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. 84 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [ ]
(Check appropriate box or boxes)
U.S. GLOBAL INVESTORS FUNDS
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
7900 CALLAGHAN ROAD
SAN ANTONIO, TEXAS 78229 78229
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(Address and Zip Code of Principal Executive Office) (Zip Code)
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
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(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)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on November 1, 2000, 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
<PAGE>
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PART A: INFORMATION REQUIRED IN A PROSPECTUS
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U.S. GLOBAL INVESTORS FUNDS
___________________ ___________________________________________
GOLD AND NATURAL | Gold Shares Fund
RESOURCES FUNDS | World Gold Fund
| Global Resources Fund
___________________ ___________________________________________
EQUITY FUNDS | China Region Opportunity Fund
| All American Equity Fund
| Equity Income Fund
___________________ ___________________________________________
TAX-FREE FUNDS | Tax-Free Fund
| Near-Term Tax Free Fund
___________________ ___________________________________________
GOVERNMENT MONEY | U.S. Government Securities Savings Fund
MARKET FUNDS | U.S. Treasury Securities Cash Fund
___________________ ___________________________________________
<PAGE>
PROSPECTUS
NOVEMBER 1, 2000
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.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY
Equity Funds
Fundamental Investment Objectives.................................
Main Investment Strategies........................................
Main Risks........................................................
Volatility and Performance Information............................
Gold and Natural Resources Funds
Fundamental Investment Objectives.................................
Main Investment Strategies........................................
Main Risks........................................................
Volatility And Performance Information............................
Tax-Free Funds
Fundamental Investment Objective..................................
Main Investment Strategies........................................
Main Risks........................................................
Volatility And Performance Information............................
Government Money Market Funds
Investment Objectives.............................................
Main Investment Strategies........................................
Main Risks........................................................
Volatility And Performance Information............................
FEES AND EXPENSES..........................................................
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS....
Equity Funds..........................................................
Gold And Natural Resources Funds......................................
Tax-Free Funds........................................................
Government Money Market Funds.........................................
FUND MANAGEMENT............................................................
COMMON INVESTMENT PRACTICES AND RELATED RISKS..............................
HOW TO BUY SHARES..........................................................
HOW TO SELL (REDEEM) SHARES................................................
EXCHANGING SHARES..........................................................
IMPORTANT INFORMATION ABOUT PURCHASES, REDEMPTIONS AND EXCHANGES
Funds Reserve Certain Rights..........................................
Account Minimums......................................................
Net Asset Value (NAV) Calculation.....................................
Signature Guarantee/Other Documentation...............................
OTHER INFORMATION ABOUT YOUR ACCOUNT.......................................
ADDITIONAL INVESTOR SERVICES...............................................
DISTRIBUTIONS AND TAXES....................................................
FINANCIAL HIGHLIGHTS.......................................................
APPENDIX...................................................................
<PAGE>
RISK/RETURN SUMMARY
EQUITY FUNDS
China Region Opportunity Fund
All American Equity Fund
Equity Income Fund
FUNDAMENTAL INVESTMENT OBJECTIVES
The China Region Opportunity (China Region), and All American Equity (All
American) Funds seek long-term capital appreciation.
The trustees for the China Region and All American Funds may change each fund's
objective without shareholder vote, and each fund will notify you of any
changes. If there is a material change to a fund's objective or policies, you
should consider whether the fund remains an appropriate investment for you.
The Equity Income Fund, formerly the Income Fund, seeks preservation of capital
and, consistent with that objective, production of current income. Long-term
capital appreciation is a secondary consideration.
MAIN INVESTMENT STRATEGIES
The China Region Fund normally invests at least 65% of its total assets in
equity securities issued by China region companies. The China region consists of
the People's Republic of China (PRC or China), Hong Kong, Taiwan, Korea,
Singapore, Thailand and Malaysia.
The All American Fund normally invests at least 75% of its total assets in a
broadly diversified portfolio of domestic common stocks. The fund invests
primarily in large-capitalization stocks while retaining the flexibility to seek
out promising small- and mid-cap stock opportunities.
The Equity Income Fund normally invests at least 80% of its total assets in
income-producing equity and debt securities. Under normal conditions, at least
65% of the fund's assets are invested in equity securities. With an emphasis on
both income generation and capital appreciation through value-oriented
investing, the fund focuses on securities of companies that have strong earnings
and dividend growth and that demonstrate attractive value.
1
<PAGE>
The portfolio team for each fund applies a "top-down" and "bottom-up" approach
in selecting investments.
For more information on the funds' investment strategies, please see page XXX.
MAIN RISKS
The funds are designed for long-term investors who are willing to accept the
risks of investing in a portfolio with significant stock holdings. The China
Region Fund is designed for long-term investors who can accept the special risks
of investing in the China region, which typically are not associated with
investing in other more established economies or securities markets.
MARKET RISK
The value of a fund's shares will go up and down based on the performance of the
companies whose securities it owns and other factors affecting the securities
market generally.
FOREIGN SECURITIES RISK
The China Region Fund has significant exposure to foreign markets. As a result,
the fund's performance may be affected to a large degree by fluctuations in
currency exchange rates or political or economic conditions in a particular
country in the China region. Countries in the China region are also subject to
greater social and regulatory uncertainties and to changes in Chinese government
policy.
