy and sell activity. Mr.
King's qualifications are discussed below under Tax-Free Funds. Mr. Chapman's
experience is discussed above under World Gold and Gold Shares Funds.
TAX FREE FUNDS
U.S. Global Investors offers two tax-free funds that seek to provide a high
level of current income that is exempt from federal income taxation, and to
preserve capital.
TAX FREE FUND
NEAR-TERM TAX FREE FUND
The Tax Free Fund is expected to offer the higher yield, and its net asset value
will be subject to greater volatility because it will normally have a longer
average maturity than the Near-Term Tax Free Fund. The Near-Term Tax Free Fund
will maintain an average weighted portfolio maturity of five years or less.
Both tax-free funds invest primarily in securities, the interest from which is
exempt from federal income taxation. Such securities will typically be municipal
bonds -- debt obligations issued by or for states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities; or by multi-state agencies or
authorities.
The tax-free funds invest only in debt securities earning one of the four
highest ratings by Moody's Investor's Services (Aaa, Aa, A, Baa) or by Standard
& Poor's Corporation (AAA, AA, A, BBB). Not more than 10% of either of the
tax-free funds' total assets will be invested in the fourth rating category.
Investments in the fourth category may have speculative characteristics and,
therefore, may involve higher risks.
PORTFOLIO MANAGER
Creston King leads the team managing the assets of the tax-free funds. Mr. King,
a Chartered Financial Analyst, joined the adviser in September 1993 and has
managed both tax-free funds since January 1995. Prior to joining the adviser Mr.
King was an account executive with a regional broker-dealer. He has been in the
investment business since 1985 and holds a bachelor's degree in economics from
Duke University.
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GOVERNMENT SECURITIES MONEY MARKET FUNDS
U.S. Global Investors offers two money market funds that invest exclusively in
government securities and in repurchase agreements collateralized with
government securities. The two government securities money market funds work
together to meet all of a shareholder's savings and checkwriting needs. They are
designed to safeguard principal while earning daily dividend income. Both
government securities money market funds attempt to maintain a constant net
asset value of $1.00 per share, although there can be no assurance that either
can always do so.
TREASURY SECURITIES CASH FUND
The Treasury Securities Cash Fund offers free unlimited checkwriting privileges,
and there is no minimum dollar amount requirement. The Treasury Securities Cash
Fund's investment objective is to obtain a high level of current income while
maintaining the highest degree of safety of principal and liquidity. The
Treasury Securities Cash Fund invests in United States Treasury debt securities,
backed by the "full faith and credit" of the United States government, with 397
days or less remaining to maturity. It also invests in repurchase agreements
collateralized with such obligations.
GOVERNMENT SECURITIES SAVINGS FUND
The objective of the Government Securities Savings Fund is to achieve a
consistently high yield with safety of principal. The Government Securities
Savings Fund invests exclusively in United States Treasury obligations and
obligations of agencies and instrumentalities of the United States government,
the income from which may be exempt from state income taxes, and repurchase
agreements collateralized by such obligations. The Government Securities Savings
Fund is designed to provide a higher yield than the Treasury Securities Cash
Fund, but with somewhat less safety of principal and liquidity. The Government
Securities Savings Fund may invest in fixed-rate, floating-rate and
adjustable-rate securities issued by the United States Treasury and various
United States government agencies, including the Federal Home Loan Bank, the
Federal Farm Credit Bank and the Student Loan Marketing Association.
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Under federal law, the income derived from obligations issued by the United
States government and some of its agencies and instrumentalities may be exempt
from state and local income taxes. Many states that tax personal income permit
mutual funds to pass this tax exemption through to shareholders. To maximize the
taxable equivalent yield for shareholders under normal circumstances, the
Government Securities Savings Fund will attempt to invest only in obligations
that qualify for the exemption from state taxation in those states that offer
such exemption.
PORTFOLIO MANAGER
Creston King leads the team managing the assets of the government money market
funds. Mr. King's background is described above under Tax-Free Funds.
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COMMON INVESTMENT PRACTICES
TEMPORARY DEFENSIVE INVESTMENT
For temporary defensive purposes during periods that, in the adviser's opinion,
present a fund with adverse changes in the economic, political or securities
markets, each fund may seek to protect the capital value of its assets by
temporarily investing up to 100% of its assets in:
o U.S. Government securities, short-term indebtedness, money market
instruments, or other investment grade cash equivalents, each
denominated in U.S. dollars or any other freely convertible currency;
or
o repurchase agreements as described below.
In addition, the China Region Fund may invest in money market instruments,
deposits or other investment grade short-term investments in the local China
region currencies as may be appropriate at the time.
REPURCHASE AGREEMENTS
Each fund may invest part of its assets in repurchase agreements with United
States broker-dealers, banks and other financial institutions, provided the
fund's custodian always has possession of securities serving as collateral
(either directly or through a tri-party agreement) or has evidence of book entry
receipt of such securities.
PORTFOLIO CONCENTRATION AND DIVERSIFICATION
As a fundamental policy, which cannot be changed without a vote of shareholders,
no fund (other than the Gold Shares, World Gold and Real Estate Funds) will
invest more than 25% of its total assets in securities issued by any single
industry or government (other than obligations issued or guaranteed by the
United States government or any of its agencies or instrumentalities). The Gold
Shares Fund, World Gold Fund and Real Estate Fund have policies of concentrating
their investments in companies in a small number of industries or sectors.
Investors should understand that an investment in these three 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.
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As a fundamental policy, no fund will: (a) invest more than 5% of the value of
its total assets in securities of any one issuer, except such limitation shall
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 the issuer. (These limitations as to the Gold Shares, Near-Term
Tax Free and China Region Funds apply only to 75% of the value of their
respective gross assets.)
PORTFOLIO TURNOVER
The length of time a fund has held a particular security is not generally a
consideration in investment decisions. It is the policy of each fund to effect
portfolio transactions without regard to holding period if, in the judgment of
the adviser, such transactions are advisable. Portfolio turnover generally
involves some expense, including brokerage commissions, dealer mark-ups or other
transaction costs on the sale of securities and reinvestment in other
securities. Such sales may result in realization of taxable capital gains.
Portfolio turnover rates for the funds are described in the Financial Highlights
section.
BORROWING
As a fundamental policy that cannot be changed without a vote by shareholders,
each of the Gold Shares, World Gold, China Region and All American Funds (it is
not a fundamental policy for the All American Fund) may borrow up to 5% of its
total assets from a bank for temporary or emergency purposes. Each fund may also
borrow up to 33 1/3% of its total assets (reduced by the amount of all
liabilities and indebtedness other than such borrowings) when deemed desirable
or appropriate to meet redemption requests. This borrowing is intended to be
only a temporary solution until securities can be sold in an orderly way. To the
extent that the fund borrows money before selling securities, the fund may be
leveraged. At such times, the fund may appreciate or depreciate more rapidly
than an unleveraged portfolio. The fund will repay any money borrowed in excess
of 5% of the value of its total assets before purchasing additional portfolio
securities.
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As a fundamental policy that cannot be changed without a vote by shareholders,
the Global Resources, Real Estate, Income, Tax Free, and Near-Term Tax Free
Funds may borrow from a bank up to a limit of 5% of the total assets of the fund
as a temporary measure for emergency purposes.
LENDING OF PORTFOLIO SECURITIES
Each fund may lend securities to broker-dealers or institutional investors for
their use in connection with short sales, arbitrages and other securities
transactions.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each fund may purchase securities on a when-issued or delayed-delivery basis.
Securities purchased on a when-issued or delayed-delivery basis are purchased
for delivery beyond the normal settlement date at a stated price and/or yield.
No income accrues to the purchaser of a security on a when-issued or
delayed-delivery basis before the dated date (interest accrual date). These
securities are recorded as an asset and are subject to changes in value based on
changes in the general level of interest rates or market prices. Purchasing a
security on a when-issued or delayed-delivery basis can involve a risk that the
market price at the time of delivery may be lower than the agreed upon purchase
price. In that case the fund could suffer an unrealized loss at the time of
delivery. The fund will only make commitments to purchase securities on a
when-issued or delayed-delivery basis when intending to purchase the securities,
but may sell them before the settlement date if it is deemed advisable. The fund
will restrict its liquid securities in an amount at least equal in value to the
fund's commitments to purchase when-issued or delayed-delivery securities. If
the value of these restricted assets declines, the fund will restrict sufficient
liquid assets on a daily basis so that the value of the restricted assets is
equal to the amount of such commitments.
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RISK CONSIDERATIONS
MARKET RISK
Investments in equity and debt securities are subject to inherent market risks
and fluctuations in value due to earnings, economic conditions, quality ratings
and other factors beyond the adviser's control. Therefore, the return and net
asset value of the funds will fluctuate.
Debt securities are also subject to price fluctuations based on changes in
interest rates, which will generally result in these securities changing in
price in the opposite direction. That is, the value of these securities will
increase when interest rates decline and will decrease when interest rates rise.
FOREIGN SECURITIES
The gold and natural resources funds and the equity funds may invest in foreign
securities. Investments in foreign securities, whether in emerging or more
developed countries, are subject to risks and uncertainties not typically
associated with investments in domestic securities. These risks and
uncertainties include currency exchange rates and exchange control regulations,
less publicly available information, different accounting and reporting
standards, less liquid markets, more volatile markets, higher brokerage
commissions and other fees, the possibility of nationalization or expropriation,
confiscatory taxation, political instability, and less protection provided by
the judicial system.
EMERGING MARKETS
The gold and natural resources funds and the equity funds may invest in emerging
markets. Political and economic structures in emerging markets are in their
infancy and developing rapidly, and may lack the social, political and economic
stability characteristic of more developed countries. In the past some emerging
markets, especially those formerly governed by communist regimes, have failed to
recognize private property rights and have, at times, nationalized or
expropriated the assets of private companies. As a result, the risks normally
associated with investing in any foreign country may be heightened in emerging
markets. In addition, unanticipated political or social developments may affect
the value of a fund's investments in emerging markets. The small size and
inexperience of the securities markets in emerging markets and the limited
volume of trading in securities in those markets may make a fund's investments
in these securities illiquid and more volatile than investments in the
securities of companies in more developed countries.
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Little financial or accounting information may be available with respect to
companies in emerging markets, and assessing the value or prospects of an
investment in such companies may also be difficult.
ADRs AND GDRs
The gold and natural resources funds and the equity funds may invest in
sponsored or unsponsored American Depository Receipts (ADRs) or Global
Depository Receipts (GDRs) representing shares of companies in foreign
countries. ADRs are depository receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. Foreign banks or trust companies typically issue GDRs, although
U.S. banks or trust companies may issue them also. They evidence ownership of
underlying securities issued by a foreign or a United States corporation.
Generally, depository receipts in registered form are designed for use in the
U.S. securities market, and depository receipts in bearer form are designed for
use in securities markets outside the United States. Depository receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the securities
underlying unsponsored depository receipts are not obligated to reveal material
information in the United States. Therefore, less information may be available
regarding such issuers. There may also be no correlation between such
information and the market value of the depository receipts. For purposes of a
fund's investment policies, the fund's investments in depository receipts will
be deemed to be investments in the underlying securities.
INVESTMENTS IN SMALL ISSUERS
The gold and natural resources funds and the equity funds may invest in small
companies for which it is difficult to obtain reliable information and financial
data. The securities of these smaller companies may not be readily marketable,
making it difficult to dispose of shares when it may otherwise be advisable. In
addition, certain issuers in which a fund may invest may face difficulties in
obtaining the capital necessary to continue in operation and may become
insolvent, which may result in a complete loss of the fund's investment in such
issuers.
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ILLIQUID SECURITIES
None of the funds will invest more than 10% of net assets in illiquid securities
with the exception of the China Region Fund, which may invest up to 15%.
Securities may be illiquid because they are unlisted, subject to legal
restrictions on resale or due to other factors which, in the adviser's opinion,
raise a question concerning a fund's ability to liquidate the securities in a
timely and orderly way without substantial loss.
VOLATILITY OF GOLD COMPANY STOCKS
The volatility of securities of companies involved in gold operations will
affect the net asset value of the Gold Shares Fund and, to a lesser extent, the
Global Resources and World Gold Funds.
UTILITY SECURITIES
The Income Fund has traditionally invested a portion of its assets (not to
exceed 25% of its total assets) in utility securities because such securities
have historically earned above-average dividend income. Gas and electric public
utilities industries may be subject to broad risks resulting from government
regulation, financing difficulties, supply and demand for services or fuel, and
special risks associated with energy and atmosphere conservation.
REAL ESTATE SECURITIES
The Real Estate Fund may be subject to the risks associated with the direct
ownership of real estate, including real estate valuation, risks related to
general and local economic conditions, and other risks.
ENERGY SECURITIES
The Global Resources Fund may invest a substantial part of its assets in energy
and energy-related firms. The securities of such firms are subject to changes
which depend largely on the price and supply of energy fuels, which may
fluctuate sharply.
DIRECT EQUITY INVESTMENTS
The gold and natural resources funds and the equity funds may make direct equity
investments. These investments may involve a high degree of business and
financial risk. Because of the absence of any trading markets for these
investments, a fund may be unable to timely liquidate its securities, especially
if there is negative news regarding the specific securities or the markets
overall. Such securities could decline significantly in value before a fund can
liquidate such securities. In addition to financial and business risks, issuers
whose securities are not listed will not be subject to the same disclosure
requirements applicable to issuers whose securities are listed.
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INVESTMENTS IN CLOSED-END INVESTMENT COMPANIES
The gold and natural resources funds and the equity funds may invest in the
securities of closed-end investment companies with investment policies similar
to those of the fund, provided its investments in these securities do not exceed
3% of the total voting stock of any such closed-end investment company and do
not, in total, exceed 10% of the fund's total assets.
The fund will indirectly bear its proportionate share of any management fees
paid by investment companies it owns in addition to the advisory fee paid by the
fund.
STRATEGIC TRANSACTIONS
The gold and natural resources funds and the equity funds may, but are not
required to, use various other investment strategies as described below. These
strategies are generally accepted as modern portfolio management techniques and
are regularly used by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur. While pursuing these
investment strategies, the funds may purchase and sell exchange-listed and
over-the-counter put and call options on securities, equity and fixed-income
indexes and other financial instruments. In addition, the Gold Shares, World
Gold, China Region and All American Funds may purchase and sell financial
futures contracts and options thereon and enter into various currency
transactions such as currency forward contracts, currency futures contracts, or
options on currencies or currency futures. Collectively, all of the above
transactions and other underlying derivative instruments are called strategic
transactions. The funds will not sell put options except in closing
transactions.
Each fund may engage in strategic transactions for hedging, risk management, or
portfolio management purposes and not for speculation. Strategic transactions
may be used to attempt to protect against possible changes in the market value
of securities held in, or to be purchased for, the portfolio. Such changes may
result from securities markets or currency exchange rate fluctuations. Strategic
transactions may also be used to attempt to protect unrealized gains or prevent
losses in the value of portfolio securities, or to establish a position using
strategic transactions as a temporary substitute for purchasing or selling
particular securities. The ability of the funds to use these strategic
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transactions successfully will depend upon the adviser's ability to predict
pertinent market movements, which cannot be assured. Engaging in strategic
transactions will increase transaction expenses and may result in a loss that
exceeds the principal invested in the transaction. The funds will comply with
applicable regulatory requirements when engaging in strategic transactions.
SPECIFIC FUND LIMITATIONS ON STRATEGIC TRANSACTIONS
The gold and natural resources funds will limit their strategic transactions to
purchasing and selling call options and purchasing put options on stock indexes,
selling covered calls on portfolio securities, buying call options on securities
the funds intend to purchase, purchasing put options on securities (whether or
not held in its portfolio), and engaging in closing transactions for an
identical option. Not more than 2% of a particular gold and natural resources
fund's total assets may be invested in premiums on put options, and not more
than 25% of a fund's total assets may be subject to put options. The gold and
natural resources funds will not purchase any option, if immediately afterwards,
the aggregate market value of all outstanding options purchased and written by
the fund would exceed 5% of the fund's total assets. The gold and natural
resources funds will not write any call option if, immediately afterwards, the
aggregate value of a fund's securities subject to outstanding call options would
exceed 25% of the value of its total assets. The gold and natural resources
funds will only deal in options that are either listed on an exchange or quoted
on NASDAQ.
The China Region Fund will limit its options transactions to exchange-listed
options. It will not buy any option if, immediately afterwards, the aggregate
market value of all outstanding options purchased and written would exceed 5% of
the fund's total assets. The China Region Fund will not write any call options
if, immediately afterwards, the aggregate value of the fund's securities subject
to outstanding call options would exceed 25% of the value of its assets.
The All American Fund will limit its strategic transactions to purchasing stock
index futures contracts or purchasing options thereon, purchasing and selling
call options and purchasing put options on stock indexes, selling
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covered call options on portfolio securities, buying call options on securities
the fund intends to purchase, buying put options on portfolio securities, and
engaging in closing transactions for an identical option. The underlying value
of all futures contracts shares may not exceed 35% of the All American Fund's
total assets. Furthermore, the fund will not commit more than 5% of its total
assets to premiums on options and initial margin on futures contracts. The All
American Fund will not borrow money to purchase futures contracts or options.
The Real Estate and Income Funds will limit their strategic transactions to
purchasing and selling call options and purchasing put options on stock indexes,
selling covered call options on portfolio securities, buying call options on
securities the fund intends to purchase, buying put options on portfolio
securities, and engaging in closing transac tions for an identical option.
CURRENCY HEDGING
The World Gold, Gold Shares, All American and China Region Funds may engage in
strategic transactions in an attempt to hedge a particular fund's foreign
securities investments back to the U.S. dollar when, in their judgment, currency
movements affecting particular investments are likely to harm performance.
Possible losses from changes in currency exchange rates are a primary risk of
unhedged investing in foreign securities. While a security may perform well in a
foreign market, if the local currency declines against the U.S. dollar, gains
from the investment can decline or become losses. Typically, currency
fluctuations are more extreme than stock market fluctuations. Accordingly, the
strength or weakness of the U.S. dollar against foreign currencies may account
for part of a fund's performance even when the adviser attempts to reduce
currency risk through hedging activities. While currency hedging may reduce
portfolio volatility, there are costs associated with such hedging, including
the loss of potential profits, losses on strategic transactions and increased
transaction expenses.
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YOUR ACCOUNT
BUYING SHARES
First, read this prospectus carefully. Then decide how much you want to invest.
The minimum initial investments are:
o regular account:.....................$5,000
o regular money market accounts: ......$1,000
o custodial accounts for minors
(UGMA/UTMA):........................$50
o retirement account:..............no minimum
o ABC Investment Plan(R):
to open account ...................$100
monthly minimum ...................$ 30
Minimum investments may be waived for purchases made through qualifying
broker-dealers or certain institutional programs.
IF YOU ARE OPENING A NEW ACCOUNT
o Complete the appropriate parts of the account application.
o Write your check for the amount you want to invest. Make it payable to
the fund you are buying.
o Deliver your check and application to Shareholder Services (address
below).
o If you have questions, call 1-800-873-8637 to talk to one of our
investor representatives.
-----------------------------------
| Shareholders Services |
| U.S. Global Investors Funds |
| P.O. Box 781234 |
| San Antonio, Texas 78278-1234 |
| |
| Phone: 1-800-873-8637 |
| Open 7:30 a.m. - 7:00 p.m. |
| Central time |
-----------------------------------
IF YOU ARE ADDING TO YOUR ACCOUNT
o Write out a check for the investment amount ($50 minimum), payable to
the fund you are buying.
o Fill out the detachable investment slip from your account statement.
Use the investment slip from the account you want to invest in so that
your money will be credited to the right fund (investment slips are
pre-coded). If you do not have an investment slip, include a note
specifying the fund name, your account number and your address.
o deliver your check and investment slip or note to Shareholder
Services.
If you are investing in more than one fund, make out separate checks for each
fund.
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IF YOU ARE BUYING SHARES BY PHONE
Call 1-800-US-FUNDS. Tell the Shareholder Services representative the fund name,
your account number, the name(s) in which the account is registered and the
amount of your investment. You may purchase up to ten times the value of your
shares in that account. Payment is due seven business days after you call.
(Investments by phone are not available in money market funds or retirement
accounts managed by the adviser.)
IF YOU ARE BUYING SHARES BY WIRE
Call Shareholder Services for a confirmation number and wiring instructions.
IF YOU ARE BUYING SHARES WITH THE ABC INVESTMENT PLAN(R)
The ABC Investment Plan(R) is offered as a special service allowing you to build
a position in the fund(s) of your choice without having to try to outguess the
market and to give you the opportunity to open an account with a lower minimum
investment. By automatically investing the same amount at regular intervals, you
avoid the extremes in the market. When the market is undervalued, you
automatically buy more shares, and when it is overvalued, you buy fewer. Of
course, using the ABC Investment Plan(R) does not guarantee a profit. If you
sell at the bottom, no system will give you a gain.
If you open an account under the ABC Investment Plan(R), your initial investment
is only $100 -- not $5,000 as it is for regular accounts -- and only $30 a month
afterwards. Of course, you can invest any higher amount you choose. You may also
change the date or amount of your investment or discontinue the plan anytime by
sending us a letter that we receive two weeks before you want the change to be
effective.
TO SET UP THE ABC INVESTMENT PLAN(R):
o Complete the ABC Investment Plan(R) form allowing the fund to draw on
your money market or bank account every month.
o Send your application and a voided check to Shareholder Services
(address in box).
IF YOU ARE BUYING SHARES THROUGH DIRECT DEPOSIT
If you are buying shares through direct deposit, call 1-800-US-FUNDS for more
information.
ADDITIONAL INFORMATION ABOUT BUYING SHARES
If you purchase shares by check, you can sell (redeem) those shares seven
calender days after your check is received by Shareholder Services, although not
before seven days -- you can exchange into other U.S. Global Investors funds
anytime.
Requests to open new accounts are complete only when Shareholder Services has
received both your application and payment. The funds reserve the right to
reject any application or investment. A completed request is subject to
acceptance and the time deadlines described in "Execution of Requests" on page
40 and other factors. Purchases made by check have a maturity period of seven
days.
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EXCHANGE BETWEEN FUNDS
You may exchange into any other identically registered fund(s) in the U.S.
Global Investors family of funds. When you exchange, you, in effect, sell shares
of one fund and buy shares of another fund at their respective closing net asset
values.
o Write or call Shareholder Services (1-800-US-FUNDS) to request an
exchange.
ADDITIONAL INFORMATION ABOUT EXCHANGES
Shareholder Services charges $5 for each exchange to cover the administrative
cost of handling exchanges.
An exchange involves the sale of shares of one fund and the purchase of shares
of another fund. Like any other purchase, shares can be bought only after all
conditions of purchase have been met; for example, the proceeds are available to
invest. Like any other sale, the fund has the right to hold proceeds for up to
seven days. In general, the funds expect to exercise this right only on
exchanges of $50,000 or more. If your purchase will be delayed, you will be
notified immediately.
A fund may change or cancel its exchange policies at any time, upon 60-day
notice to its shareholders.
Exchanges may be subject to trader's fees. (See the Trader's Fee Paid to the
Fund section on page 40.)
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SELLING (REDEEMING) SHARES
IF YOU ARE SELLING SHARES BY LETTER
o Write a letter of instruction or complete a stock power showing the
fund name, your account number, the name(s) in which the account is
registered and the dollar value or number of shares you wish to sell.
o Include signatures of each owner signing exactly as the shares are
registered and any additional documents that may be required. See
Additional Information About Selling Shares section below.
o Mail the materials to Shareholder Services (address in box below).
o A check will be mailed to the name(s) and address in which the account
is registered, or otherwise according to your letter of instruction
(see Signature Guarantee section on page 38).
IF YOU ARE SELLING SHARES BY CHECK
You may write an unlimited number of checks of any amount out of your Treasury
Securities Cash Fund, and you may write an unlimited number of checks for $500
or more out of your Government Securities Savings Fund.
IF YOU ARE SELLING SHARES BY PHONE
Telephone redemptions are available through our money market funds: the Treasury
Securities Cash Fund and the Government Securities Savings Fund.
o Call Shareholder Services and request an exchange into your
identically registered money market fund.
o Then write a check for any amount if you are in the Treasury
Securities Cash Fund, or $500 or more if you are in the Government
Securities Savings Fund. (This service is unavailable in retirement
accounts.)
See the Exchanging Between Funds section for a description of exchanges,
including the $5 exchange fee.
-----------------------------------
| Shareholders Services |
| U.S. Global Investors Funds |
| P.O. Box 781234 |
| San Antonio, Texas 78278-1234 |
| |
| Phone: 1-800-873-8637 |
| Open 7:30 a.m. - 7:00 p.m. |
| Central time |
-----------------------------------
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SIGNATURE GUARANTEE
For your protection, you will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $15,000 worth of shares
o you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a broker or securities dealer
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
ADDITIONAL INFORMATION ABOUT SELLING SHARES
If you are selling (redeeming) shares in an IRA or similar retirement account,
submit IRS Form W4-P and the reason you are withdrawing. Proceeds from the
redemption of shares in a retirement account may be subject to withholding tax.
If you are in one of the groups described below, you must submit:
OWNERS OF INDIVIDUAL, JOINT, SOLE PROPRIETORSHIP, UGMA/UTMA (CUSTODIAL ACCOUNTS
FOR MINORS) OR GENERAL PARTNERSHIP ACCOUNTS
o Letter of instruction.
o On the letter, the signature of the registered owners or the person
authorized to sign for the account, exactly as the account is
registered.
o Signature guarantee if applicable (see Signature Guarantee section
above).
OWNERS OF CORPORATE OR ASSOCIATION ACCOUNTS
o Letter of instruction.
o Corporate resolution.
o On the letter and the resolution, the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable (see Signature Guarantee section
above).
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TRUSTEES, OR THEIR DESIGNATED REPRESENTATIVE, OF TRUST ACCOUNTS
o Letter of instruction.
o On the letter, the signature(s) of the trustee(s).
o Signature guarantee if applicable (see Signature Guarantee section on
page 38).
o Copy of the trust document.
JOINT TENANCY SHAREHOLDERS WHOSE CO-TENANTS ARE DECEASED
o Letter of instruction signed by surviving tenant.
o Certified copy of death certificate.
o Signature guarantee if applicable (see Signature Guarantee Section on
page 38).
EXECUTORS OF SHAREHOLDER ESTATES
o Letter of instruction with guaranteed executor's signature.
o Copy of order appointing executor, dated within 60 days of
transaction.
ADMINISTRATORS, CONSERVATORS, GUARDIANS AND OTHER SELLERS OR ACCOUNT TYPES NOT
LISTED ABOVE.
o Call 1-800-US-FUNDS for instructions.
Usually redemption checks are mailed in 48 hours although the funds have the
right to hold checks up to seven days.
Checks may be delayed if you have changed your address in the last thirty days.
Checks can be mailed only when the purchasing check has cleared, although you
may avoid this possible delay by investing by bank wire.
WIRE TRANSACTIONS
You may authorize wire transfers of proceeds if you send written wiring
instructions with a signature guarantee. Proceeds, less $10 for wire fees, will
usually be transmitted on the first business day after you direct us to sell
shares (international wires may cost more).
CLOSING FEE
The transfer agent charges a $10 closing fee if all shares in the account are
redeemed. The fee allocates to redeeming shareholders an equitable part of the
transfer agent's fee, including the cost of tax reporting, which is based on the
number of shareholder accounts. No closing fee is charged for exchanges between
funds in the U.S. Global Investors family of funds.
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TRANSACTION POLICIES
VALUATION OF SHARES
You may purchase or redeem shares anytime, without a sales charge, at the next
determined net asset value per share (NAV). The funds establish the NAV, on each
business day that the New York Stock Exchange (NYSE) is open, by dividing the
net assets in each fund by its number of outstanding shares.
The funds value the portfolios of securities using market quotations, where
available. If current market quotations are not readily available, they value
securities at fair value as determined in good faith by the board of trustees.
Short-term investments maturing in sixty days or less and all of the securities
in the government securities money market funds are valued at cost plus interest
earned, which approximates market value. The government securities money market
funds try to maintain a constant per-share value of $1.00 although there can be
no guarantee that they will do so.
EXECUTION OF REQUESTS
Buy and sell requests become effective at the close of regular trading on the
NYSE, typically 4:00 p.m. Eastern time, Monday through Friday, when received by
Shareholder Services or its sub-agents. If the NYSE and other financial markets
close earlier, as on the eve of a holiday, net asset value is determined earlier
in the day when trading closes. Orders to purchase or sell Gold Shares Fund
shares will not be accepted after 3:00 p.m. eastern time or at the close of
trading on the NYSE if it closes earlier.
TRADER'S FEE PAID TO THE FUND
To protect the interests of other investors in the fund, a trader's fee is paid
by shareholders who redeem or exchange shares held less than a minimum number of
days. (See Shareholder Transaction Expenses section on page 3 for the amount and
the minimum holding period.) A fund may also refuse investments from
shareholders who engage in short-term trading.
ACCOUNT MAINTENANCE FEE
The All American Fund assesses an account maintenance fee of $3 per quarter. The
purpose of the fee is to allocate part of the cost of maintaining shareholder
accounts equally to all accounts.
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SMALL ACCOUNTS
If you draw down an account so that its total value is less than $5,000 (or
$1000 in government securities money market funds), you will be charged a small
monthly fee as follows:
o $1 a month for All American, Income and Real Estate Funds.
o $5 a month for Treasury Securities Cash, Tax Free, Government
Securities Savings, Near-Term Tax Free and China Region Funds.
Active ABC Investment Plan(R) accounts, custodial accounts for minors and
retirement plan accounts are exempt from this provision.
TELEPHONE TRANSACTIONS
For your protection, telephone requests may be recorded to verify their
accuracy. In addition, Shareholder Services will take measures to verify the
identity of the caller, such as asking for name, account number, Social Security
or other taxpayer ID number and other relevant information. If appropriate
measures are taken, Shareholder Services is not responsible for any losses that
may occur in any account due to an unauthorized telephone call. Telephone
transactions are not permitted on accounts whose names or addresses have changed
within the past 30 days -- although you may still exchange between funds.
Proceeds from telephone transactions can only be mailed to the address of record
after the 30 days.
CONFIRMATION STATEMENTS AND CERTIFICATES
All fund shares are electronically recorded. Your confirmation statement is your
proof that you have purchased shares. Share certificates are not issued.
ELIGIBILITY BY STATE
You may only invest in, or exchange into, fund shares legally available in your
state. At this time, all funds are registered in all states.
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<PAGE>
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS
In general, you will receive account statements as follows:
o Whenever there is activity in your account, other than when checks you
write are deducted.
o If there is no activity, once a year.
Every year you will also receive, if applicable, a Form 1099 tax information
statement, mailed no later than January 31.
DIVIDENDS
The funds generally pay income dividends and distribute capital gains, if any,
as follows:
o Gold and natural resources funds and the China Region Fund --
dividends and capital gains are distributed annually, usually in
December.
o All American and Income Funds -- dividends are distributed quarterly;
capital gains are distributed annually.
o Real Estate Fund -- dividends are distributed semi-annually; capital
gains are distributed annually.
o Tax-free funds -- dividends are distributed monthly; capital gains are
distributed annually.
o Money market funds -- all net income is declared and accrued as a
daily dividend and distributed monthly.
DIVIDEND REINVESTMENT
Most investors have their dividends and distributions reinvested in additional
shares of the same fund. If you choose this option, or if you do not indicate
any choice, your dividends will be reinvested on the dividend payable date.
Alternatively, you can choose to have a check for your dividends mailed to you.
However, if the check is not deliverable, your dividends will be reinvested.
TAXABILITY OF DIVIDENDS
As long as a fund meets the requirements for being a qualified regulated
investment company, which each fund has done in the past and intends to do in
the future, it pays no federal income tax on the earnings it distributes to
shareholders. Consequently, dividends you receive from a fund, whether
reinvested or taken as cash, are generally considered taxable to you. Dividends
from a fund's long-term capital gains are taxable to you as capital gains
regardless of the time you have held the shares. Dividends from other sources
are generally taxable as ordinary income.
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For Federal income tax purposes, the tax-free funds will exclude distributions
of net tax-exempt interest income from your gross income. Dividends from taxable
net investment income as well as net short-term capital gains are taxable as
ordinary income. Distributions of net capital gains are taxable as long-term
capital gains.
When you buy your shares, the price may reflect undistributed income, capital
gains, or unrealized appreciation of securities. A dividend or capital gain
distribution paid to you shortly after you purchase shares will reduce the net
asset value of your shares by the amount of the distribution. Although, in
effect, a return of capital, these payments are fully taxable.
Some dividends paid in January may be taxable as if they had been paid the
previous December.
Corporations may be entitled to take a dividends-received deduction for part of
certain dividends they receive.
The Form 1099-DIV that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell or
exchange, you may have a gain or a loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
PERFORMANCE INFORMATION
From time to time, in advertisements or reports, a fund may compare its
performance to that of other mutual funds with similar investment objectives or
to stock, bond or other indexes, as reported in various periodicals. Comparisons
may be made in terms of yield, total return, or yield and total return. You
should not think of these performance comparisons as representing the fund's
future performance.
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ADDITIONAL INVESTOR SERVICES
Definitions:
o YIELD is a measure or net interest and dividend income.
o AVERAGE ANNUAL TOTAL RETURN is a hypothetical measure of past dividend
income plus capital appreciation. It is the sum of all of the parts of
a fund's investment return for periods of one year or more.
o TOTAL RETURN is the sum of all or the parts of a funds investment
return.
RETIREMENT PLANS
U.S. Global Investors Funds offers a range of qualified retirement plans,
including IRAs, SEPs, 401(k) plans, 403(b) plans and other pension and
profit-sharing plans. Each financing account will be charged an annual
maintenance fee as follows:
o Regular IRA $10
o Roth IRA $10
o Education IRA $10
o SEP IRA $15
o Simple IRA $25
o Profit sharing plan $15
U.S. Global Investors Funds offers many other services. For example, payroll
deductions, custodial accounts, systematic withdrawals.
Please call 1-800-US-FUNDS for more information.
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FUND DETAILS
HOW THE FUNDS ARE ORGANIZED
U.S. Global Investors Funds is an open-end management investment company.
The funds are supervised by a board of trustees, an independent body that has
ultimate responsibility for fund activities. The board retains various companies
to carry out fund operations, including the investment adviser, custodian,
transfer agent and others. The board has the right to terminate the funds'
relationship with any of these companies and to retain a different company if
the board believes it is in the shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the board of trustees. Afterwards, the board and the shareholders
determine the board's membership. The board of U.S. Global Investors Funds
includes individuals who are affiliated with the investment adviser. However,
the majority of the board members are independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for purposes such as electing or removing board members, changing fundamental
policies, or approving a management contract.
THE MANAGEMENT FIRM (THE ADVISER)
U.S. Global Investors, Inc., founded in 1968, gives investment advice and
manages the funds. Frank E. Holmes, chief executive officer and chairman of the
adviser's board of directors as well as president and trustee for the funds,
owns more than 25% of the voting stock of the adviser and is its controlling
shareholder.
The adviser makes investment decisions for U.S. Global Investors Funds
independently of those made for other investment companies it advises. Each fund
pays the adviser a fee based on its average net assets. See the Annual Fund
Operating Expenses section for rates paid during the last fiscal year.
THE PRINCIPAL DISTRIBUTOR
U.S. Global Brokerage, Inc., a subsidiary of the adviser, has agreed to market
the fund and distribute shares through selling brokers, financial planners and
other financial representatives beginning September 3, 1998.
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FOR MORE INFORMATION
Three documents are available that offer further information on U.S. Global
Investors Funds.
ANNUAL AND SEMI-ANNUAL REPORTS
The annual and semi-annual reports include financial statements, detailed
performance information, portfolio holdings, a statement from management and the
auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (that is, it is a legal part of this prospectus).
To request a free copy of the current annual/semi-annual report or SAI, please
write or call:
ADDRESS
U.S. Global Investors Funds
P.O. Box 781234
San Antonio, Texas 78278-1234
TELEPHONE
1-800-US-FUNDS (800-873-8637)
INTERNET
http://www.us-global.com
INVESTMENT ADVISER
U.S. Global Investors, Inc.
7900 Callaghan Road
San Antonio, TX 78229
INVESTMENT SUB-ADVISER
Goodman & Company N.Y. Ltd.
55th Floor, Scotia Plaza
40 King Street West
Toronto, Ontario M5H 4A9
CANADA
TRANSFER AGENT
United Shareholder Services, Inc.
P.O. Box 781234
San Antonio, TX 78278-1234
DISTRIBUTOR
U.S. Global Brokerage, Inc.
7900 Callaghan Road
San Antonio, TX 78229
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
700 North St. Mary's, Suite 900
San Antonio, TX 78205
CUSTODIAN, FUND ACCOUNTANT, ADMINISTRATOR
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
================================================================================
PART B -- STATEMENT OF ADDITIONAL INFORMATION
================================================================================
U.S. GLOBAL INVESTORS FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 2, 1998
GOLD SHARES FUND
WORLD GOLD FUND
GLOBAL RESOURCES FUND
CHINA REGION OPPORTUNITY FUND ("CHINA REGION FUND")
ALL AMERICAN EQUITY FUND ("ALL AMERICAN FUND")
INCOME FUND
REAL ESTATE FUND
TAX-FREE FUND
NEAR-TERM TAX FREE FUND
U.S. GOVERNMENT SECURITIES SAVINGS FUND
U.S. TREASURY SECURITIES CASH FUND
U.S. Global Investors Funds ("Trust") is an open-end series investment company.
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the prospectus issued November 2, 1998, which you may
request from U. S. Global Investors, Inc. ("Adviser"), 7900 Callaghan Road, San
Antonio, Texas 78229, or 1-800-US-FUNDS (1-800-873-8637).
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION............................................................3
INVESTMENT OBJECTIVES AND POLICIES.............................................3
Investment Restrictions................................................4
Valuation of Shares....................................................5
Gold and Natural Resources Funds.......................................6
China Region Fund......................................................6
Real Estate Fund.......................................................8
Tax-free Funds.........................................................9
Government Money Market Funds.........................................12
RISK FACTORS..................................................................12
Repurchase Agreements.................................................15
Lending of Portfolio Securities.......................................15
Borrowing.............................................................16
STRATEGIC TRANSACTIONS........................................................16
PORTFOLIO TRANSACTIONS........................................................20
MANAGEMENT OF THE FUNDS.......................................................20
PRINCIPAL HOLDERS OF SECURITIES...............................................22
INVESTMENT ADVISORY SERVICES..................................................22
Sub-advisers..........................................................23
ADVISORY FEE SCHEDULE.........................................................24
TRANSFER AGENCY AND OTHER SERVICES............................................25
CERTAIN PURCHASES OF SHARES OF THE FUNDS......................................26
ADDITIONAL INFORMATION ON REDEMPTIONS.........................................27
CALCULATION OF PERFORMANCE DATA...............................................28
Total Return..........................................................28
Yield ...............................................................29
Tax Equivalent Yield..................................................30
Nonstandardized Total Return..........................................30
Distribution Rates....................................................30
Effect of Fee Waiver and Expense Reimbursement........................30
TAX STATUS....................................................................30
Taxation of the Funds -- in General...................................30
Taxation of the Funds' Investments....................................31
Taxation of the Shareholder...........................................32
Currency Fluctuations -- "Section 988" Gains or Losses................33
Foreign Taxes.........................................................34
CUSTODIAN, FUND ACCOUNTANT, AND ADMINISTRATOR.................................34
DISTRIBUTOR...................................................................35
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL.....................................35
FINANCIAL STATEMENTS..........................................................35
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GENERAL INFORMATION
U. S. Global Investors Funds is an open-end management investment company, 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.
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 each 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, shall 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 "How the Funds Are Organized" in the prospectus, the Trust's
First Amended and Restated Master Trust Agreement ("Master Trust Agreement"),
requires no annual or regular meeting of shareholders. 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 ("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 investment objectives and policies of the funds are described in detail in
the prospectus. The following discussion provides supplemental information
concerning certain investment limitations and techniques in which one or more
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of the funds may engage, and certain of the risks they may entail. Certain of
the investment techniques may not be available to all of the funds. All of the
funds are managed by U.S. Global Investors, Inc.
INVESTMENT RESTRICTIONS
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, World Gold Fund,
China Region Fund, and All American 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 a fund's 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 shall not prevent the
Real Estate Fund from making any investment which is otherwise consistent
with its 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 invest
not more than 10% of its total net assets in gold and gold bullion, and
except that the Gold Shares Fund, World Gold Fund, China Region Fund, and
All American Fund may 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 shall not be deemed
loans.) The Near-Term Tax Free Fund may not lend its assets, except that
purchases of debt securities in furtherance of 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 that are subject to legal or contractual restrictions
on resale ("restricted securities"), except that (i) the China Region Fund
may invest up to 15% of net assets in illiquid securities, including
securities which are subject to legal or contractual restrictions on resale,
and (ii) 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
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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 (other than obligations issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities), 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 Tax Free Fund and the Near-Term Tax Free Fund may invest
more than 25% of their 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. The China Region Fund will consider a foreign government to be an
"industry". For purposes of determining industry concentration, each fund
relies on the Standard Industrial Classification as compiled by an
independent source, 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 shall not apply to obligations issued
or guaranteed by the U.S. 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, Near-Term Tax Free Fund, and China
Region 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.
VALUATION OF SHARES
Share value is calculated in U.S. dollars. A security quoted in another currency
is converted to U.S. dollars using the exchange rate in effect in the principal
market where the security is traded. A portfolio security listed or traded in
domestic or international markets, either on an exchange or over-the-counter, is
valued at the last reported sales price before the time when a fund values
assets. Lacking any sales on that day, the security is valued at the mean
between the last reported bid and ask prices. ("Domestic market" includes
markets in the United States or Canada, while "international market" refers to
any market NOT in the United States or Canada.)
If market quotations are not readily available, or restricted securities or
similar assets are being valued, a fund values the assets at fair value using
procedures established by the board of trustees. The trustees have delegated
pricing authority to the fair valuation committee of the adviser, for
non-material pricing issues, as defined in the fair valuation committee
procedures. The trustees retain authority to accept or reject any alternative
valuation proposed by the fair valuation committee.
Securities traded on more than one market are valued according to the broadest
and most representative market. Prices used to value portfolio securities are
monitored to ensure that they represent current market values. Calculation of
net asset value may not take place at the same time as the determination of the
prices of a portfolio used in such calculations. Events affecting the value of
securities that occur between the time prices are established and the New York
Stock Exchange closes are not reflected in the calculation of net asset value
unless the board of trustees decides that the event would materially affect the
net asset value. In that case, the fund will make an adjustment. If the price of
a portfolio security is materially different from its current market value, the
security will be valued at fair value.
Page 5 of 35
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Debt securities with maturities of sixty days or less at the time of purchase
are valued based on the amortized cost. This involves valuing an instrument at
its cost initially and assuming, after that, a constant amortization to maturity
of any discount or premium, despite the impact of fluctuating interest rates on
the market value of the instrument.
To maintain a constant per share price of $1.00 for the government securities
money market funds, portfolio investments are valued at cost, and any discount
or premium created by market movements is amortized to maturity despite the
effect of fluctuating interest rates on the market value of the security.
The following discussion of the investment objectives, policies and risks
associated with each particular fund supplements the discussions in the
prospectus.
GOLD AND NATURAL RESOURCES FUNDS
The Gold Shares Fund and World Gold Fund intend to concentrate their investments
in common stocks of companies involved in exploration for, mining of, processing
of, or dealing in, gold. The Gold Shares Fund may also invest in the securities
of issuers engaged in operations related to silver and other precious metals.
Approximately 20% 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.
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 Canada. 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.
Because gold and gold bullion do not generate investment income, the return 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. 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 ("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 ("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.
CHINA REGION FUND
The China Region Fund will invest primarily in securities which are listed or
otherwise traded by authorized brokers and other entities and will focus its
investments on equities and quasi-equity securities. Quasi-equity securities may
include, for example: warrants or similar rights or other financial instruments
with substantial equity characteristics, such as debt securities convertible
into equity securities. Although the China Region Fund expects to invest
primarily in listed securities of established companies, it may, subject to
local investment limitations, invest in unlisted securities
Page 6 of 35
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of China companies and companies that have business associations in China,
including investments in new and early stage companies. This may include direct
equity investments. Such investments may involve a high degree of business and
financial risk. Because of the absence of any trading markets for these
investments, the China Region Fund may find itself unable to liquidate such
securities in a timely fashion, especially in the event of negative news
regarding the specific securities or the China markets in general. Such
securities could decline significantly in value prior to the China Region Fund's
being able to liquidate such securities. In addition to financial and business
risks, issues whose securities are not listed will not be subject to the same
disclosure requirements applicable to issuers whose securities are listed.
PEOPLE'S REPUBLIC OF CHINA. The People's Bank of China is officially responsible
for managing stock markets in the People's Republic of China ("PRC"), regulating
all trading and settlement and approving all issues of new securities. The
Shanghai and Shenzhen Stock Exchanges are highly automated with trading and
settlement executed electronically. Considerable autonomy has been given to
local offices of the State Commission of Economic System Reform in developing
securities markets. They are charged with identifying suitable companies for
listing.
There are currently two officially recognized securities exchanges in China --
the Shanghai Stock Exchange which opened in December 1990 and the Shenzhen Stock
Exchange which opened in July 1991. Shares traded on these Exchanges are of two
types -- "A" shares which can be traded only by Chinese investors and "B" shares
which can be traded only by individuals and corporations not residents of China.
The settlement period for "B" share trades is the same in Shenzhen and Shanghai.
Settlements are effected on the third business day after the transaction. As of
June 1996, seventeen companies were authorized to issue what are called "H"
shares which trade in Hong Kong and may be purchased by anyone.
The China Region Fund will invest in both new and existing enterprises
registered and operating in China. These will include wholly Chinese-owned
enterprises, wholly foreign-owned enterprises and Sino-foreign joint ventures.
It is not the intention of the China Region Fund to limit its investments to
Shenzhen and Shanghai alone.
HONG KONG. Sovereignty over Hong Kong was transferred from Great Britain to the
PRC on July 1, 1997, at which time Hong Kong became a Special Administrative
Region ("SAR") of the PRC. Under the agreement providing for such transfer
(known as the "Joint Declaration") and the PRC law implementing its commitments
thereunder ("Basic Law"), the current social and economic systems in Hong Kong
are to remain unchanged for at least 50 years, and Hong Kong is to enjoy a high
degree of autonomy except in foreign and defense affairs. The SAR will be vested
with executive, legislative and judicial power. Laws currently in force, as they
may be amended by the SAR Legislature, are to remain in force except to the
extent they contravene the Basic Law. The PRC may not levy taxes on the SAR, the
Hong Kong dollar is to remain fully convertible, and Hong Kong is to remain a
free port. Under the terms of the Basic Law, Hong Kong's current social
freedoms, including freedoms of speech, press, assembly, travel, and religion,
are not to be affected. It is not clear how future developments in Hong Kong and
China may affect the implementation of the Basic Law after the transfer of
sovereignty in 1997.
It is to be expected that the Hong Kong stock market will remain volatile in
response to prevailing perceptions of political developments in China. Foreign
enterprises are treated virtually the same as domestic enterprises and there are
no restrictions on exchange of foreign currencies or on the repatriation of
profits. Import and export licenses are easy to obtain. There are no exchange
controls, investment restrictions or dividend withholding taxes. However,
currently there are no laws in Hong Kong which specifically protect foreign
investors against expropriation.
TAIWAN. The Taiwan Stock Exchange ("TSE"), the sole stock exchange in Taiwan, is
owned by government-controlled enterprises and private banks. In 1968, the
Securities and Exchange Law was passed and, since that time, the Taiwan
securities market has been regulated by the Taiwan Securities and Exchange
Commission ("TSEC") which, in turn, is supervised by the Ministry of Finance
("MOF"). The Central Bank of China ("CBC") is also responsible for supervising
certain aspects of the Taiwan securities market.
While, historically, foreign individual investors have not been permitted to
invest directly in securities listed on the TSE, since 1990 certain foreign
institutional investors have been permitted access to the Taiwan securities
market. Currently, foreign institutional investors which meet certain guidelines
promulgated by the TSEC and which are also
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approved by the TSEC, the MOF and the CBC, will be permitted to invest in TSE
listed securities. However, qualifying foreign institutional investors (such as
the China Region Fund) may not own more than 5% of the shares of a company
listed on the TSE, and the total foreign ownership of any listed company may not
exceed 10%. In addition, the Taiwanese government prohibits foreign investment
in certain industries including transportation and energy companies.
Furthermore, Taiwan imposes an overall country limit on investment and requires
a long-term commitment. The China Region Fund's management believes that over
time restrictions on investments in Taiwan may ease to permit greater and more
flexible investment in Taiwanese securities.
The political reunification of China and Taiwan is a highly problematic issue
that may not be settled in the near future. Taiwan's economic interaction with
China can take place only through indirect channels (generally via Hong Kong)
due to the official prohibitions on direct trade between the PRC and Taiwan.
Nevertheless, in fewer than four years, Taiwan has become a significant investor
in China and China has become one of the largest markets for Taiwanese goods.
EXCHANGE CONTROL. PRC currency, the Renminbi ("RNB"), is not freely convertible.
The exchange rate of RNB against foreign currencies is regulated and published
daily by the State Administration of Exchange Control ("SAEC"). In 1986, to help
solve the foreign exchange problems of foreign investors, China established
Foreign Exchange Adjustment Centers, commonly referred to as "swap centers," in
various cities. These swap centers provide an official forum where foreign
invested enterprises may, under the supervision and control of SAEC and its
branch offices, engage in mutual adjustment of their foreign exchange surpluses
and shortfalls. More recently, regulations have been relaxed to allow Chinese
state enterprises and individuals to participate in foreign exchange swap
transactions. Trading of RNB and foreign currencies at the swap centers is
conducted at a rate determined by supply and demand rather than at the official
exchange rate. Such market exchange rates can be highly volatile and are subject
to sharp fluctuations depending on market conditions.
The China Region Fund may use official or market rates of exchange in connection
with portfolio transactions and net asset value determinations consistent with
prevailing practices in the relevant markets or locations, except that the China
Region Fund will not use any exchange rate if the effect of such use would be to
restrict repatriation of assets.
No exchange control approval is required for the China Region Fund to acquire
"B" shares listed on stock exchanges. Dividends and/or proceeds from the sale of
securities purchased by the China Region Fund in listed China companies may be
remitted outside China, subject to payment of any relevant taxes and completion
of the requisite formalities.
Shanghai securities are now being quoted in U.S. dollars and Shenzhen securities
are now being quoted in Hong Kong dollars.
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 Real Estate 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 Real Estate 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 Real Estate 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.
The Real Estate Fund may be subject to the risks associated with the direct
ownership of real estate because of its policy to concentrate investments in the
securities of companies owning, constructing, managing or selling residential,
commercial or industrial real estate. Additional risks include declines in the
value of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating
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expenses, changes in zoning laws, casualty or condemnation losses, limitations
on rents, changes in neighborhood values, the appeal of properties to tenants,
and increase in interest rates. Such risks may also affect the value of
securities of companies that serve the real estate industry.
TAX-FREE FUNDS
The two tax-free funds invest primarily in municipal bonds. Municipal securities
are generally of two principal types -- notes and bonds. Municipal notes
generally have maturities of one year or less and provide for short-term capital
needs. Municipal bonds normally have maturities of more than one year, and meet
longer-term needs. Municipal bonds are classified into two principal categories
- -- general obligation bonds and revenue bonds. General obligation bonds are
backed by the taxing power of the issuer and are considered the safest type of
municipal bond. Revenue bonds are backed by the revenues derived from a project
or facility.
The tax-free funds invest only in debt securities earning one of the four
highest ratings by Moody's Investor's Services ("Moody's") (Aaa, Aa, A, Baa) or
by Standard & Poors Corporation ("S&P") (AAA, AA, A, BBB). Not more than 10% of
either of the tax-free fund's total assets will be invested in the fourth rating
category. Investments in the fourth category may have speculative
characteristics and therefore, may involve higher risks. Investments in the
fourth rating category of bonds are generally regarded as having an adequate
capacity to pay interest and repay principal. However, these investments may be
more susceptible to adverse changes in the economy. Municipal notes (including
variable rate demand obligations) must be rated MIG1/VMIG2 or MIG2/VMIG2 by
Moody's or SP-1 or SP-2 by S&P. Tax- exempt commercial paper must be rated P-1
or P-2 by Moody's or A-1 or A-2 by S&P.
The tax-free funds may purchase variable and floating rate obligations from
issuers or may acquire participation interest in pools of these obligations from
banks or other financial institutions. Variable and floating rate obligations
are municipal securities whose interest rates change periodically. They normally
have a stated maturity greater than one year, but permit the holder to demand
payment of principal and interest anytime or at specified intervals.
The tax-free funds may purchase obligations with term puts attached. "Put" bonds
are tax-exempt securities that may be sold back to the issuer or a third party
at face value before the stated maturity. The put feature may increase the cost
of the security, consequently reducing the yield of the security.
The tax-free funds may purchase municipal lease obligations or certificates of
participation in municipal lease obligations. A municipal lease obligation is
not a general obligation of the municipality for which the municipality pledges
its taxing power. Ordinarily, a lease obligation will contain a
"nonappropriation" clause if the municipality has no obligation to make lease
payments in future years unless money is appropriated for that purpose annually.
Because of the risk of nonappropriation, some lease obligations are issued with
third-party credit enhancements, such as insurance or a letter of credit.
Municipal lease obligations are subject to different revenue streams than those
associated with more conventional municipal securities. For this reason, before
investing in a municipal lease obligation, the adviser will consider, among
other things, whether (1) the leased property is essential to a governmental
function of the municipality, (2) the municipality is prohibited from
substituting or purchasing similar equipment if lease payments are not
appropriated, and (3) the municipality has maintained good market acceptability
for its lease obligations in the past.
While the tax-free funds primarily invest in municipal bonds the income of which
is free from federal income taxes, they may also invest in repurchase agreements
and other securities which may earn taxable income. Moreover, the tax-free funds
may sell portfolio securities at a gain, which if long term may be taxed to
shareholders as long term capital gains and if short term may be taxed to
shareholders as ordinary income.
Subsequent to a purchase by either 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 that fund. Neither event will require sale of such municipal
bonds by either tax-free fund, but the Adviser will consider such event in its
determination of whether either tax-free fund should continue to hold the
municipal bonds. To the extent that the rating given by Moody's or Standard &
Poor's
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for municipal bonds may change as a result of changes in such organizations or
their rating systems, the tax-free funds will attempt to use comparable ratings
as standards for their investments in accordance with their investment policies.
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. Municipal bonds may also be issued to refund
outstanding obligations. 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 mutual 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 diversification 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 mutual 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 litigation or other conditions, the power or ability of any one or more
issuers to pay, when due, principal 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 tax-free
funds would be adversely affected. In such event, the tax-free 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
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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 may 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 tax-free 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 tax-free fund's yield will decline and that tax-free fund and
its shareholders will forego the opportunity for capital appreciation of that
tax-free fund's investments and of their shares to the extent a portfolio is
invested in variable rate obligations. Should interest rates increase, a
tax-free fund's yield will increase and that tax-free 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
tax-free funds' assets which may be invested in variable rate obligations. For
purposes of determining a tax-free 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.
The trustees have approved investments in floating and variable rate demand
notes upon the following conditions: the tax-free funds have an unconditional
right of demand, upon notice to exceed thirty days, against the issuer to
receive payment; the Adviser 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 tax-free 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 tax-free
funds may purchase obligations with puts attached from banks and broker-dealers.
The price the tax-free 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 tax-free funds will use puts for liquidity
purposes in
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order to permit them to remain more fully invested in municipal securities than
would otherwise be the case by providing a ready market for certain municipal
securities in their portfolio at an acceptable price. The put generally is for a
shorter term than the maturity of the municipal security and does not restrict
in any way the tax-free funds' ability to dispose of (or retain) the municipal
security.
In order to ensure that the interest on municipal securities subject to puts is
tax-exempt to either tax-free fund, each 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 tax-free 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 tax-free fund.
To minimize such risks, the tax-free funds will only purchase obligations with
puts attached from sellers whom the Adviser believes to be creditworthy.
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.
GOVERNMENT MONEY MARKET FUNDS
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 the basis of the amortized cost method. This requires that those funds
maintain a dollar-weighted average portfolio maturity of 90 days or less,
generally 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.
RISK FACTORS
The following information supplements the discussion of the funds' risk factors
discussed in the funds' prospectus. The following are among the most significant
risks associated with an investment in a particular fund.
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EQUITY PRICE FLUCTUATION. Equity securities are subject to price fluctuations
depending on a variety of factors, including market, business, and economic
conditions.
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 will typically be denominated in foreign currency. If the foreign
currency declines in value against the U.S. dollar, the value of the foreign
security will be worth less to a U.S. shareholder. 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 a particular fund, political or
financial instability or diplomatic and other developments that could affect
such investment. In addition, 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 securities of some foreign issuers (particularly those 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.
EMERGING MARKETS. The gold and natural resources funds and the equity funds
(especially the China Region Fund) may invest in countries considered by the
Adviser to represent emerging markets. The Adviser determines which countries
are emerging market countries by considering various factors, including
development of securities laws and market regulation, total number of issuers,
total market capitalization, and perceptions of the investment community.
Generally, emerging markets are those other than North America, Western Europe,
and Japan.
Investing in emerging markets involves risks and special considerations not
typically associated with investing in other more established economies or
securities markets. Investors should carefully consider their ability to assume
the below listed risks before making an investment in a fund. Investing in
emerging markets is considered speculative and involves an increased risk of
total loss.
Risks of investing in emerging markets include:
1. the risk that the fund's assets may be exposed to nationalization, expropri-
ation, or confiscatory taxation;
2. the fact that emerging market securities markets are substantially smaller,
less liquid and more volatile than the securities markets of more developed
nations The relatively small market capitalization and trading volume of
emerging market securities may cause the fund's investments to be
comparatively less liquid and subject to greater price volatility than
investments in the securities markets of developed nations. Many emerging
markets are in their infancy and have yet to be exposed to a major
correction. In the event of such an occurrence, the absence of various
market mechanisms that are inherent in the markets of more developed nations
may lead to turmoil in the marketplace, as well as the inability of the fund
to liquidate its investments;
3. greater social, economic and political uncertainty (including the risk of
war);
4. greater price volatility, substantially less liquidity and significantly
smaller market capitalization of securities markets;
5. currency exchange rate fluctuations and the lack of available currency
hedging instruments;
6. higher rates of inflation;
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7. controls on foreign investment and limitations on repatriation of invested
capital and on the fund's ability to exchange local currencies for U.S.
dollars;
8. greater governmental involvement in and control over the economy;
9. the fact that emerging market companies may be smaller, less seasoned and
newly organized;
10. the difference in, or lack of, auditing and financial reporting standards
which may result in unavailability of material information about issuers;
11. the fact that the securities of many companies may trade at prices
substantially above book value, at high price/earnings ratios, or at prices
that do not reflect traditional measures of value;
12. the fact that statistical information regarding the economy of many emerging
market countries may be inaccurate or not comparable to statistical
information regarding the United States or other economies;
13. less extensive regulation of the securities markets;
14. certain considerations regarding the maintenance of fund portfolio
securities and cash with foreign subcustodians and securities depositories;
15. the risk that it may be more difficult, or impossible, to obtain and/or
enforce a judgment than in other countries;
16. the risk that the fund may be subject to income or withholding taxes imposed
by emerging market counties or other foreign governments. The fund intends
to elect, when eligible, to "pass through" to the fund's shareholders the
amount of foreign income tax and similar taxes paid by the fund. The foreign
taxes passed through to a shareholder would be included in the shareholder's
income and may be claimed as a deduction or credit. Other taxes, such as
transfer taxes, may be imposed on the fund, but would not give rise to a
credit or be eligible to be passed through to the shareholders;
17. the fact that the fund also is permitted to engage in foreign currency
hedging transactions and to enter into stock options on stock index futures
transactions, each of which may involve special risks, although these
strategies cannot at the present time be used to a significant extent by the
fund in the markets in which the fund will principally invest;
18. enterprises in which the fund invests may be or become subject to unduly
burdensome and restrictive regulation affecting the commercial freedom of
the invested company and thereby diminishing the value of the fund's
investment in it. Restrictive or over regulation may therefore be a form of
indirect nationalization;
19. businesses in emerging markets only have a very recent history of operating
within a market-oriented economy. Overall, relative to companies operating
in western economies, companies in emerging markets are characterized by a
lack of (i) experienced management, (ii) modern technology and (iii) a
sufficient capital base with which to develop and expand their operations.
It is unclear what will be the effect on companies in emerging markets, if
any, of attempts to move towards a more market-oriented economy;
20. investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings
and other factors beyond the control of the Adviser. As a result, the return
and net asset value of the fund will fluctuate;
21. the Adviser may engage in hedging transactions in an attempt to hedge
selected funds' foreign securities investments back to the U.S. dollar when,
in its judgment, currency movements affecting particular investments are
likely to harm the performance of the fund. Possible losses from changes in
currency exchange rates are primarily a risk of unhedged investing in
foreign securities. While a security may perform well in a foreign market,
if the local currency declines against the U.S. dollar, gains from the
investment can disappear or become losses. Typically, currency fluctuations
are more extreme than stock market fluctuations. Accordingly, the strength
or
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weakness of the U.S. dollar against foreign currencies may account for part
of the fund's performance even when the Adviser attempts to minimize
currency risk through hedging activities. While currency hedging may reduce
portfolio volatility, there are costs associated with such hedging,
including the loss of potential profits, losses on hedging transactions, and
increased transaction expenses; and
22. disposition of illiquid securities often takes more time than for more
liquid securities, may result in higher selling expenses and may not be able
to be made at desirable prices or at the prices at which such securities
have been valued by the fund. As a non-fundamental policy, a fund will not
invest more than 15% of its net assets in illiquid securities.
RESTRICTED SECURITIES. The gold and natural resources funds and the China Region
Fund may, from time to time, purchase securities that are subject to
restrictions on resale. While such purchases may be made at an advantageous
price and offer attractive opportunities for investment not otherwise available
on the open market, the Fund may not have the same freedom to dispose of such
securities as in the case of the purchase of securities in the open market or in
a public distribution. These securities may often be resold in a liquid dealer
or institutional trading market, but the Fund may experience delays in its
attempts to dispose of such securities. If adverse market conditions develop,
the Fund may not be able to obtain as favorable a price as that prevailing at
the time the decision is made to sell. In any case, where a thin market exists
for a particular security, public knowledge of a proposed sale of a large block
may depress the market price of such securities.
CONVERTIBLE SECURITIES. The gold and natural resources funds and the equity
funds may invest in convertible securities, that is, bonds, notes, debentures,
preferred stocks and other securities that are convertible into or exchangeable
for another security, usually common stock. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically increases or
declines as the market value of the underlying common stock increases or
declines, although usually not to the same extent. Convertible securities
generally offer lower yields than non-convertible fixed income securities of
similar quality because of their conversion or exchange features. Convertible
bonds and convertible preferred stock typically have lower credit ratings than
similar non-convertible securities because they are generally subordinated to
other similar but non-convertible fixed income securities of the same issuer.
OTHER RIGHTS TO ACQUIRE SECURITIES. The gold and natural resources funds and the
equity funds may also invest in other rights to acquire securities, such as
options and warrants. These securities represent the right to acquire a fixed or
variable amount of a particular issue of securities at a fixed or formula price
either during specified periods or only immediately before termination. These
securities are generally exercisable at premiums above the value of the
underlying securities at the time the right is issued. These rights are more
volatile than the underlying stock and will result in a total loss of the Fund's
investment if they expire without being exercised because the value of the
underlying security does not exceed the exercise price of the right.
REPURCHASE AGREEMENTS
In a repurchase agreement, a fund purchases securities subject to the seller's
agreement to repurchase such securities at a specified time (normally one day)
and price. The repurchase price reflects an agreed upon interest rate during the
time of investment. All repurchase agreements must be collateralized by United
States government or government agency securities, the market values of which
equal or exceed 102% of the principal amount of the repurchase obligation. If an
institution enters an insolvency proceeding, the resulting delay in liquidation
of securities serving as collateral could cause a fund some loss if the value of
the securities declined before liquidation. To reduce the risk of loss, funds
will enter into repurchase agreements only with institutions and dealers the
board of trustees considers creditworthy.
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LENDING OF PORTFOLIO SECURITIES
The funds will not lend portfolio securities unless collateral secures the loan
(consisting of any combination of cash, United States government securities or
irrevocable letters of credit) in an amount at least equal (on a daily
marked-to-market basis) to the current market value of the securities lent. In
case of bankruptcy or breach of agreement by the borrower of the securities, the
fund could experience delays and costs in recovering the securities lent. The
fund will not enter into securities lending agreements unless its custodian
bank/lending agent will fully indemnify the fund against loss due to borrower
default. The fund may not lend securities with an aggregate market value of more
than one-third of the fund's total net assets. For the China Region Fund only,
this is a fundamental policy that cannot be changed without a vote by
shareholders.
BORROWING
The funds may have to deal with unpredictable cashflows 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 fund performance by
increasing transaction expenses.
The Gold Shares Fund, World Gold Fund, China Region Fund, and All American Fund
may deal with unpredictable cashflows by borrowing money. Through such
borrowings these funds 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' performance 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, a 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.
The funds will not purchase any security while borrowings represent more than 5%
of their total assets outstanding.
STRATEGIC TRANSACTIONS
The gold and natural resources funds and equity funds may purchase and sell
exchange-listed and over-the-counter put and call options on securities, equity
and fixed-income indices and other financial instruments. In addition, the Gold
Shares, World Gold, China Region and All American Funds may purchase and sell
financial futures contracts and options thereon, and enter into various currency
transactions such as currency forward contracts, currency futures contracts,
options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions"). The gold and natural resources funds and
equity funds may engage in Strategic Transactions for hedging, risk management,
or portfolio management purposes, but not for speculation, and they will comply
with applicable regulatory requirements when implementing these strategies,
techniques and instruments.
Strategic Transactions may be used to attempt (1) to protect against possible
changes in the market value of securities held in or to be purchased for a
fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, (2) to protect a fund's unrealized gains in the value of its
portfolio securities, (3) to facilitate the sale of such securities for
investment purposes, (4) to manage the effective maturity or duration of a
fund's portfolio, or (5) to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. The gold
and natural resources funds' and equity funds' ability to successfully use these
Strategic Transactions will
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<PAGE>
depend upon the Adviser's ability to predict pertinent market movements, and
cannot be assured. Engaging in Strategic Transactions will increase transaction
expenses and may result in a loss that exceeds the principal invested in the
transactions.
Strategic Transactions have risk associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to a fund.
For example, selling call options may force the sale of portfolio securities at
inopportune times or for lower prices than current market values. Selling call
options may also limit the amount of appreciation a fund can realize on its
investments or cause a fund to hold a security it might otherwise sell. The use
of currency transactions can result in a fund incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
fund might not be able to close out a transaction, and substantial losses might
be incurred. However, the use of futures and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of a
hedged position. At the same time they tend to limit any potential gain that
might result from an increase in value of such position. Finally, the daily
variation margin requirement for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been used.
The gold and natural resources funds' and equity funds' activities involving
Strategic Transactions may be limited by the requirements of Subchapter M of the
Internal Revenue Code for qualification as a regulated investment company.
PUT AND CALL OPTIONS. The gold and natural resources funds and equity funds may
purchase and sell (issue) both put and call options. The funds may also enter
into transactions to close out their investment in any put or call options.
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the issuer of the option the obligation to buy the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the issuer the obligation to sell, the underling instrument at the
exercise price. A fund's purchase of a call option on a security, financial
future, index currency or other instrument might be intended to protect a fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An "American style" put or call option may be exercised at any time
during the option period while a "European style" put or call option may be
exercised only upon expiration or during a fixed period prior thereto.
The gold and natural resources funds and equity funds are authorized to purchase
and sell both exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. OTC options are purchased from
or sold to securities dealers, financial institutions or other parties
["Counterparty(ies)"] through direct bilateral agreement with the Counterparty.
In contrast to exchange listed options, which generally have standardized terms
and performance mechanics, all the terms of an OTC option are set by negotiation
of the parties. Unless the parties provide for it, there is no central clearing
or guaranty function in an OTC option.
The gold and natural resources funds' and equity funds' ability to close out
their position as a purchaser or seller of a put or call option is dependent, in
part, upon the liquidity of the market for that particular option. Exchange
listed options, because they are standardized and not subject to Counterparty
credit risk, are generally more liquid than OTC
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<PAGE>
options. There can be no guarantee that a fund will be able to close out an
option position, whether in exchange listed options or OTC options, when
desired. An inability to close out its options positions may reduce a fund's
anticipated profits or increase its losses.
If the Counterparty to an OTC option fails to make or take delivery of the
security, currency or other instrument underlying an OTC option it has entered
into with a fund, or fails to make a cash settlement payment due in accordance
with the terms of that option, a fund may lose any premium it paid for the
option as well as any anticipated benefit of the transaction. Accordingly, the
Adviser must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC option will be satisfied.
The gold and natural resources funds and equity funds will realize a loss equal
to all or a part of the premium paid for an option if the price of the
underlying security, commodity, index, currency or other instrument security
decreases or does not increase by more than the premium (in the case of a call
option), or if the price of the underlying security, commodity, index, currency
or other instrument increases or does not decrease by more than the premium (in
the case of a put option). A fund will not purchase any option if, immediately
thereafter, the aggregate market value of all outstanding options purchased by
that fund would exceed 5% of that fund's total assets.
If the gold and natural resources funds and equity funds sell (i.e., issue) a
call option, the premium received may serve as a partial hedge, to the extent of
the option premium, against a decrease in the value of the underlying securities
or instruments in a portfolio, or may increase a fund's income. If a fund sells
(i.e., issues) a put option, the premium that it receives may serve to reduce
the cost of purchasing the underlying security, to the extent of the option
premium, or may increase a fund's capital gains. All options sold by a fund must
be "covered" (i.e., the fund must either be long when selling a call option or
short when selling a put option. The securities or futures contract subject to
the calls or must meet the asset segregation requirements described below as
long as the option is outstanding. Even though a fund will receive the option
premium to help protect it against loss or reduce its cost basis, an option sold
by a fund exposes the fund during the term of the option to possible loss. When
selling a call, a fund is exposed to the loss of opportunity to realize
appreciation in the market price of the underlying security or instrument, and
the transaction may require the fund to hold a security or instrument that it
might otherwise have sold. When selling a put, a fund is exposed to the
possibility of being required to pay greater than current market value to
purchase the underlying security, and the transaction may require the fund to
maintain a short position in a security or instrument it might otherwise not
have maintained. The gold and natural resources funds and equity funds will not
write any call or put options if, immediately afterwards, the aggregate value of
a fund's securities subject to outstanding call or put options would exceed 25%
of the value of a fund's total assets.
FUTURES CONTRACTS. The gold and natural resources funds and equity funds may
enter into financial futures contracts or purchase or sell put and call options
on such futures as a hedge against anticipated interest rate, currency or equity
market changes, for duration management and for risk management purposes.
Futures are generally bought and sold on the commodities exchange where they are
listed with payment of an initial variation margin as described below. The sale
of a futures contract creates a firm obligation by a fund, as seller, to deliver
to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such position.
The gold and natural resources funds' and equity funds' use of financial futures
and options thereon will in all cases be consistent with applicable regulatory
requirements and in particular the rules and regulations of the CFTC and will be
entered into only for bonafide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires a fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) that initially is typically 1% to 10% of
the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the marked- to-market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the
purchaser. If a fund exercises an option on a futures contract, it will be
obligated to post initial margin (and potentially subsequent variation margin)
for the
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<PAGE>
resulting futures position just as it would for any futures position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction, but there can be no assurance that the position can be
offset, before settlement, at an advantageous price, nor that delivery will
occur.
The gold and natural resources funds and equity funds will not enter into a
futures contract or related option (except for closing transactions) if,
immediately afterwards, the sum of the amount of its initial margin and premiums
on open futures contracts and options thereon would exceed 5% of the fund's
total assets (taken at current value). However, 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. The segregation requirements with
respect to futures contracts and options thereon are described below.
FOREIGN CURRENCY TRANSACTIONS. The gold and natural resources funds and equity
funds may engage in currency transactions with Counterparties in an attempt to
hedge an investment in an issuer incorporated or operating in a foreign country
or in a security denominated in the currency of a foreign country against a
devaluation of that country's currency. Currency transactions include forward
currency contracts, exchange listed currency futures, and exchange listed and
OTC options on currencies. A fund's dealing in forward currency contracts and
other currency transactions such as futures, options, and options on futures
generally will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is entering into a currency transaction
with respect to specific assets or liabilities of a fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The gold and natural resources funds and equity funds 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 a fund
has (or expects to have) portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings or portfolio securities, the gold and natural resources
funds and equity funds may engage in proxy hedging. Proxy hedging may be 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 in which
some or all of a fund's portfolio securities are, or are expected to be
denominated, and to buy U.S. dollars.
To hedge against a devaluation of a foreign currency, the gold and natural
resources funds and equity funds may enter into a forward market contract to
sell to banks a set amount of such currency at a fixed price and at a fixed time
in the future. If, in foreign currency transactions, the foreign currency sold
forward by a fund is devalued below the price of the forward market contract and
more than any devaluation of the U.S. dollar during the period of the contract,
a fund will realize a gain as a result of the currency transaction. In this way,
a fund might reduce the impact of any decline in the market value of its foreign
investments attributable to devaluation of foreign currencies.
The gold and natural resources funds and equity funds may sell foreign currency
forward only as a means of protecting their foreign investments or to hedge in
connection with the purchase and sale of foreign securities, and may not
otherwise trade in the currencies of foreign countries. Accordingly, a fund may
not sell forward the currency of a particular country to an extent greater than
the aggregate market value (at the time of making such sale) of the securities
held in its portfolio denominated in that particular foreign currency (or issued
by companies incorporated or operating in that particular foreign country) plus
an amount equal to the value of securities it anticipates purchasing less the
value of securities it anticipates selling, denominated in that particular
currency.
As a result of hedging through selling foreign currencies forward, in the event
of a devaluation, it is possible that the value of a fund's portfolio would not
depreciate as much as the portfolio of a fund holding similar investments that
did not sell foreign currencies forward. Even so, the forward market contract is
not a perfect hedge against devaluation because the value of a fund's portfolio
securities may decrease more than the amount realized by reason of the foreign
currency transaction. To the extent that a fund sells forward currencies that
are thereafter revalued upward, the value of that fund's portfolio would
appreciate to a lesser extent than the comparable portfolio of a fund that did
not sell those foreign currencies forward. If, in anticipation of a devaluation
of a foreign currency, a fund sells the currency forward
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<PAGE>
at a price lower than the price of that currency on the expiration date of the
contract, that fund will suffer a loss on the contract if the currency is not
devalued, during the contract period, below the contract price. Moreover, it
will not be possible for a fund to hedge against a devaluation that is so
generally anticipated that the fund is not able to contract to sell the currency
in the future at a price above the devaluation level it anticipates. It is
possible that, under certain circumstances, a fund may have to limit its
currency transactions to permit that fund to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended ("Code"). Foreign
currency transactions would involve a cost to the funds, which would vary with
such factors as the currency involved, the length of the contact period and the
market conditions then prevailing.
The gold and natural resources funds and equity funds will not attempt to hedge
all their foreign investments by selling foreign currencies forward and will do
so only to the extent deemed appropriate by the Adviser.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the gold and natural resources
funds and equity funds segregate liquid high grade assets with their custodian
to the extent that the fund's obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency. In
general, either the full amount of any obligation of a fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
or currency required to be delivered, or subject to any regulatory restrictions,
an amount of cash or liquid high grade debt securities at least equal to the
current amount of the obligation must either be identified as being restricted
in a fund's accounting records or physically segregated in a separate account at
that fund's custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For the purpose of determining the adequacy of the
liquid securities that have been restricted, the securities will be valued at
market or 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 a
fund.
PORTFOLIO TRANSACTIONS
The Advisory Agreement between the Trust and the Adviser requires that the
Adviser, 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 Adviser or an affiliate of the Adviser exercises investment
discretion. Under the Advisory Agreement, the Adviser is permitted, in certain
circumstances, to pay a higher commission than might otherwise be obtained in
order to acquire brokerage and research services. The Adviser 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 Adviser 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 Adviser 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. 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, 1998, were as follows:
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1996 1997 1998
-------- -------- --------
Gold Shares Fund $261,378 $481,476
World Gold Fund $383,831 $704,381
Global Resources Fund $130,955 $90,646
China Region Fund $78,718 $115,788
All American Fund $9,800 $8,080
Income Fund $30,965 $50,565
Real Estate Fund $75,940 $97,602
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.
TRUST
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
- ----------------------- -------- -----------------------------------------
John P. Allen Trustee President, Deposit Development Associates
P.O. Box 160323 Inc., a bank marketing firm. President,
San Antonio, Texas Paragon Press. Partner, Rio Cibolo Ranch,
78280 Inc.
E. Douglas Hodo Chairman Chief Executive Officer of Houston
7702 Fondren of the Baptist University. Formerly Dean and
Houston, Texas 77074 Board Professor of Economics and Finance,
College of Business, University of Texas
at San Antonio.
Clark R. Mandigo Trustee Business consultant since 1991. From 1985
15050 Jones Maltsberger to 1991, President, Chief Executive
San Antonio, Texas Officer, and Director of Intelogic Trace,
78247 Inc., a nationwide company which sells,
leases and maintains computers and
telecommunications systems and equipment.
Prior to 1985, President of BHP Petroleum
(Americas), Ltd., an oil and gas
exploration and development company.
Director of Palmer Wireless, Inc., Lone
Star Steakhouse & Saloon, Inc. and
Physician Corporation of America.
Formerly a Director of Datapoint
Corporation. Trustee for Pauze'/Swanson
United Services Funds from November 1993
to February 1996.
Charles Z. Mann Trustee Business consultant since January 1,
13 Knapton Estates Rd. 1993. Chairman, Bermuda Monetary
Turning Point Authority from 1986 to 1992. Executive
Smiths Parish Vice President of International Median
Bermuda FLBX Limited, a private investment holding
company, from 1979 to 1985 and previously
general manager of Bermuda 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.
Page 21 of 35
<PAGE>
TRUST
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
- ----------------------- -------- -----------------------------------------
W. W. McAllister, III Trustee Chairman of the Board of Texas Insurance
7550 IH-10 West Agency, Inc. from 1981 to present.
Suite 700 Chairman of the Board of Bomac Sports
San Antonio, Texas 78247 Limited d.b.a. SA Sports Unlimited from
December 1995 to present. Currently a
director of Alamo Title Holding Co. and
Alamo Title Insurance of Texas. General
Partner of Bomac Transportation Limited
Company from January 1994 through August
1995. Consultant to River Valley Bank
from September 1992 through September
1994. President of San Antonio Savings
Association and its successor companies
from 1976 to 1982 and Chairman of the
Board from 1982 to 1992.
W.C.J. van Rensburg Trustee Professor of Geological Science and
6010 Sierra Arbor Court Petroleum Engineering, University of
Austin, Texas 78759 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 and
President, Chief Executive Officer of the Adviser.
Chief Since October 1989 Mr. Holmes has served
Executive and continues to serve in various
Officer positions with the Adviser, its
subsidiaries and the investment companies
it sponsors. Director of Franc-Or
Resource Corp. from November 1994 to
November 1996. Director of Adventure
Capital Limited from January 1996 to July
1997 and Director of Vedron Gold, Inc.
from August 1996 to March 1997. Director
of 71316 Ontario, Inc. since April 1987
and of F. E. Holmes Organization, Inc.
since July 1978. Director of Marleau,
Lemire Inc. from January 1995 to January
1996. Director of United Services Canada,
Inc. since February 1995 and Chief
Executive Officer from February to August
1995.
Susan B. McGee Executive President, Corporate Secretary and
Vice General Counsel of the Adviser. Since
President, September 1992 Ms. McGee has served and
Secretary, continues to serve in various positions
General with the Adviser, its subsidiaries, and
Counsel the investment companies it sponsors.
Before September 1992, Ms. McGee was a
student at St. Mary's Law School.
David J. Clark Treasurer Chief Financial Officer, Chief Operating
Officer of the Adviser. Since May 1997
Mr. Clark has served and continues to
serve in various positions with the
Adviser and the investment companies it
sponsors. Foreign Service Officer with
U.S. Agency for International Development
in the U.S. Embassy, Bonn, West Germany
from May 1992 to May 1997. Audit
Supervisor for University of Texas Health
Science Center from April 1991 to April
1992. Auditor-in-Charge for Texaco, Inc.
from August 1987 to June 1990.
- ------------------------
(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
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As of October 10, 1998, 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 October 10, 1998:
PERCENTAGE OF RECORD/
FUND SHAREHOLDERS OWNED BENEFICIALLY
---------------- ----------------- ---------- ------------
INFORMATION TO BE PROVIDED WITH DEFINITIVE FILING
INVESTMENT ADVISORY SERVICES
The investment adviser to the funds is U.S. Global Investors, Inc., 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 Adviser, 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 Adviser and may be
deemed to be a controlling person of the Adviser.
In addition to the services described in the funds' prospectus, the Adviser 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 Adviser
or its affiliates, except that the Trust will reimburse the Adviser for a
portion of the compensation of the Adviser'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 Adviser pays
the expense of printing and mailing the prospectus 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,
and 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 Adviser,
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 the prospectus and periodic reports
and expenses of mailing them to current shareholders, 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 Adviser,
each fund may pay to the Adviser 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 "The Management Firm" section in the prospectus.
SUB-ADVISERS
The advisory agreement between the Adviser and the Trust permits the Adviser
from time to time to engage one or more sub-advisers to assist in the
performance of its services. Pursuant to the advisory agreement, the Adviser has
engaged Goodman & Company N.Y. Ltd. as Sub-Adviser to the Real Estate Fund, as
approved by shareholders on January 26, 1998. It is wholly owned by Goodman &
Company Ltd., which is ultimately wholly owned by Dundee Bancorp Inc., an
Ontario incorporated Canadian company listed on the Toronto Stock Exchange. Mr.
Nathan Edward "Ned" Goodman, Chairman of Goodman & Company N.Y. Ltd., is the
"controlling person" of Goodman & Company N.Y. Ltd. and Goodman & Company Ltd.
("Goodman & Company").
Page 23 of 35
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Under the terms of the sub-advisory agreement, the Sub-Adviser is required to
furnish the Adviser information and advice, including advice on the allocation
of investments among real estate related securities, relating to that portion of
the Fund's assets as the Adviser shall from time to time designate; furnish
continuously an investment program with respect to such assets; and to otherwise
manage the Fund's investments in accordance with the investment objectives and
policies as stated in the Fund's Prospectus and Statement of Additional
Information. Goodman & Company bears all expenses in connection with the
performance of the services under the sub-advisory agreement. Goodman & Company
manages the Fund's entire portfolio, with the exception of daily cash management
services, which services are provided by the Adviser.
The sub-advisory agreement remains in effect pursuant to its terms for two years
from the date of shareholder approval and from year to year thereafter so long
as such continuation is specifically approved at least annually (i) by either
the Trustees of the Trust or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, and (ii) in either event by
the vote of a majority of the Trustees of the Trust who are not parties to this
agreement or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The sub-advisory agreement is terminable, without penalty, by the
Board, by a Majority Vote of the Fund's shareholders, by the Adviser or by
Goodman & Company, in each case on not more than sixty nor less than thirty
days' written notice to the other party and to the Fund. The sub-advisory
agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act).
For the sub-advisory services, the Adviser pays Goodman & Company 50 percent of
the Management Fee (as defined in the advisory agreement) paid by the Fund to
the Adviser, net of all mutually agreed upon fee waivers and reimbursements and
reimbursements required by applicable law. The fee paid to Goodman & Company is
paid by the Adviser out of its management fee and does not increase the expenses
of the Fund.
ADVISORY FEE SCHEDULE
ANNUAL PERCENTAGE OF AVERAGE DAILY NET
NAME OF FUND ASSETS
--------------------------------- -----------------------------------------
Gold Shares, All American Equity, 0.75% of the first $250,000,000 and 0.50%
Income, Tax Free, and of the excess
Real Estate Funds
Treasury Securities Cash, and 0.50% of the first $250,000,000 and
Government Securities Savings 0.375% of the excess
Funds
World Gold and Global 1.00% of the first $250,000,000 and 0.50%
Resources Funds of the excess
Near-Term Tax Free Fund 0.50%
China Region Opportunity Fund 1.25%
The Adviser 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 adviser's opinion, such laws should not preclude a
bank from performing shareholder administrative and servicing functions as
contemplated herein.
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 February 1999. 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
1940 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 adviser a separate management fee for each fund in the Trust.
Such fee is based on varying percentages of average net assets. For the three
fiscal periods ended June 30, 1996, June 30, 1997 and June 30, 1998, the Trust
incurred advisory fees (net of expenses paid by the adviser or voluntary fee
waivers) of $___________ $___________, and $___________ respectively, for all
funds. For the three fiscal periods ended June 30, 1996, June 30, 1997 and June
30, 1998, the funds paid the adviser the following advisory fees (net of
expenses paid by the adviser or voluntary fee waivers):
1996 1997 1998
Gold Shares Fund $1,727,462 $1,173,225
World Gold Fund $2,238,255 $2,380,969
Global Resources Fund $219,018 $281,264
China Region Fund $58,700 $270,994
All American Fund $0 $0
Page 24 of 35
<PAGE>
Income Fund $73,521 $70,067
Real Estate Fund $64,381 $101,214
Tax Free Fund $0 $0
Near-Term Tax Free Fund $0 $0
Government Securities Savings Fund $0 $91,782
Treasury Securities Cash Fund $835,252 $826,231
TRANSFER AGENCY AND OTHER SERVICES
The Transfer Agency Agreement with the Trust provides for each fund to pay
United Shareholder Services, Inc. ( "USSI") an annual fee of $23.00 per account
(1/12 of $23.00 monthly). In connection with obtaining and/or providing
administrative services to the beneficial owners of Trust shares through
broker-dealers, banks, trust companies and similar institutions which provide
such services and maintain an omnibus account with the Transfer Agent, each fund
shall pay to the Transfer Agent a monthly fee equal to one-twelfth (1/12) of
12.5 basis points (.00125) of the value of the shares of the funds held in
accounts at the institutions, which payment shall not exceed $1.92 multiplied by
the average daily number of accounts holding Trust shares at the institution.
These fees cover the usual transfer agency functions. In addition, the funds
bear certain other Transfer Agent expenses such as the costs of record retention
and postage, plus the telephone and line charges (including the toll-free 800
service) used by shareholders to contact the Transfer Agent. For the fiscal
period ended June 30, 1998, the funds paid the following amounts for transfer
agency fees and expenses:
Gold Shares Fund $___________
World Gold Fund $___________
Global Resources Fund $___________
China Region Fund $___________
All American Fund $___________
Income Fund $___________
Real Estate Fund $___________
Government Securities Savings Fund $___________
Treasury Securities Cash Fund $___________
The two tax-free funds paid $0 due to the Adviser's
expense limit guarantees.
Prior to November 1997, USSI performed bookkeeping and accounting services, and
determined the daily net asset value for each of the funds. Bookkeeping and
accounting services were provided to the funds at a sliding scale fee based
Page 25 of 35
<PAGE>
upon average net assets and subject to an annual minimum fee. For the fiscal
period ended June 30, 1998, the funds paid the following amounts for bookkeeping
and accounting services:
Gold Shares Fund $___________
World Gold Fund $___________
Global Resources Fund $___________
China Region Fund $___________
All American Fund $___________
Income Fund $___________
Real Estate Fund $___________
Tax Free Fund $___________
Government Securities Savings Fund $___________
Treasury Securities Cash Fund $___________
The Near-Term Tax Free Fund paid $0 due to the Adviser's
expense limit guarantees.
Beginning November 1997, Brown Brothers Harriman & Co. , an independent service
provider, began providing the funds with bookkeeping and accounting services and
determined the daily net asset value for each of the funds.
In addition to the services performed for the funds and the Trust under the
Advisory Agreement, the Adviser, through its subsidiary USSI, provides transfer
agent and dividend disbursement agent services pursuant to the Transfer Agency
Agreement as described in the funds' prospectus under "Fund Details." 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 1998. For the three fiscal years ended June 30, 1996, 1997 and
1998, the Trust paid USSI total transfer agency fees and expenses of
$___________, $___________ and $___________, respectively, for all funds.
All fees paid to the Adviser during the fiscal year ended June 30, 1998,
(including management, transfer agency and accounting fees but net of
reimbursements) totaled $___________.
A & B Mailers, Inc., a wholly-owned corporation of the Adviser, 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. For the fiscal years ended June 30, 1996, 1997 and 1998, the
Trust paid A&B Mailers $___________, $___________ and $___________,
respectively, for all funds.
Beginning September 3, 1998, U.S. Global Brokerage, Inc., a subsidiary of the
adviser, will market the funds and distribute shares through selling brokers,
financial planners and other financial representatives.
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
and 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 Adviser, 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 a 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 a 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;
Page 26 of 35
<PAGE>
4. any securities so acquired by any fund shall 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 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
applicable fund are valued. See the"Valuation of Shares" section 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 and
Government Securities Savings Fund are redeemed by wire, proceeds will normally
be wired on the next 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.
If a check for the balance of the account is presented for payment, the
dividends will close out and generate a dividend check and close the account. 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 7 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.
Page 27 of 35
<PAGE>
The Trust reserves the right to terminate generally, or alter generally, the
check writing 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 or the China Region 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 or China Region Fund solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Trust during any 90-day period for any one
shareholder. Any shareholder of the Gold Shares Fund or China Region Fund
receiving a redemption in kind would then have to pay brokerage fees in order to
convert the investment into cash. All redemptions in kind will be made in
marketable securities of the particular 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 Adviser 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 and Government Securities Savings Funds' 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 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.
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<PAGE>
The seven-day yield and effective yield for the Treasury Securities Cash Fund
and the Government Securities Savings Fund at June 30, 1998 were _______% and
_______%, and _______% and _______%, respectively, with an average weighted
maturity of investments on that date of 64 and 74 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) SUP 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, 1998, is as follows:
1 YEAR 5 YEARS 10 YEARS
Gold Shares Fund _____% _____% _____%
World Gold Fund _____% _____% _____%
Global Resources Fund _____% _____% _____%
China Region Fund _____% _____% * _____%
All American Fund _____% _____% _____%
Income Fund _____% _____% _____%
Real Estate Fund _____% _____% _____%
Tax Free Fund _____% _____% _____%
Near-Term Tax Free _____% _____% _____% **
Fund
------------------------
(02/10/94 inception)
(12/01/90 inception
YIELD
The Income Fund, Real Estate Fund, Tax Free 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
Page 29 of 35
<PAGE>
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 6
YIELD = 2[ --- +1) -1]
CD
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, 1998, for each fund was as
follows:
Income Fund _____%
Real Estate Fund _____%
Tax Free Fund _____%
Near-Term Tax Free Fund _____%
TAX EQUIVALENT YIELD
The Tax Free Fund's tax equivalent yield for the 30 days ended June 30, 1998,
was _____% based on a Federal income tax rate of _____%.
The Near-Term Tax Free Fund's tax equivalent yield for the 30 days ended June
30, 1998, was _____% based on a Federal income tax rate of _____%.
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 39.6% (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 principal.
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<PAGE>
Because a distribution can include such premiums, capital gains and option
income, the amount of the distribution may be susceptible to control by the
Adviser 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 Adviser's fee
waivers or reimbursement of a portion of the fund's expenses, as the case may
be.
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 ("Code"). Accordingly, no fund will 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 ("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
("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.
Mutual funds are potentially subject to a nondeductible 4% excise tax calculated
as a percentage of certain undistributed amounts of taxable ordinary income and
capital gains net of capital losses. The funds intend to make such distributions
as may be necessary to avoid this excise tax.
A possibility exists that exchange control regulations imposed by foreign
governments may restrict or limit the ability of a fund to distribute net
investment income or the proceeds from the sale of its investments to its
shareholders.
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
Page 31 of 35
<PAGE>
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.
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.
If a fund owns shares in a foreign corporation that is a "passive foreign
investment company" for U.S. Federal income tax purposes and that fund does not
elect to treat the foreign corporation as a "qualified electing fund" within the
meaning of the Code, that fund may be subject to U.S. Federal income tax on part
of any "excess distribution" it receives from the foreign corporation or any
gain it derives from the disposition of such shares, even if the fund
distributes such income as a taxable dividend to its U.S. shareholders. The fund
may also be subject to additional tax similar to an interest charge with respect
to deferred taxes arising from such distributions or gains. Any tax paid by the
fund because of its ownership of shares in a "passive foreign investment
company" will not lead to any deduction or credit to the fund or any
shareholder. If the fund owns shares in a "passive foreign investment company"
and the fund does elect to treat the foreign corporation as a "qualified
electing fund" under the Code, the fund may be required to include part of the
ordinary income and net capital gains in its income each year, even if this
income is not
Page 32 of 35
<PAGE>
distributed to the fund. Any such income would be subject to the distribution
requirements described above even if the fund did not receive any income to
distribute.
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 fund 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 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 and Near-Term Tax Free Funds' dividends
distributed to shareholders are derived from interest income exempt from Federal
income tax and are designated as "exempt-interest dividends" by the funds, 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 funds are includible 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 mid-term or long-term capital gain, as applicable,
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 mid-term or long-term capital loss to the extent of the mid-term or
long-term capital gain, as applicable, recognized.
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.
Page 33 of 35
<PAGE>
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 Adviser's nor the Trust's counsel makes any review
of proceedings relating to the issuance of tax-exempt securities or the basis of
such opinions.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a fund accrues interest or other receivables, or
accrues expenses or other liabilities denominated in a foreign currency and the
time a fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies or from the disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the currency or security
and the date of disposition also are treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of a fund's net investment income (which
includes, among other things, dividends, interest and net short-term capital
gains in excess of net long-term capital losses, net of expenses) available to
be distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the fund's net capital gain. If section 988 losses
exceed such other net investment income during a taxable year, any distributions
made by the fund could be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his fund shares. To the extent that such distributions exceed such
shareholder's basis, they will be treated as a gain from the sale of shares. As
discussed below, certain gains or losses with respect to forward foreign
currency contracts, over-the-counter options or foreign currencies and certain
options graded on foreign exchanges will also be treated as section 988 gains or
losses.
Forward currency contracts and certain options entered into by the fund may
create "straddles" for U.S. Federal income tax purposes and this may affect the
character of gains or losses realized by the fund on forward currency contracts
or on the underlying securities and cause losses to be deferred. Transactions in
forward currency contracts may also result in the loss of the holding period of
underlying securities for purposes of the 30% of gross income test. The fund may
also be required to "mark-to-market" certain positions in its portfolio (i.e.,
treat them as if they were sold at year end). This could cause the fund to
recognize income without having the cash to meet the distribution requirements.
FOREIGN TAXES
Income received by a fund from sources within any countries outside the United
States in which the issuers of securities purchased by the fund are located may
be subject to withholding and other taxes imposed by such countries.
If a fund is liable for foreign income and withholding taxes that can be treated
as income taxes under U.S. Federal income tax principles, the fund expects to
meet the requirements of the Code for "passing-through" to its shareholders such
foreign taxes paid, but there can be no assurance that the fund will be able to
do so. Under the Code, if more than 50% of the value of the fund's total assets
at the close of its taxable year consists of stocks or securities of foreign
corporations, the fund will be eligible for, and intends to file, an election
with the Internal Revenue Service to "pass-through" to the fund's shareholders
the amount of such foreign income and withholding taxes paid by the fund.
Pursuant to this election a shareholder will be required to: (1) include in
gross income (in addition to taxable dividends actually received) his pro rata
share of such foreign taxes paid by the fund; (2) treat his pro rata share of
such foreign taxes as having been paid by him; and (3) either deduct his pro
rata share of such foreign taxes in computing his taxable income or use it as a
foreign tax credit against his U.S. Federal income taxes. No deduction for such
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Each shareholder will be notified within 60 days after the close of the fund's
taxable year whether the foreign taxes paid by the fund will "pass-through" for
that year and, if so, such notification will designate (a) the shareholder's
portion of the foreign taxes paid to each such country; and (b) the portion of
dividends that represents income derived from sources within each such country.
The amount of foreign taxes for which a shareholder may claim a credit in any
year will be subject to an overall limitation which is applied separately to
"passive income," which includes, among other types of income, dividends and
interest.
Page 34 of 35
<PAGE>
The foregoing is only a general description of the foreign tax credit under
current law. Because applicability of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
The foregoing discussion relates only to generally applicable Federal income tax
provisions in effect as of the date of the prospectus and Statement of
Additional Information. Shareholders should consult their tax advisers about the
status of distributions from the fund in their own states and localities.
CUSTODIAN, FUND ACCOUNTANT, AND ADMINISTRATOR
Beginning November 1997 Brown Brothers Harriman & Co. began serving as
custodian, fund accountant and administrator for all funds of the Trust
described in this Statement of Additional Information. With respect to the funds
that own foreign securities Brown Brothers Harriman & Co. may hold securities of
the funds outside the United States pursuant to sub-custody arrangements
separately approved by the Trust. Prior to November 1997 Bankers Trust provided
custody services and USSI provided fund accounting and administrative services.
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 Adviser.
DISTRIBUTOR
U.S. Global Brokerage, Inc., 7900 Callaghan Road, San Antonio, Texas 78229, is
the exclusive agent for distribution of shares of the funds. The distributor is
obligated to sell the shares of the funds on a best-efforts basis only against
purchase orders for the shares. Shares of the funds are offered on a continuous
basis.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Price Waterhouse LLP, 700 North St. Mary's Street, Suite 900, San Antonio, Texas
78205 serves as the independent accountants for the Trust.
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, serves
as legal counsel to the Trust.
FINANCIAL STATEMENTS
The financial statements for year ended June 30, 1998, 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 that case, the Trust will promptly provide another copy, free of
charge, upon request to: U.S. Global Investors, Inc., P.O. Box 781234, San
Antonio, Texas 78278-1234, 1-800-873-8637 or (210) 308-1234.
Page 35 of 35
================================================================================
PART C -- OTHER INFORMATION
================================================================================
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included in Part B (Statement of
Additional Information) of this Registration Statement.
(1) Financial Statements for fiscal year ended June 30, 1998, of
U.S. Global Investors Funds will be submitted by a 485(b)
filing.
(b) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------- -------------------------------------------------------------
(1) (a) First Amended and Restated Master Trust Agreement, dated May
19, 1995, incorporated by reference from Post- Effective
Amendment No. 78 to Registration Statement.
(b) Amendment No. 1, dated January 31, 1997, to the First Amended
and Restated Master Trust Agreement changing the name of the
trust to U.S. Global Investors Funds, incorporated by
reference from Post-Effective Amendment No. 80 dated
September 2, 1997 (EDGAR Accession No. 0000101507-97-000095).
(c)* Amendment No. 2, dated June 9, 1998, to the First Amended and
Restated Master Trust Agreement changing the names of
selected funds.
(2) By-laws, incorporated by reference from Post-Effective
Amendment No. 44 to Registration Statement. (3) Not
Applicable (4) Not Applicable
(5) (a) Advisory Agreement with U.S. Global Investors, Inc., dated
October 1989 incorporated by reference from Post-Effective
Amendment No. 62.
(6) (a)* Form of Distribution Agreement between Registrant and U.S.
Global Brokerage, Inc. dated September 3, 1998.
(b)* Specimen Selling Group Agreement between principal
underwriter and dealers.
(7) Not Applicable
(8) (a) Custodian Agreement with Bankers Trust Company, incorporated
by reference from Post- Effective Amendment No. 61.
(b) Global Custodian Agreement between United Services Funds and
Bankers Trust Company incorporated by reference from United
Services Funds Report on FORM SE, Exhibit 77 Q 3(b) for six
month period ended June 30, 1992.
(c)* Custodian Agreement Registrant and Brown Brothers Harriman &
Co. dated November 1, 1997.
(9) (a) Transfer Agency Agreement, as amended, with United
Shareholder Services, Inc. dated as of November 1, 1988,
incorporated by reference to Post Effective Amendment No. 79.
<PAGE>
PART C. OTHER INFORMATION
(b) Bookkeeping and Accounting Agreement, dated February 1, 1992,
between United Shareholder Services, Inc. and United Services
Funds incorporated by reference from United Services Funds
Report on Form N-SAR for six months ended December 31, 1991.
(c) Lockbox Agreement between United Services Funds and United
Shareholder Services, Inc. incorporated by reference from
Post-Effective Amendment No. 71.
(d) Printing Agreement between United Services Funds and United
Shareholder Services, Inc. incorporated by reference from
Post-Effective Amendment No. 71.
(10) (a) Opinion of Goodwin, Procter & Hoar incorporated by reference
from Post-Effective- Amendment No. 59.
(b) Opinion of Goodwin Procter & Hoar incorporated by reference
from Post-Effective amendment No. 74.
(11) Not applicable
(12) Not Applicable
(13) Not Applicable
(14) (a) Individual Retirement Accounts, Disclosure Statement &
Custodian Agreement incorporated by reference to
Post-Effective Amendment No. 67.
(b) Prototype Defined Contribution and Trust/Custodial Account
Sponsored by Securities Trust and Financial Company (Basic
Plan Document #01) incorporated by reference from
Post-Effective Amendment No. 67.
(c) Prototype Cash or Deferred Profit-Sharing Plan and
Trust/Custodial Account Sponsored by Securities Trust and
Financial Company (Basic Plan Document #04) incorporated by
reference from Post-Effective Amendment No. 67.
(15) Not Applicable
(16) Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22, incorporated by reference from Post-Effective Amendment
No. 57.
(17) Powers of Attorney, incorporated by reference from
Post-Effective Amendment No. 78.
* Filed Herein
ITEM 25. Persons Controlled by or under Common Control with Registrant
Information pertaining to persons controlled by or under common control
with Registrant is incorporated by reference to the Statement of
Additional Information contained in Part B of this Registration
Statement at the section entitled "Principal Holders of Securities."
ITEM 26. Number of Holders of Securities
The number of record holders, as of August 28, 1998, of each class of
securities of the Registrant.
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
--------------------------------------- --------------
Gold Shares Fund 32,687
Global Resources Fund 6,194
All American Equity Fund 4,483
U.S. Treasury Securities Cash Fund 10,989
Tax Free Fund 918
Income Fund 1,197
World Gold Fund 18,679
U.S. Government Securities Savings Fund 24,740
Real Estate Fund 1,403
Near-Term Tax Free Fund 287
China Region Opportunity Fund 4,943
ITEM 27. Indemnification
Under Article VI of the Registrant's Master Trust Agreement, each of
its Trustees and officers or person serving in such capacity with
another entity at the request of the Registrant (a "Covered Person")
shall be indemnified (from the assets of the Sub-Trust or Sub-Trusts in
question) against all liabilities, including, but not limited to,
amounts paid in satisfaction of judgments, in compromises or as fines
or penalties, and expenses, including reasonable legal and accounting
fees, incurred by the Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having
been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such
Covered Person (i) did not act in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best
interests of the Trust or (ii) had acted with wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office (either and both of the
conduct described in (i) and (ii) being referred to hereafter as
"Disabling Conduct"). A determination that the Covered Person is not
entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of
Disabling Conduct, or (iii) a reasonable determination, based upon a
review of the facts, that the indemnitee was not liable by reason of
Disabling Conduct by (a) a vote of the majority of a quorum of Trustees
who are neither "interested persons" of the Trust as defined in Section
1(a)(19) of the 1940 Act nor parties to the proceeding, or (b) as
independent legal counsel in a written opinion.
ITEM 28. Business and Other Connections of Investment Advisor
Information pertaining to business and other connections of
Registrant's investment adviser is incorporated by reference to the
Prospectus and Statement of Additional Information contained in Parts A
and B of this Registration Statement at the sections entitled
"Management of the Funds" in the Prospectus and "Investment Advisory
Services" in the Statement of Additional Information.
ITEM 29. Principal Underwriters
U.S. Global Brokerage, Inc. ("USGBI") is the Registrant's principal
underwriter. USGBI also acts as principal underwriter for the U.S.
Global Accolade Funds. U.S. Global Investors, Inc., 7900 Callaghan
Road, San Antonio, Texas 78229 owns 100% of the firm. Mr. Frank E.
Holmes is President and Chief Executive Officer of the Registrant.
ITEM 30. Location of Accounts and Records
All accounts and records maintained by the Registrant are kept at the
Registrant's office located at 7900 Callaghan Road, San Antonio, Texas.
All accounts and records maintained by Brown Brothers Harriman & Co. as
custodian are maintained in Boston, Massachusetts.
ITEM 31. Not Applicable
ITEM 32. Not Applicable
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------
(1) (c) Amendment No. 2 to First Amended and Restated Master Trust Agreement
dated June 9, 1998.
(6) (a) Distribution Agreement between Registrant and U.S. Global Brokerage,
Inc. dated September 3, 1998.
(b) Specimen Agreement between principal underwriter and dealers.
(c) Custodian Agreement among Registrant and Brown Brothers Harriman & Co.
dated November 1, 1997.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and that it has duly caused this
Amendment to the Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized in the city of San Antonio, State
of Texas, on the 2th day of September 1998.
U.S. GLOBAL INVESTORS FUNDS
By: */S/ Frank E. Holmes
---------------------------
FRANK E. HOLMES
Date: September 2, 1998 Chief Executive Officer, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ---------------------------- ----------------------- -----------------
*/S/ JOHN P. ALLEN Trustee September 2, 1998
- ----------------------------
John P. Allen
*/S/ EDWARD D. HODO Trustee September 2, 1998
- ----------------------------
Edward D. Hodo
*/S/ FRANK E. HOLMES Trustee, President, September 2, 1998
- ---------------------------- Chief Executive Officer
Frank E. Holmes
/S/ CLARK R. MANDIGO Trustee September 2, 1998
- ----------------------------
Clark R. Mandigo
*/S/ CHARLES Z. MANN Trustee September 2, 1998
- ----------------------------
Charles Z. Mann
/S/ Walter W. McAllister Trustee September 2, 1998
- ----------------------------
Walter W. McAllister, III
*/S/ W.C.J. VAN RENSBURG Trustee September 2, 1998
- ----------------------------
W.C.J. van Rensburg
/S/ SUSAN B. MC GEE Executive Vice President
- ---------------------------- Secretary September 2, 1998
Susan B. McGee General Counsel
*BY: /S/ SUSAN B. MC GEE
- ----------------------------
Power of Attorney
Susan B. McGee
Executive Vice President
Secretary
General Counsel
U.S. GLOBAL INVESTORS FUNDS
(ORGANIZED AS: UNITED SERVICES FUNDS)
AMENDMENT NO. 2 TO THE
FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
AMENDMENT No. 2 to the Amended and Restated Master Trust Agreement of U.S.
GLOBAL INVESTORS FUNDS, dated May 19, 1995, made at San Antonio, Texas, this 9th
day of June 1998 by the Trustees hereunder.
WITNESSETH:
WHEREAS, Section 7.3 of the Amended and Restated Master Trust Agreement dated
May 19, 1995, (the "Agreement") of United Services Funds (the "Trust") provides
that the Agreement may be amended at any time, so long as such amendment does
not adversely affect the rights of any shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the Investment Company Act of
1940, by an instrument in writing, signed by an officer of the Trust pursuant to
a vote of a majority of the Trustees of the Trust; and
WHEREAS, a majority of the Trustees of the Trust desire to amend the Agreement
to change the names of sub-trusts and amend the number of sub-trusts referenced
in the first paragraph of Section 4.2 of the Agreement; and
WHEREAS, a majority of the Trustees of the Trust have duly adopted the amendment
to the Agreement shown below on January 21, 1998, and authorized the same to be
filed with the Secretary of State of the Commonwealth of Massachusetts;
1. NOW, THEREFORE, the undersigned Frank E. Holmes, the duly elected and serving
President of the Trust, pursuant to the authorization described above, hereby
amends Section 4.2 of the Amended and Restated Master Trust Agreement, as
heretofore in effect, to read as follows:
Section 4.2 ESTABLISHMENT AND DESIGNATION OF SUB-TRUSTS AND CLASSES.
Without limiting the authority of the Trustees set forth in Section 4.1
to establish and designate any further Sub-Trusts, the Trustees hereby
establish and designate eleven Sub-Trusts: Gold Shares Fund, Global
Resources Fund, World Gold Fund, China Region Opportunity Fund, All
American Equity Fund, Income Fund, Real Estate Fund, Tax-Free Fund,
Near-Term Tax-Free Fund, U.S. Government Securities Cash Fund and U.S.
Treasury Securities Cash Fund. Each such Sub-Trust shall consist of one
class of Shares. The Shares of each such Sub-Trust and class thereof
and any Shares of any further Sub-Trusts or classes thereof that may
from time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some further
Sub-Trust or class thereof at the time of establishing and designating
the same) have the following relative rights and preferences:
WITNESS my hand and seal this 9th day of June 1998.
/s/ Frank E. Holmes
--------------------------
FRANK E. HOLMES, PRESIDENT
STATE OF TEXAS )
)ss
COUNTY OF BEXAR )
Then personally appeared the above-name Frank E. Holmes and acknowledged this
instrument to be his free act and deed this 9th day of June 1998.
/s/ June L. Falks
-------------------------
NOTARY PUBLIC
My Commission expires: February 14, 2000
U.S. Global Investors Funds
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 3rd day of September 1998 between U.S. Global
Investors Funds, a Massachusetts business trust (the "Trust"), having its
principal place of business in San Antonio, Texas, and U.S. Global Brokerage,
Inc. a corporation organized under the laws of the State of Texas (the
"Distributor"), having its principal place of business in San Antonio, Texas.
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company and is
authorized (i) to issue shares of beneficial interest in separate series, with
the shares of each such series representing the interests in a separate
portfolio of securities and other assets, and (ii) to divide such shares of
beneficial interest of each such series into two or more classes; and
WHEREAS, the Trust wishes to employ the services of the Distributor with
respect to the distribution of shares of beneficial interest of the Trust
("Shares") and classes thereof representing interests in each portfolio series
thereof identified from time to time on Schedule A hereto (each such portfolio
series being referred to herein as a "Fund"); and
WHEREAS, the Distributor wishes to provide distribution services to the
Trust with respect to the Shares.
NOW, THEREFORE, in consideration of the mutual promises and undertakings
herein contained, the parties agree as follows:
1. SALE OF SHARES BY THE DISTRIBUTOR. The Trust grants to the Distributor
the right to sell Shares during the term of this Agreement and subject
to the registration requirements of the Securities Act of 1933, as
amended (the "1933 Act"), under the following terms and conditions:
(i) the Distributor, as agent for the Trust, shall sell Shares
authorized for issue and registered under the 1933 Act; and (ii) the
Distributor shall sell such Shares only in compliance with the terms
set forth in the Trust's currently effective registration statement,
as may be in effect from time to time, and any further limitations the
Trustees of the Trust may impose. The Distributor may enter into
selling agreements with selected dealers and others for the sale of
Shares and will act only on its behalf as principal in entering into
such selling agreements.
2. SALE OF SHARES BY THE TRUST. THe Trust reserves the right to issue
Shares in connection with (i) the merger or consolidation of the
assets of, or acquisition by the Trust through purchase or otherwise,
with any other investment company, trust or personal holding company;
(ii) a pro rata distribution directly to the holders of Shares in the
nature of a stock dividend or split-up; and (iii) as otherwise may be
provided in the then current registration statement of the Trust.
3. SHARES COVERED BY THIS AGREEMENT. This Agreement shall apply to issued
Shares, Shares held in its treasury in the event that in the
discretion of the Trust treasury Shares shall be sold, and Shares
repurchased for resale.
4. PUBLIC OFFERING PRICE. Except as otherwise noted in the Trust's
prospectus for any Fund (the "Prospectus") or Statement of Additional
Information for any Fund (the "SAI"), as amended or supplemented from
time to time, all Shares sold by the Distributor or the Trust will be
sold at the public offering price plus any applicable sales charge
described therein. The public offering price for all accepted
subscriptions will be the net asset value per share, determined in the
manner described in the Trust's then current Prospectus and SAI with
respect to the applicable Fund. The Trust shall in all cases receive
the net asset value per Share on
<PAGE>
U.S. Global Investors Funds
Distribution Agreement
Page 2 of 7
all sales and the Distributor shall be entitled to retain the
applicable sales charges, if any, subject to any reallowance
obligations of the Distributor as set forth in any selling agreements
with selected dealers and others for the sale of Shares and/or as set
forth in the Prospectus and/or SAI of the Trust with respect to
Shares.
5. SUSPENSION OF SALES. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further
orders for Shares shall be processed by the Distributor, except such
unconditional orders placed with the Distributor before it had
knowledge of the suspension. In addition, the Trust reserves the right
to suspend sales of Shares and the Distributor's authority to sell
Shares if, in the judgement of the Trust, it is in the best interest
of the Trust to do so. Suspension will continue for such period as may
be determined by the Trust. In addition, the Trust and Distributor
reserve the right to reject any purchase order.
6. SOLICITATION OF SALES. In consideration of these rights granted to the
Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for Shares of
the Trust. This shall not prevent the Distributor from entering into
like arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. Distributor agrees to
use all reasonable efforts to ensure that taxpayer identification
numbers provided for holders of Shares of the Trust are correct. In
addition, Distributor (in coordination with investment advisers
retained by the Trust) will be responsible for the production of
marketing and advertising materials for the sale of Shares of the
Trust and the review thereof for compliance with applicable regulatory
requirements, entering into other agreements with broker-dealers, if
any, to sell Shares of the Trust and monitoring their financial
strength and contractual compliance.
7. AUTHORIZED REPRESENTATIONS. The Distributor is not authorized by the
Trust to give any information or to make any representations other
than those contained in the appropriate registration statements,
Prospectuses or SAIs filed with the Securities and Exchange Commission
under the 1933 Act (as those registration statements, Prospectuses and
SAIs may be amended from time to time), or contained in shareholder
reports or other material that may be prepared by or on behalf of the
Trust for the Distributor's use. This shall not be construed to
prevent the Distributor from preparing and distributing, in compliance
with applicable laws and regulations, sales literature or other
material as it may deem appropriate. Distributor will furnish or cause
to be furnished copies of such sales literature or other material to
the Trust. Distributor agrees to take appropriate action to cease
using such sales literature or other material to which the Trust
reasonably objects as promptly as practicable after receipt of the
objection. Distributor further agrees that, in connection with the
offer and sale of Shares, Distributor shall comply with all applicable
securities laws of the United States and each state thereof in which
Shares are offered and/or sold (including without limitation, the
maintenance of effective federal and state broker-dealer
registrations, as required).
8. REGISTRATION OF SHARES. The Trust agrees that it will use its best
efforts to register Shares under the 1933 Act (subject to the
necessary approval, if any, of its shareholders) and to qualify and
maintain the registration and qualification of an appropriate number
of shares under the 1933 Act so that there will be available for sale
the number of Sales the Distributor may reasonably be expected to
sell. Distributor shall furnish such information and other materials
relating to its affairs and activities as shall be required by the
Trust in connection with such registration and qualification. The
Distributor agrees that it will not offer or sell Shares in any
jurisdiction unless the offer or sale of Shares has been so qualified
or registered or is otherwise exempt from such registration or
qualification. The Trust shall furnish to the Distributor copies of
all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Shares of each series of the Trust.
<PAGE>
U.S. Global Investors Funds
Distribution Agreement
Page 3 of 7
9. EXPENSES, COMPENSATION AND REIMBURSEMENT.
(a) The Trust shall pay all fees and expenses:
(i) in connection with the preparation, setting in type and
filing of any registration statement, Prospectus and SAI
under the 1933 Act, and any amendments thereto, for the
issue of its Shares;
(ii) in connection with the registration and qualification of
Shares for sale in states in which the Board of Trustees
(the "Trustees") of the Trust shall determine it advisable
to qualify such Shares for sale (including registering the
Trust as a broker or dealer or any officer of the Trust as
agent or salesperson in any such location);
(iii)of preparing, setting in type, printing and mailing any
report or other communication to holders of Shares of the
Trust in their capacity as such; and
(iv) of preparing, setting in type, printing and mailing
Prospectuses, SAIs, and any supplements thereto, sent to
existing holders of Shares.
(b) The Distributor shall pay cost of:
(i) printing and distributing Prospectuses, SAIs and reports
prepared for its use in connection with the offering of the
Shares for sale to the public;
(ii) any other literature used in connection with such offering;
(iii)advertising in connection with such offering including, but
not limited to the following: public relations services,
sales presentations, media charges, preparation, printing
and mailing of advertising and sales literature, data
processing necessary to distribution effort, printing and
mailing of prospectuses; and
(iv) any additional out-of-pocket expenses incurred in connection
with these costs.
10. INDEMNIFICATION.
(a) The Trust agrees to indemnify and hold harmless the Distributor
and each of its directors and officers and each person, if any,
who controls the Distributor within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damage or
expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith)
arising out of or based upon: (i) any violation of the Trust's
representations or covenants herein contained; (ii) any wrongful
act of the Trust or any of its representatives (other than the
Distributor or any of its employees or representatives
(regardless of the capacity in which such employee or
representative is acting) or any other person for whose acts the
Distributor is responsible or is alleged to be responsible
(including any selected dealer or person through whom sales are
made pursuant to an agreement with the Distributor)); (iii) any
untrue statement of a material fact contained in a registration
statement, Prospectus, SAI or shareholder report of any Fund or
any omission to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, except to the extent the statement or omission
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U.S. Global Investors Funds
Distribution Agreement
Page 4 of 7
was made in reliance upon, and in conformity with, information
furnished in writing to the Trust by or on behalf of the
Distributor; or (iv) any untrue statement of a material fact
contained in any advertising material of a Fund or any omission
to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading,
to the extent that such statement or omission was made in
reliance upon, and in conformity with, information furnished to
the Distributor by the Trust. In no case (x) is the indemnity by
the Trust in favor of the Distributor or any person indemnified
to be deemed to protect the Distributor or any person against any
liability to the Trust or its security holders to which the
Distributor or such person would otherwise be subject by reason
or willful misfeasance, bad faith or ordinary negligence in the
performance of its duties or by reason of its reckless disregard
of its obligations and duties under this agreement, or (y) is the
Trust to be liable under its indemnity agreements contained in
the Section 10(a) with respect to any claim made against the
Distributor or any person indemnified unless the Distributor or
person, as the case may be, shall have notified the Trust in
writing of the claim within a reasonable time after the summons
or other first written notification giving information of the
nature of the claim shall have been served upon the Distributor
or any such person or after the Distributor or such person shall
have received notice of service on any designated agent. However,
except to the extent the Trust is harmed thereby, failure to
notify the Trust of any claim shall not relieve the Trust from
any liability which it may have to the Distributor or any person
against whom such action is brought other than on account of its
indemnity agreement contained in this Section 10(a). The Trust
shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit
brought to enforce any claims, but if the Trust elects to assume
the defense, the defense shall be conducted by counsel chosen by
it and satisfactory to the Distributor, or person or persons,
defendant or defendants in the suit. In the event the Trust
elects to assume the defense of any suit and retain counsel, the
Distributor, officers or directors or controlling person(s) or
defendant(s) in the suit, shall bear the fees and expenses of any
additional counsel retained by, them. If the Trust does not elect
to assume the defense of any suit, it will reimburse the
Distributor, officers or directors or controlling person(s) or
defendant(s) in the suit, for the reasonable fees and expenses of
any counsel retained by them. The Trust agrees to notify the
Distributor promptly of the commencement of any litigation or
proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any of the Shares.
(b) The Distributor agrees to indemnify and hold harmless the Trust
and each of its Trustees and officers and each person, if any,
who controls the Trust within the meaning of Section 15 of the
1933 Act, against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith) arising out of or
based upon: (i) any violation of the Distributor's
representations or covenants herein contained; (ii) any wrongful
act of the Distributor or any of its employees or representatives
or any other person for whose acts the Distributor is responsible
or is alleged to be responsible (including any selected dealer or
person through whom sales are made pursuant to an agreement with
the Distributor); (iii) any untrue statement of a material fact
contained in a registration statement, Prospectus, SAI or
shareholder report of any Fund or any omission to state a
material fact required to be stated therein or necessary in order
to make the statements therein not misleading, to the extent the
statement or omission was made in reliance upon, and in
conformity with, information furnished in writing to the Trust by
or on behalf of the Distributor; or (iv) any untrue statement of
a material fact contained in any advertising material of a Fund
or any omission to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, except to the extent that such statement or omission
was made in reliance upon, and in conformity with, information
furnished to the Distributor by the Trust. In no case (x) is the
indemnity by the Distributor in favor of the Trust or any person
indemnified to be deemed to protect the Trust or any person
against any liability to the Distributor or its security holders
to which the Trust or such person would otherwise be subject by
reason or
<PAGE>
U.S. Global Investors Funds
Distribution Agreement
Page 5 of 7
willful misfeasance, bad faith or ordinary negligence in the
performance of its duties or by reason of its reckless disregard
of its obligations and duties under this agreement, or (y) is the
Distributor to be liable under its indemnity agreements contained
in the Section 10(b) with respect to any claim made against the
Trust or any person indemnified unless the Trust or person, as
the case may be, shall have notified the Distributor in writing
of the claim within a reasonable time after the summons or other
first written notification giving information of the nature of
the claim shall have been served upon the Distributor or any such
person or after the Distributor or such person shall have
received notice of service on any designated agent. However,
except to the extent the Distributor is harmed thereby, failure
to notify the Distributor of any claim shall not relieve the
Distributor from any liability which it may have to the Trust or
any person against whom such action is brought other than on
account of its indemnity agreement contained in this Section
10(b). The Distributor shall be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any claims, but if the
Distributor elects to assume the defense, the defense shall be
conducted by counsel chosen by it and satisfactory to the Trust,
or person or persons, defendant or defendants in the suit. In the
event the Distributor elects to assume the defense of any suit
and retain counsel, the Trust, officers or Trustees or
controlling person(s) or defendant(s) in the suit, shall bear the
fees and expenses of any additional counsel retained by, them. If
the Distributor does not elect to assume the defense of any suit,
it will reimburse the Trust, officers or Trustees or controlling
person(s) or defendant(s) in the suit, for the reasonable fees
and expenses of any counsel retained by them. The Distributor
agrees to notify the Trust promptly of the commencement of any
litigation or proceedings against it or any of its officers or
directors in connection with the issuance or sale of any of the
Shares.
(c) The indemnification obligations of the parties in this Section 10
shall survive the termination of this Agreement.
11. EFFECTIVENESS, TERMINATION, ETC. This Agreement shall become effective
as follows: (i) with respect to the Shares of each Fund (or class
thereof) identified on Schedule A hereto on the date hereof, as of the
date hereof, and (ii) with respect to the Shares of any Fund (or class
thereof) added to Schedule A hereto, subsequent hereto, as of the date
Schedule A is amended to add such Fund or class of Shares. Unless
terminated as provided herein, the Agreement shall continue in force
for two (2) years from the date of its execution and thereafter from
year to year, provided continuance is approved at least annually by
either (i) the vote of a majority of the Trustees of the Trust, or by
the vote of a majority of the outstanding voting securities of the
Trust, and (ii) the vote of a majority of those Trustees of the Trust
who are not interested persons of the Trust and who are not parties to
this Agreement or interested persons of any party, cast in person at a
meeting called for the purpose of voting on the approval. This
Agreement shall automatically terminate in the event of its
assignment. In addition to termination by failure to approve
continuance or by assignment, this Agreement may at time be terminated
without the payment of any penalty with respect to any Fund or class
of Shares thereof by vote of a majority of the Trustees of the Trust
who are not interested persons of the Trust, or by vote of a majority
of the outstanding voting securities of the Trust, on not more than
sixty (60) days written notice by the Trust. This Agreement may be
terminated by the Distributor upon not less than sixty (60) days prior
written notice to the Trust. As used in this Section 11, the terms
"vote of a majority of the outstanding voting securities,"
"assignment" and "interested person" shall have the respective
meanings specified in the 1940 Act and the rules enacted thereunder as
now in effect or as hereafter amended.
12. NOTICE. Any notice under this Agreement shall be given in writing
addressed and hand delivered or sent by registered or certified mail,
postage prepaid, to the other party to this Agreement at its principal
place of business.
<PAGE>
U.S. Global Investors Funds
Distribution Agreement
Page 6 of 7
13. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
14. GOVERNING LAW. To the extent that state law has not been preempted by
the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement
shall be administered, construed and enforced according to the laws of
the State of Texas.
15. LIMITATION OF LIABILITY. The Distributor acknowledges that it has
received notice of and accepts the limitations set forth in the
Trust's Amended and Restated Master Trust Agreement. The Distributor
agrees that the Trust's obligations hereunder shall be limited to the
Trust, and that the Distributor shall have recourse solely against the
assets of the Fund with respect to which the Trust's obligations
hereunder relate and shall have no recourse against the assets of any
other Fund or against any shareholder, Trustee, officer, employee or
agent of the Trust.
16. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed in two counterparts, each of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
U.S. GLOBAL INVESTORS FUNDS U.S. GLOBAL BROKERAGE, INC.
By: By:
Frank E. Holmes Creston A. King, III
President President
Chief Executive Officer
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U.S. Global Investors Funds
Distribution Agreement
Page 7 of 7
SCHEDULE A
U.S. Global Investors Funds
Portfolios and Fee Schedule
Portfolios covered by Distribution Agreement:
Gold Shares Fund
World Gold Fund
Global Resources Fund
China Region Opportunity Fund
All American Equity Fund
Income Fund
Real Estate Fund
Tax Free Fund
Near-Term Tax-Free Fund
U.S. Government Securities Savings Fund
U.S. Treasury Securities Cash Fund
Fees for distribution and distribution support services on behalf of the
Portfolios:
Annual Fee: $24,000
This fee shall be paid in monthly installments of $2,000.00 each.
September 3, 1998
U.S. GLOBAL INVESTORS FUNDS U.S. GLOBAL BROKERAGE, INC.
By: By:
Frank E. Holmes Creston A. King, III
President President
Chief Executive Officer
U.S. GLOBAL BROKERAGE, INC.
DISTRIBUTOR OF U.S. GLOBAL INVESTORS FUNDS
AND U.S. GLOBAL ACCOLADE FUNDS SHARES
- --------------------------------------------------------------------------------
SELLING GROUP AGREEMENT
- --------------------------------------------------------------------------------
U.S. Global Brokerage, Inc. is the principal underwriter for the shares of
U.S. Global Investors Funds and U.S. Global Accolade Funds (hereinafter the
"Trust" or "Trusts"), Massachusetts business trusts registered as open-end
management investment companies under the Investment Company Act of 1940 (the
"Act"). The Trusts are series funds presently authorized to issue the series of
shares listed on Attachment A. The intent of the Trusts is to issue additional
series, and each of the current and planned series may offer multiple classes of
shares (hereinafter "Fund" or "Funds"). The shares of additional series of the
Trusts may become available for sale in the future, in which event, the terms
and conditions of this Agreement will be fully applicable thereto.
We are pleased to invite you to participate in the distribution of the
shares of the series of the Trusts under the terms and conditions hereinafter
set forth.
1. As principal underwriter, we have the exclusive right to coordinate
distribution of Trust shares. We are not the agent of any dealer or
any other purchaser of shares of the Trusts, and all sales of the
shares of the Trusts made under this Agreement are made by application
to the Trusts. You are not authorized to act as our agent or as agent
of the Trusts for any purpose. Our obligations to you under this
agreement are subject to all of the provisions of the Distribution
Agreements between us and the Trusts.
2. The prices at which Trust shares may be offered by you to your
customers are the public offering prices described in the then-current
prospectus of the several series.
3. All orders are subject to acceptance or rejection by the Trusts at the
San Antonio, Texas office, in their sole discretion, and all orders
which are accepted by the Trusts will be deemed to be accepted at the
office in Texas. Orders accepted will be confirmed at the applicable
public offering price determined in the manner described in the
then-current prospectus of the appropriate Trust series. No
conditional order will be accepted on any basis other than as
specified in the then-current prospectus of the appropriate Trust
series. The procedure for handling orders will be subject to
regulations which we, the Trusts, NSCC or DST, shall issue, from time
to time, to dealers.
3. By accepting this offer, you agree:
(a) that you will offer and sell Trust shares only to those persons
who are eligible to purchase such shares;
(b) that you will offer Trust shares only in those jurisdictions in
which the shares may lawfully be offered for sale, as to which we
may advise you, from time to time;
(c) that you will not purchase any shares from your customers at a
price lower than the appropriate redemption price currently
established by the Trust for its shares. Nothing herein
contained, however, shall prevent you from selling any of such
shares for the account of your customers to the Trust, at the
redemption price currently established with respect to such
shares and, at your option, charging your customers a fee for
handling the transaction;
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U.S. Global Brokerage, Inc.
Distributor of U.S. Global Investors Funds and U.S. Global Accolade Funds Shares
Page 2 of 4
(d) that you will sell shares to your customers only at the public
per share offering price then in effect;
(e) that you will not withhold placing with us customers' orders for
shares so as to benefit yourself as a result of such withholding;
(f) that you will use your best efforts to develop and promote sales
of the shares, that you will be responsible for the proper
instruction and training of all sales personnel employed by you
in order that Trust shares will be offered hereunder in
accordance with the terms and conditions of this Agreement and
all applicable laws, rules and regulations, and that you will
indemnify and hold us harmless in the event that you, or any of
your sales representatives, should violate any such law, rule or
regulation, or any provision of this Agreement which may result
in liability to us, including payment of reasonable attorneys'
fees; and
(g) that you will bear all expenses incurred in connection with your
performance of the terms of this Agreement.
4. Payment for shares must be made in accordance with the then-current
prospectus of the appropriate Trust series.
5. We (directly or in conjunction with a Trust or Trusts) reserve the
right, in our discretion, upon reasonable notice, to suspend sales or
withdraw the offering of shares entirely, to change the price, or to
cancel this Agreement.
6. No member of your organization is authorized by us or by the Trust to
give any information or make any representation concerning the shares
of the Trust, except those contained in the then-current statutory
prospectus relating to such shares and reports to shareholders, and in
such other printed material as we shall, from time to time supply.
7. In accordance with the terms of a Rule 12b-1 Distribution Plan that
has been duly adopted by the Board of Trustees and approved by
shareholders with respect to particular Trust series, the Trust,
subject to authorization by the Board of Trustees, may make payments
to brokers engaged in the distribution of Fund shares and who
administer the accounts of shareholders.
8. Your acceptance of this Agreement constitutes your representation to
us that you are a properly registered or licensed broker-dealer under
federal and appropriate state securities laws and regulations, and
that you are a member of the National Association of Securities
Dealers, Inc. Any provision of this Agreement to the contrary
notwithstanding, in the event that you are expelled from the National
Association of Securities Dealers, Inc., this Agreement will terminate
automatically without notice.
9. All communications to us relating to matters covered by this Agreement
should be sent to our Texas office. Notice to you shall be duly given
if mailed or telegraphed to you at the address specified by you below.
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U.S. Global Brokerage, Inc.
Distributor of U.S. Global Investors Funds and U.S. Global Accolade Funds Shares
Page 3 of 4
10. This Agreement shall become effective as of the date when it is
executed and dated by you below. This Agreement is terminable by you
or by us, in each case effective upon receipt by the non- terminating
party of notice sent by the terminating party. This Agreement and all
of the rights and obligations of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of
Texas. This agreement shall not be assigned or transferred; provided,
however, that we may assign or transfer this Agreement to any
successor firm or corporation which becomes the principal underwriter
or distributor of the Trusts.
U.S. GLOBAL BROKERAGE, INC.
7900 Callaghan Road
San Antonio, TX 78229
Phone: (210) 308-1234 Fax: (210) 308-1230
Dated: ...............:
BY:
- -----------------------------------------------------
We have read the foregoing Agreement and we hereby accept and agree to the terms
and conditions therein set forth.
Dated: ...............
- ----------------------------------------
FIRM NAME
- ----------------------------------------
ADDRESS
- ----------------------------------------
TELEPHONE NUMBER
- ----------------------------------------
FAX NUMBER
AUTHORIZED SIGNATURE
- ----------------------------------------
TITLE
PLEASE RETURN ONE EXECUTED COPY OF THIS AGREEMENT TO U.S. GLOBAL BROKERAGE, INC.
THE SECOND COPY IS FOR YOUR RECORDS.
<PAGE>
U.S. Global Brokerage, Inc.
Distributor of U.S. Global Investors Funds and U.S. Global Accolade Funds Shares
Page 4 of 4
EXHIBIT A
LIST OF FUNDS SUBJECT TO SELLING GROUP AGREEMENT
------------------------------------------------
NAME OF FUND CUSIP NUMBER
--------------------------------------- ------------
U.S. GLOBAL INVESTORS FUNDS
Gold Shares Fund 911478-10-5
All American Equity Fund 911476-60-4
Global Resources Fund 911476-20-8
U.S. Treasury Securities Cash Fund 911476-10-9
Tax Free Fund 911476-50-5
Income Fund 911476-40-6
World Gold Fund 911476-80-2
U.S. Government Securities Savings Fund 911476-88-5
Real Estate Fund 911476-87-7
Near-Term Tax Free Fund 911476-85-1
China Region Opportunity Fund 911476-82-8
U.S. GLOBAL ACCOLADE FUNDS
Bonnel Growth Fund 90330L-10-5
MegaTrends Fund 90330L-20-4
Adrian Day Global Opportunity Fund 90330L-30-3
Regent Eastern European Fund 90330L-40-2
CUSTODIAN AGREEMENT
AGREEMENT made as of this first day of November 1997 between U.S. GLOBAL
INVESTORS FUNDS (the "Fund") on behalf of each of the portfolios listed on
Appendix C hereto as the same may be amended from time to time (each a "Fund"
and collectively the "Funds"), and BROWN BROTHERS HARRIMAN & CO. (the
"Custodian").
WITNESSETH
WHEREAS the Fund is organized as a Massachusetts Business Trust with one or
more series of shares, and is an open-end management investment company
registered with the Securities and Exchange Commission.
WHEREAS each Fund represents an interest in a separate portfolio of cash,
securities and other assets (all references to a "Fund" or the "Funds" shall be
deemed to include each portfolio within the Fund as the context may make
appropriate).
WHEREAS the Fund wishes to employ the Custodian and the Custodian has
agreed to provide custodial, banking and related services to the Fund in
accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and the Custodian agree as follows:
1. APPOINTMENT OF CUSTODIAN. Upon the terms and conditions set forth in this
Agreement, the Fund hereby appoints the Custodian as a custodian, and the
Custodian hereby accepts such appointment. The Fund shall deliver or shall cause
to be delivered to the Custodian cash, securities and other property
("Property") owned by the Fund from time to time during the term of this
Agreement. The Custodian shall be under no obligation to request or to require
that any or all Property of the Fund be delivered to it, and the Custodian shall
have no responsibility with respect to any Property not delivered to it.
The Fund may in the future authorize the establishment of separate accounts
which hold Property of the Fund and with respect to which a certain investment
adviser or manager will be authorized to act and give instructions to the
Custodian (an "Investment Adviser"). The Fund shall notify the Custodian in
writing by a Proper Instruction (as defined in Section 2(xvii) of this Agreement
of such authorization, whereupon the Custodian may accept and act on Proper
Instructions it reasonably believes to be sent by such Investment Adviser.
2. DEFINITIONS.
In this Agreement, the following words shall, unless the context otherwise
requires, have the following meanings:
(i) "1940 Act" - the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
(ii) "Advances" - shall have the meaning ascribed to it in Section 11 hereof.
(iii)"Agency Accounts" - shall have the meaning ascribed to it in Section 5
hereof.
(iv) "Agent" - shall have the meaning ascribed to it in Section 7 hereof.
(v) "BBH Accounts" - shall have the meaning ascribed to it in Section 5 hereof.
(vi) "Book-Entry Agent" - shall have the meaning ascribed to it in Section
4.1(b) hereof.
(vii)"Derivative Instruments and Commodities" - any form of risk transfer
contract in which a gain or loss is recognized from fluctuations in market
price levels or rates, indexes or benchmarks, and which includes without
limitation futures, forwards, options, swaps, forward rate and forward
exchange contracts, leverage- or commodity-related similar contracts and
any other risk transfer contract whether traded on or off an exchange.
(viii) "Electronic Instructions" - shall have the meaning ascribed to it in
Section 8.3 hereof.
(ix) "Electronic Reports" - shall have the meaning ascribed to it in Section 8.3
hereof.
(x) "Force Majeure" - shall have the meaning ascribed to it in Section 10.4
hereof.
(xi) "Investments" - assets of the Fund, other than Property held by the
Custodian, a Subcustodian or a Securities Depository, but which the
Custodian may note on its records as being assets of the Fund including
without limitation Derivative Instruments and Commodities.
(xii)"Investment Adviser" - shall have the meaning ascribed to it in Section 1
hereof.
(xiii) "Liability" - shall have the meaning ascribed to it in Section 11 hereof.
(xiv)"Margin Account" - shall have the meaning ascribed to it in Section 4.2(d)
hereof.
(xv) "Margin Agreement" - shall have the meaning ascribed to it in Section
4.2(d) hereof.
(xvi)"Omnibus Accounts" - accounts established in the name of the Custodian on
behalf of its customers in which assets on deposit with the Custodian by
one or several customers may be deposited. Omnibus Accounts may be
established for the purpose of holding cash or securities.
(xvii) "Proper Instructions" - any direction to take or not to take action in
respect of Property (including cash) or Investments which the Custodian
reasonably believes to be sent by an authorized person and to be genuine.
Proper Instructions may be sent via the media set forth in Section 6 hereof
or as otherwise agreed between the Custodian and the Fund.
(xviii) "Property" - shall have the meaning ascribed to it in Section 1 hereof.
(xix)"Securities Accounts" - shall have the meaning ascribed to it in Section 4
hereof.
(xx) "Securities Depository" - a generally recognized book-entry system or a
clearing agency which acts as a securities depository in any country in
which securities are maintained under this Agreement and with which the
Custodian or a Subcustodian may maintain securities or other Property owned
by or held on behalf of the Fund, pursuant to the provisions hereof,
including Euroclear and Cedel.
(xxi)"Segregated Accounts" - shall have the meaning ascribed to it in Section
4.2(d) hereof.
(xxii) "Subcustodian" - shall mean any subcustodian appointed pursuant to
Section 7 of this Agreement.
(xxiii) "Voluntary Corporate Actions" - corporate actions (as further described
in Section 4.3) in respect of portfolio securities of the Fund which
require an investment decision.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND. The Fund represents
and warrants that the execution, delivery and performance by the Fund of this
Agreement are within the Fund's corporate, trust or other constitutive powers,
have been duly authorized by all necessary corporate, trust or other appropriate
action under its constitutive documents, and do not contravene or constitute a
default under any provision of applicable law or regulation or of the
constitutive documents of the Fund or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Fund. The Fund agrees to
inform the Custodian reasonably promptly if any statement set forth in this
Section 3 or elsewhere made by the Fund in this Agreement ceases to be true and
correct. The Fund shall safeguard and shall solely be responsible for the
safekeeping of any testkeys, identification codes, other security devices or
statements of account with which the Custodian provides it. If and when
applicable, the Fund shall execute any reasonably requisite license agreement or
sublicense agreement governing its use of any electronic instruction system
proprietary to the Custodian or an affiliate of the Custodian or proprietary to
a third party which has licensed such system to the Custodian or an affiliate of
the Custodian.
4. SECURITIES ACCOUNT. The Fund hereby authorizes the Custodian to open and
maintain, with itself or with Subcustodians, securities accounts (the
"Securities Account") and authorizes the Custodian to deposit or record, as the
case may be, in such Securities Account the Fund's Property delivered to and
accepted by the Custodian, or such other Investments as the Fund requests the
Custodian to record by notation only. The Custodian shall keep safely all
Property delivered to it. In the event of a loss of a security for which the
Custodian would be liable under the provisions of this Agreement, the Custodian
shall be responsible for either replacing the security or for reimbursing the
Fund the value of the security as of the date that a claim is made by the Fund
upon the Custodian for such reimbursement. The Securities Account shall be
maintained in the manner and on the terms set forth below. (All references in
this Section to the Custodian shall include a Subcustodian, Securities
Depository or any agent of the Custodian.)
4.1 MANNER OF HOLDING OR RECORDING SECURITIES AND OTHER INVESTMENTS -
(a) SECURITIES REPRESENTED BY PHYSICAL CERTIFICATES - Securities
represented by share certificates or other instruments may be held in
registered or bearer form (i) in the Custodian's vault, (ii) in the vault
of a Subcustodian or other Agent (as defined in Section 7 of the Agreement)
of the Custodian, (iii) in an account maintained by the Custodian or a
Subcustodian at a Securities Depository, or (iv) in accordance with
customary market practice (x) in the country in which settlement is to
occur or (v) for the particular security in respect of which settlement is
instructed.
Securities held at a Subcustodian will be held subject to the terms of
the Subcustodian Agreement in effect between the Custodian and the
Subcustodian and may be held in Omnibus Accounts.
Securities held in a Securities Depository will be held subject to the
agreement, rules, statement of terms and conditions or other document or
conditions effective between the Securities Depository and the Custodian or
the Subcustodian. Such securities shall be held (i) in an account which
contains only assets of the Custodian held as custodian or otherwise on
behalf of others if such account is maintained by the Custodian with a
Securities Depository (unless market practice or Securities Depository
rules and regulations require the Custodian also to hold its own assets in
such account), or (ii) in an account which contains only assets of the
Subcustodian or other Agent held as custodian or otherwise on behalf of
others if such account is maintained by the Subcustodian or other Agent
with a Securities Depository (unless market practice or Securities
Depository rules and regulations require a Subcustodian also to hold its
own assets in such account).
Registered securities of the Fund may be registered in the name of the
Custodian, the Fund or a nominee of either of them and may be held in any
manner set forth above, with or without any indication of fiduciary
capacity, provided that securities are held in an account of the Custodian
or a Subcustodian containing only assets of the Fund or only assets held by
the Custodian or a Subcustodian as custodian for its customers or are
otherwise held on behalf of others.
(b) SECURITIES REPRESENTED BY BOOK-ENTRY - Securities represented by
book-entry on the books of the issuer, a registrar, a clearing agency or
other agent of the issuer (a "Book-Entry Agent") may be so held in an
account of the Custodian or a Subcustodian or other Agent maintained with
such Book-Entry Agent provided such account contains only assets of the
Fund or only assets held as custodian for customers or are otherwise held
on behalf of others.
(c) OTHER INVESTMENTS - At the specific request of the Fund, the
Custodian may note on its records Investments owned by the Fund that are
not represented by physical securities or by book-entry, including without
limitation Derivative Instruments and Commodities. The Fund acknowledges
that such notation is for recordkeeping purposes only, that the Custodian
may not be able to exercise control over such Investments and that such
Investments may represent contractual rights of the Fund which the
Custodian cannot enforce. The Fund shall be responsible for requesting that
any statements applicable to such Investments, including brokerage
statements, be sent to the Custodian.
4.2 POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO THE SECURITIES
ACCOUNT - The Custodian shall have the following powers and duties with respect
to the Securities Account:
(a) PURCHASES - Upon receipt of Proper Instructions, insofar as funds
are available or as funds are otherwise provided by the Custodian at its
discretion pursuant to Section 11 hereof for the purpose, to pay for and
receive securities purchased for the account of the Fund, payment being
made upon receipt of the securities by the Custodian or a Subcustodian,
either directly or through a Securities Depository or clearing corporation
of a securities exchange of which the Custodian or a Subcustodian is a
member (and in accordance with the rules of such Securities Depositories or
other U.S. or foreign clearing agencies), or if such settlement is not
practicable or prevalent in the applicable market, otherwise in accordance
with Applicable Law or regulation or generally accepted trade practice in
the applicable local market. Notwithstanding this section, the Custodian
may use any settlement mechanisms required by the terms of the instrument
representing the security or the terms of Proper Instructions.
(b) SALES - Upon receipt of Proper Instructions, to make delivery of
securities which have been sold for the account of the Fund against payment
therefor in cash, by check or by bank wire transfer or by other credit to
the account of the Custodian or Subcustodian, either directly or through a
Securities Depository or clearing corporation of a securities exchange of
which the Custodian or a Subcustodian is a member (and in accordance with
the rules of such Securities Depositories or other U.S. or foreign clearing
agencies), or if such settlement is not practicable or prevalent in the
applicable market, otherwise in accordance with Applicable Law or
regulation or generally accepted trade practice in the applicable local
market. Notwithstanding this section, the Custodian may use any settlement
mechanisms required by the terms of the instrument representing the
security, or the terms of Proper Instructions.
(c) OTHER TRANSFERS - To deliver Property of the Fund to a
Subcustodian, another custodian or another third party as necessary to
effect transactions authorized by Proper Instructions, and upon receipt of
Proper Instructions, to make such other disposition of Property of the Fund
in a manner other than or for purposes other than as enumerated elsewhere
in this Agreement, provided that the instructions relating to such
disposition shall state the amount of Property to be delivered and the name
of the person or persons to whom delivery is to be made.
(d) FUTURES; OPTIONS; SEGREGATED ACCOUNTS - Upon the receipt of Proper
Instructions and the execution of any agreements relating to margin in
respect of a Derivative Instrument or Commodity ("Margin Agreements"), to
establish and maintain on its books a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities of the Fund in accordance with the terms
of such Margin Agreements and any Proper Instructions ("Segregated
Accounts").
Upon receipt of Proper Instructions or upon receipt of instructions
given pursuant to any Margin Agreement, or pursuant to the terms of such
Agreement, the Custodian shall (i) receive and retain, to the extent the
same are provided to the Custodian, confirmations or other documents
evidencing the purchase or sale of such Derivative Instruments or
Commodities by the Fund; (ii) deposit and maintain, pursuant to a Margin
Agreement, and segregate, either physically or by book-entry on the
Custodian's books or in a Securities Depository, for the benefit of any
futures commission merchant ("Margin Account"), or pay pursuant to Proper
Instructions to such broker, dealer or futures commission merchant, such
securities, cash or other assets as are designated by the Fund as initial,
maintenance or variation "margin" deposits or other collateral intended to
secure the Fund's performance of its obligations under the terms of any
Derivative Instrument or Commodity, in accordance with the provisions of
any Margin Agreement relating thereto; (iii) to deliver, in accordance with
Proper Instructions to a broker dealer appointed by the Fund for purposes
of margin requirements in conformity with Rule 17f-6; and (iv) otherwise
pay, release and/or transfer securities, cash or other assets into or out
of such Margin Accounts only in accordance with the provisions of any such
Margin Agreement. The Custodian shall not be responsible for the any broker
to whom assets are delivered pursuant to this Section, sufficiency of
assets held in any segregated account established in compliance with
applicable margin maintenance requirements or for the performance of the
other terms of any agreement relating to a Derivative Instrument or
Commodity.
Notwithstanding anything in this Agreement to the contrary, the Fund
agrees that the Custodian's responsibility for any Derivative Instruments
and Commodities shall be limited to the exercise of reasonable care with
respect to any confirmations or other documents evidencing the purchase or
sale of such Derivative Instrument by the Fund which the Custodian
receives.
(e) STOCK LENDING - Upon receipt of Proper Instructions, to deliver
securities of the Fund, in connection with loans of securities by the Fund,
to the borrower thereof, including (if specifically indicated by Proper
Instruction, which may be a standing instructions) delivery prior to
receipt of the collateral, if any, for such borrowing.
(f) NON-DISCRETIONARY DETAILS - Without the necessity of express
authorization from the Fund, (1) to attend to all nondiscretionary details
in connection with the sale, exchange, substitution, purchase, transfer or
other dealings with securities, cash or other Property of the Fund held by
the Custodian except as otherwise directed from time to time by the
Directors or Trustees of the Fund, and (2) to make payments to itself or
others for minor expenses of handling securities or other similar items
relating to the Custodian's duties under this Agreement, provided that all
such payments shall be accounted for to the Fund.
4.3 CORPORATE ACTIONS - Unless the Custodian receives timely Proper
Instructions to the contrary, the Custodian will perform or will cause the
Subcustodian to perform the following:
(i) exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization, recapitalization,
split-up of shares, change of par value, conversion or other event relating
to the securities or the issuer of such securities, and shall deposit any
such securities in accordance with the terms of any reorganization or
protective plan;
(ii) surrender securities in temporary form for definitive securities;
surrender securities for transfer into the name of the Custodian, the Fund
or a nominee of either of them, as permitted by Section 4.1(a); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of
indebtedness;
(iii) deliver warrants, puts, calls, rights or similar securities to
the issuer or trustee thereof, or to the agent of such issuer or trustee,
for the purpose of exercise or sale, and deposit securities upon
invitations for tenders thereof;
(iv) take all necessary action to comply with the terms of all
mandatory or compulsory exchanges, calls, tenders, redemptions, or similar
rights of security ownership, and promptly notify the Fund of such action,
and collect all stock dividends, rights and other items of like nature;
(v) collect amounts due and payable to the Fund with respect to
portfolio securities of the Fund, and promptly credit to the account of the
Fund all income and other payments relating to portfolio securities and
other assets held by the Custodian hereunder upon Custodian's receipt of
such income or payments or as otherwise agreed in writing by the Custodian
and the Fund, provided that the Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities
that are in default;
(vi) endorse and deliver any instruments required to effect collection
of any amount due and payable to the Fund with respect to securities;
execute ownership and other certificates and affidavits on the Fund's
behalf for all federal, state and foreign tax purposes in connection with
receipt of income, capital gains or other payments with respect to
portfolio securities and other assets of the Fund, or in connection with
the purchase, sale or transfer of such securities or other assets; and file
any certificates or other affidavits for the refund or reclaim of foreign
taxes paid;
(vii) deliver to the Fund all forms of proxies, all notices of
meetings, and any other notices or announcements affecting or relating to
securities owned by the Fund that are received by the Custodian, any
Subcustodian, or any nominee of either of them, and, upon receipt of Proper
Instructions, the Custodian shall execute and deliver, or cause such
Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Proper
Instructions, neither the Custodian nor any Subcustodian or nominee shall
vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto.
In fulfilling the duties set forth above, the Custodian shall be
responsible for promptly sending to the Fund all information pertaining to the
relevant terms of a corporate action which it in fact receives, provided that
the Custodian shall not be responsible for incorrect information it receives, or
information it has not received but should have received, from industry-accepted
third-party securities information vendors.
Notwithstanding any provision of this Agreement to the contrary, with
respect to portfolio securities registered in so-called street name, the
Custodian shall use reasonable efforts to collect cash or share entitlements due
and payable to the Fund but shall not be responsible for its inability to
collect such cash or share entitlements.
The Custodian shall only be responsible for acting on the Proper
Instructions of the Fund in respect of any corporate action that includes the
requirement of an election between two or more substantive alternatives (a
"Voluntary Corporate Action") provided the Custodian has received a Proper
Instruction requesting such action a reasonable time prior to expiration of the
time within which action in respect of such Voluntary Corporate Action may be
taken, in order to ensure that Custodian has sufficient time to take such
action. The deadline for the acceptance of such instruction may be set forth by
the Custodian in its communication of the terms of such action to the Fund and
shall take into consideration delays which occur due to (i) the involvement of a
Subcustodian, Securities Depository or other intermediary; (ii) differences in
time zones; or (iii) other factors particular to a given market, exchange or
issuer.
Any advance credit of cash or shares by the Custodian or a Subcustodian
expected to be received as a result of any corporate event shall be subject to
actual collection and may, when the Custodian deems such collection unlikely, be
reversed by the Custodian upon written notice to the Fund. As used herein, an
"advance credit of cash or shares" shall mean any credit of cash or shares to
any account maintained hereunder prior to actual receipt and collection of such
cash or shares in anticipation of a distribution expected to be received in the
future.
5. CASH ACCOUNTS.
5.1 OPENING AND MAINTAINING CASH ACCOUNTS - Subject to the terms and
conditions set forth in this Section 5, the Fund hereby authorizes the Custodian
to open and maintain, with itself or with Subcustodians, cash accounts in United
States Dollars and in such other currencies as the Fund shall from time to time
request or as are in the Custodian's discretion required in order for the
Custodian to carry out the terms of this Agreement. The Custodian shall make
payments from or deposits to any of said accounts upon its receipt of Proper
Instructions from the Fund providing sufficient details to effect such
transaction.
Cash accounts opened on the books of the Custodian ("BBH Accounts") shall
be opened in the name of the Fund. Subject always to the provisions of Section
10 hereof, the Custodian shall be liable for repayment of any and all deposits
carried on its books as principal, whether denominated in United States Dollars
or in other currencies.
Cash accounts opened on the books of Subcustodians appointed pursuant to
Section 7 hereof may be opened in the name of the Fund or the Custodian or in
the name of the Custodian for its customers generally ("Agency Accounts"). Such
deposits shall be treated as portfolio securities, and accordingly the Custodian
shall be responsible for the exercise of reasonable care in respect of the
administration of such Agency Accounts but shall not be liable for their
repayment in the event the Subcustodian fails to make repayment (including in
the event of the Subcustodian's bankruptcy or insolvency). Both BBH Accounts and
Agency Accounts shall be subject to the provisions of Sections 9 and 10 of this
Agreement.
The Fund bears all risks of holding or transacting in any currency. Any
credit made to any Agency or BBH Account shall be provisional and may be
reversed by the Custodian in the event such payment is not actually collected.
The Custodian shall not be liable for any loss or damage arising from the
applicability of any law or regulation now or hereafter in effect, or from the
occurrence of any event, which may delay or affect the transferability,
convertibility or availability of any currency in the country (i) in which such
BBH or Agency Accounts are maintained or (ii) in which such currency is issued,
and in no event shall the Custodian be obligated to make payment of a deposit
denominated in a currency during the period during which its transferability,
convertibility or availability has been affected by any such law, regulation or
event. Without limiting the generality of the foregoing, neither the Custodian
nor any Subcustodian shall be required to repay any deposit made at a foreign
branch of either the Custodian or Subcustodian if such branch cannot repay the
deposit due to (i) an act of war, insurrection or civil strife; or (ii) an
action by a foreign government or instrumentality, whether de jure or de facto,
in the country in which the branch is located preventing such repayment, unless
the Custodian or such Subcustodian expressly agrees in writing to repay the
deposit under such circumstances.
All currency transactions in any account opened pursuant to this Agreement
are subject to exchange control regulations of the United States and of the
country where such currency is the lawful currency or where the account is
maintained. Any taxes, costs, charges or fees imposed on the convertibility of a
currency held by the Fund shall be for the account of the Fund.
5.2 FOREIGN EXCHANGE TRANSACTIONS - The Custodian shall, pursuant to Proper
Instructions, settle foreign exchange transactions (including contracts,
futures, options and options on futures) on behalf and for the account of the
Fund with such currency brokers or banking institutions, including
Subcustodians, as the Fund may direct pursuant to Proper Instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or banking institution with which the contract or
option is made and the safekeeping of all certificates and other documents and
agreements evidencing or relating to such foreign exchange transactions as the
Custodian may receive. In connection with such transactions, the Custodian is
authorized to make free outgoing payments of cash in the form of U. S. Dollars
or foreign currency without receiving confirmation of a foreign exchange
contract or option or confirmation that the countervalue currency completing the
foreign exchange contract has been delivered or received or that the option has
been delivered or received. The Fund accepts full responsibility for its use of
third-party foreign exchange dealers and for execution of said foreign exchange
contracts and options and understands that the Fund shall be responsible for any
and all costs and interest charges which may be incurred by the Fund or the
Custodian as a result of the failure or delay of third parties to deliver
foreign exchange.
Foreign exchange transactions (including without limitation contracts,
futures, options, and options on futures), other than those executed with the
Custodian as principal, but including those executed with Subcustodians, shall
be deemed to be portfolio securities of the Fund and accordingly the Custodian
shall only be responsible for delivering or receiving currency on behalf of the
Fund in respect of such contracts pursuant to Proper Instructions subject to the
fourth paragraph of this Section 5.2.. The Custodian shall not be responsible
for the failure of any counterparty in such agency transaction to perform its
obligations thereunder.
Alternatively, such transactions may be undertaken by the Custodian as
principal, if instructed by the Fund and accepted by the Custodian by Proper
Instruction, which may be a standing instruction.
The obligations of the Custodian in respect of all foreign exchange
transactions shall be contingent on the free, unencumbered transferability of
the currency transacted on the actual settlement date of the transaction.
5.3 DELAYS - In the event a delay is caused by the negligence or willful
misconduct of the Custodian in carrying out a Proper Instruction to transfer
cash in connection with any transaction referred to in Section 5.1 or 5.2 above,
the Custodian shall be liable to the Fund for interest to be calculated at the
rate customarily paid by the Custodian on overnight deposits at the time the
delay occurs for the period from the day when the transfer should have been
effected until the day it is in fact effected and any other direct damages (if
any). The Custodian shall not be liable for delays in carrying out such
instructions to transfer cash which are not due to the Custodian's own
negligence or willful misconduct.
6. PROPER INSTRUCTIONS. - Proper instructions shall include, in the following
order of the preferred method of giving such instructions, authenticated
electromechanical communications including direct electronic transmissions,
authenticated SWIFT and tested telex, including Electronic Instructions as
described in Section 8.3,; a written request signed by two or more authorized
persons as set forth below; telefax transmissions; and oral instructions,
including telephone instructions. Proper Instructions may also include such
other methods of communicating Proper Instructions as the parties hereto may
from time to time agree. Each of the first four methods of communicating Proper
Instructions is described and defined below and may from time to time be
described and defined in written operating memoranda between the Custodian and
the Fund. The Custodian is hereby authorized to act on instructions sent via any
of the foregoing methods from any director, employee or officer of the Fund or
from the Investment Adviser or other agent of the Fund as the Fund shall from
time to time instruct.
Authenticated electro-mechanical communications shall include
communications effected directly between electromechanical or electronic devices
or systems, including authenticated SWIFT and tested telex transmissions, and
other forms of communications involving or between such electro-mechanical or
electronic devices or systems as the parties may from time to time agree upon in
writing. In the event media other than tested telex transmissions are agreed
upon, the Custodian may in its discretion require that the Fund, its Investment
Adviser or other agent and the Custodian enter into certain operating memoranda
which shall set forth the media through which such Proper Instructions shall be
transmitted and the data which must be included in such Proper Instructions in
order for such instructions to be complete. Once such operating memoranda shall
have been instituted, the Fund, its Investment Adviser or other Agent shall be
responsible for sending instructions which meet the requirements set forth in
such operating memoranda and the Custodian shall only be responsible for acting
on instructions which meet such requirements. The Custodian shall not be liable
for damages of any kind, including direct or consequential losses resulting from
technological or equipment failures or communications system failures of any
kind in respect of instructions sent or attempted to be sent via
electromechanical communications provided that such failure is not caused by the
Custodian through negligence with respect to the operation of its proprietary
systems.
A written request signed by two or more authorized persons shall include a
written request, direction, instruction or certification signed or initialed on
behalf of the Fund by two or more persons as the Directors or Trustees of the
Fund shall have from time to time authorized, or by such other written procedure
as the Custodian and the Fund shall from time to time agree in writing. Those
persons authorized to give Proper Instructions may be identified by the
Directors or Trustees by name, title or position (including any of its
directors, employees or agents or any investment manager or adviser or person or
entity with similar responsibilities which is authorized to give Proper
Instructions on behalf of the Fund to the Custodian) and will include at least
one officer empowered by the Directors or Trustees to name other individuals or
entities who are authorized to give Proper Instructions on behalf of the Fund.
Telephonic or other oral instructions or instructions given by telefax
transmission may be given by any one of the persons referred to in the preceding
paragraph and will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved.
With respect to telefax transmissions, the Fund and the Custodian hereby
acknowledge that receipt of legible instructions cannot be assured, and that the
Custodian cannot verify that authorized signatures on telefax instructions are
original or properly affixed. The Custodian shall take reasonable steps to
clarify instructions if it becomes aware of inaccuracies, incompleteness or
similar difficulties, but otherwise it shall not be responsible for losses or
expenses incurred through actions taken in reasonable reliance on inaccurately
stated, illegible or unauthorized telefax instructions.
Oral instructions will be confirmed by authenticated electro-mechanical
communications or written instructions in the manner set forth above, but the
lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to receipt of written
confirmation. The Fund hereby authorizes the Custodian to tape record any and
all telephonic or other oral instructions given to the Custodian by or on behalf
of the Fund (including any of its Directors, Trustees, employees or agents or
any Investment Adviser or person or entity with similar responsibilities which
is authorized to give Proper Instructions on behalf of the Fund to the
Custodian).
Proper Instructions may relate to specific transactions or to types or
classes of transactions, and may be in the form of standing instructions which
are Proper Instructions.
Provided that the Custodian gives the Fund prompt notice of its intention
not to act where it would be reasonable not to act, the Custodian shall not be
responsible for its failure to act on any instruction received from the Fund
which the Custodian reasonably and in good faith believes does not meet the
requirements set forth herein.
7. AUTHORITY TO APPOINT SUBCUSTODIANS AND AGENTS AND TO UTILIZE SECURITIES
DEPOSITORIES. Subject to the provisions hereinafter set forth in this Section 7,
the Fund hereby authorizes the Custodian to utilize Securities Depositories to
act on behalf of the Fund and to appoint from time to time and to utilize
Subcustodians.
The Custodian may deposit and/or maintain Property of the Fund in any non-
U.S. Securities Depository provided such Securities Depository meets the
requirements of an "eligible foreign custodian" under Rule 17f-5 promulgated
under the 1940 Act, or any successor rule or regulation ("Rule 17f-5") or which
by order of the Securities and Exchange Commission is exempted therefrom. The
Custodian may deposit and/or maintain, either directly or through one or more
agents appointed by the Custodian, Property of the Fund in any Securities
Depository in the United States, including The Depository Trust Company,
provided such Depository meets applicable requirements of the Federal Reserve
Bank or of the Securities and Exchange Commission. Notwithstanding anything in
this Agreement to the contrary, any Property held in a Securities Depository,
whether or not the Custodian is a direct participant or member, will be held
subject to the rules, regulations, operating memoranda or other conditions of
participation in such Securities Depository.
The Custodian may, at any time and from time to time, appoint any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act on behalf of the Fund as a subcustodian for purposes of
holding Property of the Fund in the United States. Additionally, the Custodian
may, at any time and from time to time, appoint (i) any bank, trust company or
other entity meeting the requirements of an "eligible foreign custodian" under
Rule 17f-5 or which by order of the Securities and Exchange Commission is
exempted therefrom, or (ii) any bank as defined in Section 2(a)(5) of the 1940
Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act
and the rules and regulations thereunder, to act on behalf of the Fund as a
subcustodian for purposes of holding Property of the Fund outside the United
States. Any bank, trust company or other entity appointed pursuant to the
foregoing provisions shall be a Subcustodian. Unless and except to the extent
that review of certain matters concerning the appointment of Subcustodians shall
have been delegated to the Custodian pursuant to the succeeding paragraph, the
Custodian shall, prior to the appointment of any Subcustodian for purposes of
holding Property of the Fund outside the United States, to obtain written
confirmation of the approval of the Board of Trustees or Directors of the Fund
with respect to: (a) the identity of a Subcustodian, (b) the country or
countries in which, and the Securities Depositories, if any, through which, any
proposed Subcustodian is authorized to hold Investments of the Fund, and (c) the
Subcustodian agreement which shall govern such appointment. Each such duly
approved country, Subcustodian and Securities Depository shall be listed on
Appendix A attached hereto as the same may from time to time be amended. The
Custodian may, at any time in its discretion, remove any Subcustodian that has
been appointed as such but will promptly notify the Fund of any such action.
From time to time, the Custodian may offer and the Fund may accept, that
the Custodian perform certain reviews of Subcustodians and of Subcustodian
Contracts as delegate of the Fund's Board. In such event, the Custodian's duties
and obligations with respect to this delegated review will be performed in
accordance with the terms of the separate delegation agreement between the Fund
and the Custodian.
The Fund shall be responsible for informing the Custodian sufficiently in
advance of a proposed investment which is to be held in a country in which no
Subcustodian is authorized to act in order that the Custodian shall have
sufficient time to establish a subcustodial arrangement in accordance herewith.
In the event that the Fund shall invest in a Security or other asset to be held
in a country in which no Subcustodian is authorized to act, the Custodian shall
promptly notify the Fund in writing by such means as the Custodian and the Fund
have regularly established for such communication, that no Subcustodian is
approved or available with respect to such Security or other asset. Upon receipt
of Proper instructions, the Custodian is authorized to appoint any person
designated by the Fund in such instruction to hold such security or other asset.
In the absence of such Proper Instruction, the Security may be left at its
settlement location or moved to another agent for purposes of safekeeping,
provided that the Custodian shall only be responsible for the safekeeping agent
under such circumstances to the extent that it can recover from such agent.
With respect to securities and funds held by a Subcustodian, either
directly or indirectly (including by a Securities Depository or clearing
agency), notwithstanding any provisions of this Agreement to the contrary,
payment for securities purchased and delivery of securities sold may be made
prior to receipt of securities or payment, respectively, and securities or
payment may be received in a form, in accordance with (i) governmental
regulations, (ii) rules of Securities Depositories and clearing agencies, (iii)
generally accepted trade practice in the applicable local market, (iv) the terms
of the instrument representing the security, or (v) the terms of Proper
Instructions.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notice to the Fund of the Custodian's intention to make such
payment, the Fund will reimburse the Custodian the amount of such payment except
in respect of any negligence or misconduct of the Custodian or any Subcustodian.
The Custodian may at any time or times in its discretion appoint (and may
at any time remove) any other bank or trust company as its agent (an "Agent") to
carry out such of the provisions of this Agreement as the Custodian may from
time to time direct, provided, however, that the appointment of such Agent shall
not relieve the Custodian of any of its responsibilities under this Agreement.
The Custodian shall be responsible for the actions of any Agent other than a
Subcustodian as if it performed such action itself. The responsibility of the
Custodian for any Subcustodian shall be determined in accordance with the
provisions of Section 9.
8. REPORTING; RECORDS. The Custodian shall have and perform the following duties
with respect to recordkeeping. Any records prepared and maintained for the Fund
hereunder shall be the property of the Fund
8.1 REPORTS AND RECORDS - The Custodian shall create, maintain and retain
such records relating to its activities and obligations under this Agreement as
will enable the Custodian to comply with its obligations hereunder and as are
customarily maintained by a professional custodian to assist the Fund in
compliance with the 1940 Act and rules and regulations promulgated thereunder.
The Custodian shall also prepare such periodic reports as the parties may agree
from time to time.
8.2 ACCESS TO RECORDS8. - The books and records maintained by the Custodian
pursuant to this Agreement and information relative to insurance coverage and
fidelity bonds maintained by the Custodian in connection with this Agreement
shall at reasonable times during the Custodian's regular business hours be open
to inspections and audit by the auditors and by employees and agents of the Fund
provided that all such individuals shall observe all security requirements of
the Custodian applicable to its own employees having access to similar records
and such rules as may be reasonably imposed by the Custodian.
8.3 ELECTRONIC RECORDS AND COMMUNICATIONS - The Custodian may make any of
its records available to the Fund or its Investment Adviser via electronic
reporting which may include without limitation on-line software systems
("Electronic Reports"). The Fund understands that such Electronic Reports may
include data provided to the Custodian by outside sources which may not have
been independently verified by the Custodian and is subject to change.
Accordingly, the Custodian shall not be liable for inaccuracies, errors or
incomplete information furnished by such sources.
The Custodian may also make available to the Fund or its Investment Adviser
certain software to be used to initiate payment and securities transfer
instructions, affirm brokerage transactions reported through the Institutional
Delivery System or initiate other transaction instructions for the Custodian's
processing ("Electronic Instructions").
The Fund agrees that it shall be responsible for protecting and maintaining
the confidentiality and security of any codes assigned in respect of the Fund's
or its Investment Adviser's access to such Electronic Reports or Electronic
Instructions and that any instructions received through such system using the
client code assigned to the Fund shall be deemed to have originated from or on
behalf of the Fund and to be Proper Instructions.
The Custodian shall not be responsible for information added to, changed or
omitted by electronic programming malfunction, unauthorized access or other
failure of such systems unless such actions are the direct result of the
Custodian's negligence, bad faith or willful malfeasance. In the event of any
such malfunction, unauthorized access or other failure, the Custodian shall, at
no additional expense to the Fund, take reasonable steps to minimize service
interruptions.
8.4 REVIEW OF RECORDS - The Fund agrees to examine all records as to the
execution of Proper Instructions and as to the Fund's assets and to promptly
upon receipt thereof and to notify the Custodian promptly of any discrepancy or
error therein. The Fund acknowledges that its failure to perform such
examination and notification promptly may materially contribute to losses of the
Fund arising from an act or omission of the Custodian and may materially affect
the Custodian's ability to mitigate the impacts thereof.
8.5 APPOINTMENT AS RECORDKEEPING AND NET ASSET VALUE CALCULATION AGENT -
The Custodian is hereby appointed recordkeeping and net asset value calculation
agent responsible for creating, maintaining and retaining such records relating
to its obligations under this Agreement as are required under the 1940 Act
(including Section 31 thereof and Rules 31a-1 and 31a-2 thereunder). All such
records will be the property of the Fund. The Custodian shall compute and
determine the net asset value per share of the Fund as of the close of regular
business on the New York Stock Exchange on each day on which such Exchange is
open, unless otherwise directed by Proper Instructions. Such computation and
determination shall be made in accordance with (1) the provisions of the Fund's
Declaration of Trust or Certificate of Incorporation and By-Laws (or comparable
documents), as they may from time to time be amended and delivered to the
Custodian, (2) the votes of the Board of Trustees or Directors of the Fund at
the time in force and applicable, as they may from time to time be delivered to
the Custodian, (3) the Fund's current prospectus and statement of additional
information, and (4) Proper Instructions. On each day that the Custodian shall
compute the net asset value per share of the Fund, the Custodian shall provide
the Investment Adviser with written reports which the Investment Adviser will
use to verify that portfolio transactions have been recorded in accordance with
the Fund's instructions and are reconciled with the Fund's trading records.
In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (1) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Custodian, (2) as
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (3) as to the sources of quotations to be used in computing the net
asset value, including those listed in Appendix B, (4) as to the fair value to
be assigned to any securities or other property for which price quotations are
not readily available, and (5) as to the sources of information with respect to
"corporate actions" affecting portfolio securities of the Fund, including (but
not limited to) those listed in Appendix B. (Information as to "corporate
actions" shall include information as to dividends, distributions, stock splits,
stock dividends, rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
the ex- and record dates and the amounts or other terms thereof.) The Fund may
instruct the Custodian to utilize a particular source for the valuation of a
specific Security or other Property and the Custodian shall be protected in
utilizing the valuation provided by such source without further inquiry (save
for its usual and customary automated review of price disparities) in order to
effect calculation of the Fund's net asset value. Notwithstanding anything in
this Agreement to the contrary, provided the Custodian shall perform its duties
under Section 8.6(3) with reasonable care and diligence, the Custodian shall not
be responsible for the failure of the Fund or the Investment Adviser to provide
the Custodian with Proper Instructions regarding liabilities which ought to be
included in the calculation of the Fund's net asset value.
In like manner, the Custodian shall compute and determine the net asset
value as of such other times as the Board of Trustees or Directors of the Fund
from time to time may reasonably request.
The Custodian shall be held to the exercise of reasonable care and
diligence in computing and determining net asset value as provided in this
Section 8.5. The parties hereto acknowledge, however, that the Custodian's
causing an error or delay in the determination of net asset value may, but does
not in and of itself, constitute negligence, gross negligence or willful
misconduct, for which causes, but not for others, the Custodian would be
responsible hereunder. The Fund acknowledges that the accounts and records of
the Fund will be subject to periodic audit in accordance with the requirements
of the 1940 Act and generally accepted auditing standards. The Fund acknowledges
that it will promptly inform the Custodian as to any exceptions reported in such
audit and further acknowledges that the failure to procure reasonable audit may
affect the ability of the Custodian to mitigate any loss to the Fund or may
result in further loss or damage to the Fund. The Custodian's liability for any
such negligence or reckless or willful misconduct which results in an error in
determination of such net asset value shall be limited exclusively to the
direct, out-of-pocket loss the Fund or any shareholder or former shareholder
shall actually incur (measured generally by application of the difference
between the actual and erroneous computed price to the particular circumstances
surrounding the alleged loss and any expenses the Fund shall incur in connection
with correcting the records of the Fund affected by such error (including
charges made by the Fund's registrar and transfer agent for making such
corrections) or communicating with shareholders or former shareholders of the
Fund affected by such error or reasonable costs of responding to or defending
against any inquiry or proceeding with respect to such error initiated by the
Securities Exchange Commission or other regulatory or self-regulatory body.
Without limiting the foregoing, the Custodian shall not be held accountable
or liable to the Fund, any shareholder or former shareholder thereof or any
other person for any delays or losses, damages or expenses any of them may
suffer or incur resulting from (1) the Custodian's failure to receive timely and
suitable notification concerning quotations or corporate actions relating to or
affecting portfolio securities of the Fund or (2) any errors in the computation
of the net asset value based upon or arising out of quotations or information as
to corporate actions if received by the Custodian either (i) from a source which
the Custodian was authorized pursuant to the third paragraph of this Section 8.5
to rely upon, (ii) from a source which in the Custodian's reasonable judgment
was as reliable a source for such quotations or information as the sources
authorized pursuant to that third paragraph, or (iii) relevant information known
to the Fund or the Investment Adviser which would impact the calculation of net
asset value but which is not communicated by the Fund or the Investment Adviser
to the Custodian.
In the event of any error or delay in the determination of such net asset
value for which the Custodian may be liable, the Fund and the Custodian will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any loss suffered by the Fund or its present or
former shareholders, in order that the Custodian's exposure to liability shall
be reduced to the extent possible after taking into account all relevant factors
and alternatives. Subject to due consideration for the magnitude of the loss,
the distribution of benefits among shareholders and the nature of such
shareholders such actions might include the Fund or the Custodian taking
reasonable steps to collect from any shareholder or former shareholder who has
received any overpayment upon redemption of shares such overpaid amount or to
collect from any shareholder who has underpaid upon a purchase of shares the
amount of such underpayment or to reduce the number of shares issued to such
shareholder. It is understood that in attempting to reach agreement on the
actions to be taken or the amount of the loss which should appropriately be
borne by the Custodian, the Fund and the Custodian will consider such relevant
factors as the amount of the loss involved, the Fund's desire to avoid loss of
shareholder good will, the fact that other persons or entities could have been
reasonably expected to have detected the error sooner than the time it was
actually discovered, the appropriateness of limiting or eliminating the benefit
which shareholders or former shareholders might have obtained by reason of the
error, and the possibility that other parties providing services to the Fund
might be induced to absorb a portion of the loss incurred.
8.6 APPOINTMENT AS ADMINISTRATOR - The Custodian is hereby appointed
administrator of the Fund with responsibility for performing the services set
forth in this Section 8.6 subject to the supervision and direction of the
Trustees of the Fund.
In performing its duties and obligations hereunder, the Custodian will act
in accordance with the Fund's Articles of Incorporation or Declaration of Trust,
By-laws (or comparable documents) and Prospectus and Statement of Additional
Information and with the Proper Instructions of its Trustees, Treasurer and any
other person reasonably believed by the Custodian to be authorized to act on
behalf of the Fund. It is agreed and understood, however, that the Custodian
shall not be responsible for compliance of a Fund's investments with any
applicable documents, laws or regulations, or for losses, costs or expenses
arising out of the Fund's failure to comply with said documents, laws or
regulations or the Fund's failure or inability to correct any non-compliance
therewith and shall be protected in acting on any direction from the Fund's
Investment Adviser, Trustees, Treasurer and any other person reasonably believed
by the Custodian to be authorized to act on behalf of the Fund.
(1) SHAREHOLDER REPORTS. The Custodian shall accumulate information
for and, subject to approval by the Fund's Treasurer, prepare reports to
the Fund's shareholders of record as set forth in Rule 30d-1 of the 1940
Act or as agreed upon in writing from time to time between the parties
hereto.
(2) REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION. The Custodian
shall prepare and submit for the Fund's review the Securities and Exchange
Commission's Form N-SAR and Rule 24f-2 Notice. Upon acceptance of these
reports by the Fund, the Custodian shall file such reports with the
Securities and Exchange Commission.
(3) EXPENSE ADMINISTRATION. The Custodian shall consult with the
Fund's Treasurer on financial matters relating to the Fund including
without limitation dividend distributions, administration of Fund expenses,
including reconciliations, accruals and payment of expenses, as shall from
time to time be agreed upon by the parties.
(4) COMPLIANCE SUPPORT. The Custodian shall assist the Investment
Adviser for the Fund, at the Adviser's request, in monitoring and
developing compliance procedures for the Fund which will include, among
other matters, procedures to assist the Adviser in monitoring compliance
with the Fund's investment objectives, policies and restrictions, tax
matters and applicable laws and regulations and performing certain monthly
compliance tests, to the extent relevant information is available to the
Custodian in the performance of its functions as the Fund's net asset value
calculation agent.
(5) TRUSTEE REPORTS. The Custodian shall assist the Fund's Treasurer
in the preparation of quarterly reporting to the Fund's Trustees as
required by applicable Rules under the 1940 Act and as agreed between the
Custodian and the Fund from time to time.
(6) FIDELITY BOND COVERAGE. The Custodian shall report monthly to the
Fund's Treasurer on compliance of the Fund's fidelity bond coverage with
Rule 17g-1 of the 1940 Act.
(7) PERFORMANCE INFORMATION. At the Fund's request, the Custodian shall assist
the Trustees in preparing the Fund's performance analysis reports (including
yield and total return information) calculated in accordance with applicable
U.S. securities laws and in reporting to external databases such information as
may reasonably be requested;
(8) TAX REPORTING. In consultation with the Trustees and independent
accountants, the Custodian shall prepare for review and signature by the Fund,
and after such review and signature, file in a timely manner with appropriate
federal, state and local tax authorities, such federal, state and local tax
returns as shall be required of the Fund, and shall prepare and mail to each
Fund shareholder appearing on its records, a Form 1099 for each tax year of the
Fund. In preparing such returns and schedules, the Custodian shall be entitled
to rely in good faith upon information furnished to it by the Fund and upon the
advice of independent accountants, which may be auditors for the Fund, as to any
matter, including, without limitation, the determination of those states in
which filings are required, the determination of which filings are required and
the correct timing thereof, and the characterization of any assets of the Fund,
or any income or loss by the Fund, availability of any credits, including any
credits for foreign taxes paid, and notwithstanding any provision in this
Agreement to the contrary, the Custodian shall be without liability to the Fund
for any such good faith reliance.
(9) BLUE SKY COMPLIANCE. The Custodian shall select and monitor an independent
service supplier to provide for reasonable and necessary monitoring of
compliance with the securities regulations of the fifty states of the United
States on such terms as the Fund may direct, or in the absence of such
direction, as the Custodian shall reasonably deem appropriate, provided however,
that such arrangement shall require that such service supplier act with
reasonable care in the discharge of its duties. The Custodian shall deliver to
the Fund, or cause to be delivered to the Fund, regular reports and advices with
respect to blue sky compliance and shall be responsible to use reasonable
efforts to enforce the terms of the contract with the service provider on the
Fund's behalf. The Fund shall be responsible to provide copies of its prospectus
and other relevant documents and information relating to the Fund as may be
reasonably required for the performance of state securities law compliance.
(10) OTHER ASSISTANCE. The Custodian shall consult with and assist the Fund's
Treasurer, officers and Investment Adviser in such other matters as the Fund and
the Custodian shall from time to time agree.
Notwithstanding any other provision of this Agreement, the Custodian shall
in no event be liable or responsible to the Fund, any present or former
shareholder of the Fund or any other person for any error or delay which
continued after the issue date of an audit performed by the certified public
accountants employed by the Fund (or other date of written notice of such error
made by such auditor to the Fund) if the Fund or its auditors fail to promptly
inform the Custodian of such error or delay. It is also agreed that, in the
event of an act, omission, error or delay which leads to losses, costs or
expenses for which the Custodian may be liable, the Fund and the Custodian will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any loss suffered by the Fund or its present or
former shareholders, in order that the Custodian's exposure to liability shall
be reduced to the extent possible after taking into account all relevant factors
and alternatives. It is understood that in attempting to reach agreement on the
actions to be taken or the amount of the loss which should appropriately be
borne by the Custodian, the Fund and the Custodian will consider such relevant
factors as the amount of the loss involved, the Fund's desire to avoid loss of
shareholder good will, the fact that other persons or entities could have been
reasonably expected to have detected the error sooner than the time it was
actually discovered (with due consideration of the number and nature of affected
shareholders) the appropriateness of limiting or eliminating the benefit which
shareholders or former shareholders might have obtained by reason of the error,
and the possibility that other parties providing services to the Fund might be
induced to absorb a portion of the loss incurred.
9. RESPONSIBILITY OF CUSTODIAN. In carrying out the provisions of this
Agreement, the Custodian shall be held to the exercise of reasonable care,
provided that the Custodian shall not thereby be required to take any action
which is in contravention of any law, rule or regulation or any order of any
court of competent jurisdiction. As used in this Agreement, "reasonable care"
shall mean the level of care which a professional custodian providing custody
services to institutional investors would provide in light of the circumstances
and events which reasonably influence its performance in the market where the
securities are held or the transaction is effected, including without limitation
local market practices relating to securities settlement and safekeeping, and
"negligence" shall mean the failure to exercise reasonable care as herein
defined. The Custodian shall, subject to the provisions set forth in Sections 9
and 10 hereof, be responsible to the Fund for any direct loss or damage which
the Fund incurs by reason of the Custodian's negligence, bad faith or willful
malfeasance.
With respect to securities and funds held by a Subcustodian, either
directly or indirectly (including by a Securities Depository or foreign clearing
agency), including demand deposits, currencies or other deposits and foreign
exchange contracts as referred to herein, the Custodian shall be liable to the
Fund as if it performed the act or omission of the Subcustodian itself, but
subject to the terms of the subcustodian agreement and to the local practices
and conditions prevailing in the market where the act or omission occurred.
With respect to the securities, cash and other Property of the Fund held by
a Securities Depository utilized by the Custodian or any Subcustodian or any
agent of the Custodian, the Custodian shall not be liable for the acts and
omissions of such Securities Depository unless and only to the extent that such
Securities Depository is liable to the Custodian and the Custodian recovers from
such Securities Depository, provided always that the Custodian shall be liable
to the Fund only for any direct loss or damage to the Fund resulting from use of
the Securities Depository if caused by the negligence, bad faith or willful
malfeasance of the Custodian.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominees from all claims and liabilities (including counsel fees) incurred or
assessed against it or its nominees in connection with the performance of this
Agreement, except such as may arise from its or its nominees negligent or bad
faith.. Without limiting the foregoing indemnification obligation of the Fund,
the Fund agrees to indemnify the Custodian and any nominee in whose name
portfolio securities or other property of the Fund is registered against any
liability the Custodian or such nominee may incur by reason of taxes assessed to
the Custodian or such nominee or other costs, liability or expense incurred by
the Custodian or such nominee resulting directly or indirectly from the fact
that portfolio securities or other property of the Fund is registered in the
name of the Custodian or such nominee; provided that in no such event shall such
indemnity apply to income, franchise or similar tax imposed upon the business of
such persons conducted in the performance of the terms of this Agreement.
10. LIMITATIONS TO CUSTODIAN'S RESPONSIBILITY.
10.1 LIABILITY IN GENERAL - Except as otherwise provided in this Agreement,
the Custodian shall be responsible for loss or damage which the Fund may incur
by reason of the Custodian's negligence, bad faith or willful malfeasance,
PROVIDED ALWAYS that such loss or damage shall be limited to direct damages
incurred by the Fund, and PROVIDED FURTHER that the Custodian shall in no event
be liable for indirect or consequential damages or for loss of goodwill, even if
the Custodian has been advised of the likelihood of such loss or damage and
regardless of the form of action. Upon the occurrence of any event that causes
or may cause any loss to the Fund, the Custodian shall, upon becoming aware of
such event use its reasonable efforts consistent with the applicable
subcustodian agreement to cause any Subcustodian to use all commercially
reasonable efforts and to take any reasonably available steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
10.2 LIABILITY OF THE CUSTODIAN WITH RESPECT TO PROPER INSTRUCTIONS;
EVIDENCE OF AUTHORITY; ETC. - The Custodian shall not be liable for, and shall
be indemnified by the Fund for losses or damages incurred or assessed against
the Custodian as a result of, any action taken or omitted in reliance upon
Proper Instructions or upon any other written notice, request, direction,
instruction, certificate or other instrument believed by it to be genuine.
The Custodian shall be entitled, at the expense of the Fund, to receive and
act upon advice of (a) counsel for the Fund or (b) such other counsel as the
Fund and the Custodian may agree upon, with respect to all matters and shall be
entitled to reasonable reliance on advice of other counsel. The Custodian shall
be without liability for any action taken or omitted in good faith pursuant to
such advice; provided however, the Custodian shall exercise reasonable care in
the conduct of actions or omissions taken pursuant to such advice.
10.3 TITLE TO SECURITIES, FRAUDULENT SECURITIES - So long as and to the
extent that it is in the exercise of reasonable care, the Custodian shall not be
responsible for the title, validity or genuineness of any Property or evidence
of title thereto received by it or delivered by it pursuant to this Agreement.
10.4 FORCE MAJEURE - Notwithstanding any other provision contained herein,
the Custodian shall not be liable for any action taken, or for any failure to
take any action required to be taken hereunder, or otherwise for its failure to
fulfill its obligations hereunder (including without limitation the failure to
receive or deliver securities or the failure to receive or make any payment) in
the event and to the extent that the taking of such action or such failure
arises out of or is caused by civil commotion, act of God, accident, fire, water
damage, explosion, mechanical breakdown, (provided that the Custodian shall use
reasonable care with respect to the selection, operation and backup of computer
systems under its control) computer or system failure or other equipment
failure, malfunction or failure caused by computer virus, failure or
malfunctioning of any communications medium for whatever reason, interruption
(whether partial or total) of power supplies or other utility service, strike or
other stoppage (whether partial or total) of labor, market conditions which
prevent the orderly execution of securities transactions or affect the value of
Property, any law, decree, regulation or order of any government or governmental
body, de facto or de jure (including any court or tribunal), rules or
regulations of any Securities Depository or clearing agency or any other cause
whatsoever (whether similar or dissimilar to the foregoing) beyond its control
or the control of its Subcustodian or other agent (collectively, "Force
Majeure").
10.5 SOVEREIGN RISK - Without limiting the generality of the foregoing
Section 10.4, the Custodian shall not be liable for any losses resulting from a
Sovereign Risk. As used herein, a Sovereign Risk shall mean any act of war,
terrorism, riot, insurrection or civil commotion; the imposition of exchange
control restrictions; confiscation, expropriation or nationalization of any
property including without limitation cash, cash equivalents, securities or the
assets of any issuer of securities by any governmental or quasi-governmental
authority (including without limitation those authorities which are judicial,
legislative, executive, military or religious in nature), whether de facto or de
jure; currency devaluation or revaluation; the imposition of taxes, levies or
other charges affecting the Fund's property, or any other political risk
(whether similar or dissimilar to the foregoing) incurred in respect of the
country in which the issuer of such securities is organized or in which such
securities are held or such payments are held or effected.
10.6 CURRENCY RISKS - The Fund bears all risks of holding or transacting in
any currency. Without limiting the generality of the foregoing, the Fund bears
all risks that rules or procedures imposed by Securities Depositories, exchange
controls, asset freezes or other laws or regulations shall prohibit or impose
burdens on or costs relating to the transfer by or for the account of the Fund
of securities, cash or currency held outside the United States or denominated in
a currency other than U. S. dollars or on the conversion of any currency so
held. The Custodian shall in no event be obligated to substitute another
currency (including U.S. dollars) for a currency whose transferability,
convertibility or availability has been affected by any such law, regulation,
rule or procedure.
10.7 INVESTMENT RISKS NOT ASSUMED BY CUSTODIAN - The Custodian shall have
no liability in respect of any loss or damage suffered by the Fund, insofar as
such loss or damage arises from commercial or other investment risks inherent in
investing in capital markets or in holding securities in a particular
jurisdiction or country including without limitation: (i) political, legal,
economic, settlement and custody infrastructure, exchange rate and currency
risks; (ii) investment and repatriation restrictions; (iii) the Fund's or
Custodian's inability to protect and enforce any local legal rights including
rights of title and beneficial ownership; (iv) corruption and crime in the local
market; (v) unreliable information which emanates from the local market; (vi)
volatility of banking and financial systems and infrastructure; (vii) bankruptcy
and insolvency risks of any and all local banking agents, counterparties to cash
and securities transactions or registrars or transfer agents; (viii) risk of
issuer insolvency or default; and (ix) market conditions which prevent the
orderly execution of transactions or the value of assets.
10.8 INVESTMENT LIMITATIONS - In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of securities
made by or for the Fund, the Custodian may assume unless and until notified in
writing to the contrary that Proper Instructions received by it are not in
conflict with or in any way contrary to any provisions of the Fund's Declaration
of Trust or Certificate of Incorporation or By-Laws (or comparable documents) or
votes or proceedings of the shareholders or Trustees or Directors of the Fund.
The Custodian shall in no event be liable to the Fund and shall be indemnified
by the Fund for any violation which occurs in the course of carrying out
instructions given by the Fund or any Investment Adviser of any investment
limitations to which the Fund is subject or other limitations with respect to
the Fund's powers to make expenditures, encumber securities, borrow or take
similar actions affecting the Fund.
10.9 FOREIGN OWNERSHIP LIMITATIONS - The Fund shall be responsible for
monitoring foreign ownership limitations in any markets in which it invests.
10.10 RESTRICTED SECURITIES - The Custodian shall only be responsible for
notifying the Fund of any restrictions on the transfer of securities held in the
Securities Account of which the Custodian is in fact aware, provided that the
Custodian has not negligently dealt with information that should have made it
aware of such restrictions. In no event shall the Custodian be responsible for
the inability of a Fund to sell or transfer restricted securities or for delays
incurred in the sale or transfer of restricted securities if such inability or
delay is the result of the terms of the security itself, actions of the issuer,
its counsel or other representative (including without limitation its
registrar), or limitations due to laws, regulations or other applicable rules.
The Custodian shall only be responsible for transmitting information to the Fund
as to those corporate actions in respect of restricted securities which it in
fact receives.
10.11 MARKET INFORMATION - The Custodian may in its discretion make market
information available to the Fund. This service is for informational purposes
only and is not to be construed as a recommendation to buy or sell a particular
security, to invest or not to invest in a particular country, or to take any
action whatsoever. Although information reported therein is believed to be
accurate, the Custodian does not represent or warrant its accuracy or
completeness. The Fund accordingly acknowledges that the Custodian provides
market information on a best efforts basis and recognizes its responsibility to
consult with its own independent sources before making any investment or other
decisions.
11. ADVANCES AND SECURITY FOR ADVANCES. If, for any reason in the conduct of its
safekeeping duties pursuant to Section 5 or its administration of the Fund's
assets pursuant to Section 6, the Custodian or any Subcustodian advances moneys
to facilitate settlement or otherwise for benefit of the Fund (whether or not
any Principal or Agency Account shall be overdrawn either during, or at the end
of, any Business Day), the Fund hereby does: (a) acknowledge that the Fund shall
have no right or title to any Investments purchased with such Advance save a
right to receive such Investments upon: (i) the debit of the Principal or Agency
Account; or, (ii) if such debit would produce an overdraft in such account,
other reimbursement of the associated Advance; (b) grant to the Custodian a
security interest in all Investments; and, (c) agree that the Custodian may
secure the resulting Advance by perfecting a security interest in all
Investments, in each case under Applicable Law. Neither the Custodian nor any
Subcustodian shall be obligated to advance moneys to the Fund, and in the event
that such Advance occurs, any transaction giving rise to an Advance shall be for
the account and risk of the Fund and shall not be deemed to be a transaction
undertaken by the Custodian for its own account and risk. If such Advance shall
have been made by a Subcustodian or any other person, the Custodian may assign
the security interest granted hereby to such Subcustodian or other person. If
the Fund shall fail to repay the principal balance of an Advance, and accrued
and unpaid interest thereon, when due, the Custodian or its assignee, as the
case may be, shall be entitled to utilize the available cash balance in any
Agency or Principal Account and to dispose of any Property to the extent
necessary to recover payment of all principal of, and interest on, such Advance
in full. In the event that the Custodian shall determine to dispose of Property
in accordance with the terms of this Section, it shall first give 48 hours
notice of such disposition to the Fund. Any such notice shall indicate the
Property proposed to be disposed. The Fund may in the interim designate other
Property of equal value and similar liquidity for disposition. Any security
interest in Property taken hereunder shall be treated as financial assets
credited to securities accounts under Articles 8 and 9 of the Uniform Commercial
Code (1997). Accordingly, the Custodian shall have the rights and benefits of a
secured creditor that is a securities intermediary under such Articles 8 and 9.
In the event that any separate financing agreement shall be entered into between
the Custodian and the Fund, the terms of such separate agreement shall control
the security for borrowings of the Fund.
Deposits for each separate Fund respectively maintained in Agency Accounts
and BBH Accounts (including all accounts denominated in any currency) shall
collectively constitute a single and indivisible current account with respect to
the Fund's obligations to the Custodian or any Subcustodian hereunder.
Accordingly, balances in all such Agency and BBH Accounts shall at all times be
available for satisfaction of the Fund's obligations under this Agreement to the
Custodian or any of its Subcustodians or agents including without limitation any
Advances incurred pursuant to this Section.
12. COMPENSATION. The Fund shall pay the Custodian a custody fee based on such
fee schedule as may from time to time be agreed upon in writing by the Custodian
and the Fund. Such fee, together with all out-of-pocket expenses for which the
Custodian is to be reimbursed, shall be billed to the Fund and be paid by cash
or wire transfer to the Custodian.
13. TERMINATION. This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to take effect not sooner
than ninety (90) days after the date of such delivery or mailing. In the event
of termination the Custodian shall be entitled to receive, prior to delivery of
the securities, cash and other Property held by it, payment of all accrued fees
and unreimbursed expenses and all Advances and Liabilities, upon receipt by the
Fund of a statement setting forth such fees, expenses, Advances and Liabilities.
Notwithstanding the foregoing, the parties agree that neither party shall
terminate this Agreement with effective date of termination before October 31,
2000 except in the case of: (1) breach of this Agreement by the other party; (2)
material and identifiable change in the business situation or policy of the Fund
or of the Custodian; or, (3) Regulatory or other legal process being initiated
against the other party that would be prejudicial to the continuance of the
Agreement.
In the event of the appointment of a successor custodian, it is agreed that
the cash, securities and other Property owned by the Fund and held by the
Custodian or any Subcustodian shall be delivered to the successor custodian, and
the Custodian agrees to cooperate with the Fund in execution of documents and
performance of other actions necessary or desirable in order to substitute the
successor custodian for the Custodian under this Agreement.
14. MISCELLANEOUS. The following miscellaneous provisions shall govern the
relationship between the parties --
14.1. EXECUTION OF DOCUMENTS, ETC. - Upon request, the Fund shall execute
and deliver to the Custodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or desirable in connection with
the performance by the Custodian or any Subcustodian of their respective
obligations to the Fund under this Agreement or any applicable subcustodian
agreement with respect to the Fund.
14.2. ENTIRE AGREEMENT - This Agreement constitutes the entire
understanding and agreement of the Fund, on the one hand, and the Custodian, on
the other, with respect to the subject matter hereof and accordingly, supersedes
as of the effective date of this Agreement any custodian agreement or other oral
or written agreements heretofore in effect between the Fund and the Custodian
with respect to custody of the Fund's Property.
14.3. WAIVERS AND AMENDMENTS - No provision of this Agreement may be
waived, amended or terminated except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or termination is
sought; PROVIDED HOWEVER any appendix or addendum to this Agreement may be added
or amended from time to time by the Fund's execution and delivery to the
Custodian of such additional or amended appendix or addendum, in which case the
terms thereof shall take effect immediately upon execution by the Custodian or
otherwise as set forth in this Agreement.
14.4. INTERPRETATION - In connection with the operation of this Agreement,
the Custodian and the Fund may agree in writing from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
with respect to the Fund as may be consistent with the general tenor of this
Agreement. No interpretative or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
14.5. CAPTIONS - Headings contained in this Agreement, which are included
as convenient references only, shall have no bearing upon the interpretation of
the terms of the Agreement or the obligations of the parties hereto.
14.6. GOVERNING LAW - The provisions of this Agreement shall be construed
in accordance with and governed by the laws of the Commonwealth of Massachusetts
without giving effect to principles of conflicts of law. The parties hereto
irrevocably consent to the exclusive jurisdiction of the federal district court
sitting in Boston in the Commonwealth of Massachusetts.
14.7 NOTICES - Except in the case of Proper Instructions, notices and other
writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission (provided that in the case of delivery by facsimile
transmission, such notice or other writing shall also be mailed postage prepaid)
to the parties at the following addresses:
(a) If to the Fund:
U.S. Global Investors, Inc.
7900 Callaghan Road
P.O. Box 29467
San Antonio, Texas 78229-0467
Attn: Thomas D. Tays
Vice President and Special Counsel
Telephone: 210-308-1234
Fax: 210-308-1230
(b) If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department
Telephone: (617) 742-1818
Telefax: (617) 772-2263
or to such other address as the Fund or the Custodian may have designated in
writing to the other.
14.8. ASSIGNMENT - This Agreement shall be binding on and shall inure to
the benefit of the Fund and the Custodian and their respective successors and
assigns, provided that neither the Custodian nor the Fund may assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
14.9. COUNTERPARTS - This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
the Fund and the Custodian.
14.10. CONFIDENTIALITY; SURVIVAL OF OBLIGATIONS - Except as required by
Applicable Law or regulation, he parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering or obtaining services pursuant
to this Agreement and, except as may be required in carrying out this Agreement,
shall not be disclosed to any third party without the prior consent of such
providing party. The foregoing shall not be applicable to any information that
is publicly available when provided or thereafter becomes publicly available
other than through a breach of this Agreement, or that is required to be
disclosed by or to any bank examiner of the Custodian or any Subcustodian, any
regulatory authority, any auditor of the parties hereto, or by judicial or
administrative process or otherwise by applicable law or regulation. The
provisions of this Agreement and any other rights or obligations incurred or
accrued by any party hereto prior to termination of this Agreement shall survive
any termination of this Agreement.
14.11 The Custodian agrees that claims made against each Fund respectively
under this Agreement shall be satisfied only from assets of such Fund, and not
from the assets of any separate Fund held hereunder; that any person executing
this Agreement has executed it on behalf of the Fund and not individually, and
that the obligations of the Fund arising out of this Agreement are not binding
upon such person or the Fund's shareholders individually, but binding upon the
Property and other assets of the Fund; that no shareholders, trustees directors
or officers of the Fund may be held personally liable or responsible for any
obligations of the Fund arising out of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
U.S. GLOBAL INVESTORS FUNDS BROWN BROTHERS
HARRIMAN & CO.
By S/ SUSAN B. MC GEE By /S/ DOUGLAS A. DONAHUE
--------------------------------------- ----------------------
Name: Susan B. McGee Name: Douglas A. Donahue
Title: Executive Vice President Title: Partner
<PAGE>
APPENDIX B
U.S. GLOBAL INVESTORS FUNDS
AGREEMENT DATED AS OF 11/1/1997
PRICING SOURCES
THE FOLLOWING AUTHORIZED SOURCES MAY BE UTILIZED BY THE CUSTODIAN FOR PRICING
AND FOREIGN EXCHANGE QUOTATIONS, CORPORATE ACTION, DIVIDENDS AND RIGHTS
OFFERINGS:
AUTHORIZED SOURCES
BLOOMBERG
EXTEL (LONDON)
FUND MANAGERS
INTERACTIVE DATA CORPORATION
REPUTABLE BROKERS
REUTERS
SUBCUSTODIAN BANKS
THE CUSTODIAN
TELEKURS
VALORINFORM (GENEVA)
REPUTABLE FINANCIAL PUBLICATIONS
STOCK EXCHANGES
FINANCIAL INFORMATION INC. CARD
JJ KENNY
FRI CORPORATION
<PAGE>
SCHEDULE C
U.S. GLOBAL INVESTORS FUNDS AGREEMENT
DATED AS OF 11/1/97
U.S. GOLD SHARES FUND
U.S. WORLD GOLD FUND
U.S. GLOBAL RESOURCES FUND
CHINA REGION OPPORTUNITY FUND
U.S. ALL AMERICAN EQUITY FUND
U.S. INCOME FUND
U.S. REAL ESTATE FUND
U.S. TAX FREE FUND
UNTIED SERVICES NEAR-TERM TAX FREE FUND
U.S. GOVERNMENT SECURITIES SAVINGS FUND
U.S. TREASURY SECURITIES CASH FUND