DIVERSIFICATION RISK
The China Region Fund is non-diversified and may invest a significant portion of
its assets in a small number of companies. This may cause the performance of a
fund to be dependent upon the performance of one or more selected companies,
which may increase the volatility of the fund.
INCOME RISK
The Equity Income Fund is subject to income risk, which is the risk that the
fund's dividends (income) will decline due to falling interest rates or
declining dividends by companies in which the fund invests.
The funds are not intended to be a complete investment program, and there is no
assurance that their investment objectives can be achieved.
Additional risks of the funds are described on page XXX of the prospectus. As
with all mutual funds, loss of money is a risk of investing in any of the funds.
An investment in these funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE>
VOLATILITY AND PERFORMANCE INFORMATION
The following bar charts and tables show the volatility of each fund's returns,
which is one indicator of the risks of investing in the fund. The bar charts
show changes in each fund's returns from year to year during the period
indicated. The tables compare each fund's average annual returns for the last
1-, 5- and 10-year periods (or life of the fund, if shorter), to those of a
broad-based securities market index. How each fund performed in the past is not
an indication of how it will perform in the future.
CHINA REGION FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
*As of September 30, 2000, the fund's year-to-date return was XXX%.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED SINCE INCEPTION
DECEMBER 31, 1999) 1 YEAR 5 YEARS (2/10/94)
----------------------------- ------ ------- ---------------
CHINA REGION FUND
Morgan Stanley Capital
Far East ex Japan Index*
Hang Seng 100 Index**
International Finance
Corporation China Index***
* The Morgan Stanley Capital Far East ex Japan Index is one index in a series
representing both the developed and the emerging markets for a particular
region.
** The Hang Seng 100 Index is a capitalization-weighted index. The index is
comprised of the 100 highest companies in terms of market capitalization
and turnover, listed on The Stock Exchange of Hong Kong Limited.
*** The International Finance Corporation China Index is one global index in a
series representing a large part of the market and shows trends in the
markets from the perspective of local investors.
3
<PAGE>
ALL AMERICAN FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
* As of September 30, 2000, the fund's year-to-date return was XXX%. The
Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
The fund's annual total returns do not reflect a quarterly $3 account
maintenance fee.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------------------- ------ ------- --------
ALL AMERICAN FUND*
S&P 500 Index**
* The Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
** The S&P 500 Stock Index is a widely recognized index of common stock prices
in U.S. companies.
4
<PAGE>
EQUITY INCOME FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
* As of September 30, 2000, the fund's year-to-date return was (XXX)%.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
EQUITY INCOME FUND
The S&P/BARRA 500 Value Index*
S&P 500 Index**
* The S&P/BARRA 500 Value Index is a capitalization-weighted index of all
stocks in the S&P 500 that have low price-to-book ratios. The index is
balanced semi-annually on January 1 and July 1. It is designed so that
approximately 50% of the S&P 500 Index market capitalization is in the
Value Index.
** The S&P 500 Stock Index is a widely recognized index of common stock prices
in U.S. companies.
5
<PAGE>
GOLD AND NATURAL RESOURCES FUNDS
Gold Shares Fund
World Gold Fund
Global Resources Fund
FUNDAMENTAL INVESTMENT OBJECTIVES
All three gold and natural resources funds seek long-term growth of capital plus
protection against inflation and monetary instability. The Gold Shares Fund also
pursues current income as a secondary objective.
MAIN INVESTMENT STRATEGIES
Under normal conditions, the Gold Shares Fund will invest at least 65% of its
total assets in equity securities of companies involved in the mining and
processing of, or dealing in, gold. The fund focuses on selecting senior
producing mines, most of which are in North America, South Africa and Australia.
The World Gold Fund will invest at least 65% of its total assets in the
securities of companies involved in the exploration for, mining and processing
of, or dealing in, gold. The fund focuses on selecting junior and intermediate
exploration gold companies from around the world. Junior exploration companies
typically have small market capitalizations and no source of steady cash flow,
and their growth generally comes from a major gold discovery. Therefore, the
risk and opportunities are substantially greater than investing in a senior
mining company with proven reserves.
As a strategy to minimize excessive portfolio turnover, the Gold Shares Fund and
the World Gold Fund may purchase long-term equity anticipation securities
(LEAPS), which are long-term equity options.
The Global Resources Fund normally invests at least 65% of its assets in the
equity securities of companies within the natural resources industry. Consistent
with its investment objective, the fund may invest without limitation in the
various sectors of the natural resources industry, such as oil, gas and basic
materials.
All three funds may invest, without limitation, in issuers in any part of the
world. The funds' portfolio teams apply a "top-down" and "bottom-up" approach in
selecting investments.
For more information on the funds' investment strategies, please see page XX.
MAIN RISKS
The funds are designed for long-term investors who are willing to accept the
risks of investing in a portfolio with significant stock holdings.
6
<PAGE>
MARKET RISK
The value of a fund's shares will go up and down based on the performance of the
companies whose securities it owns and other factors affecting the securities
market generally.
FOREIGN SECURITIES RISK
The funds may have significant exposure to foreign markets. As a result, the
funds' performance may be affected to a large degree by fluctuations in currency
exchange rates or political or economic conditions in a particular country or
region.
INDUSTRY/CONCENTRATION RISK
Because the funds concentrate their investments in specific industries, the
funds may be subject to greater risks and market fluctuations than a portfolio
representing a broader range of industries. The Gold Shares and World Gold Funds
invest in securities that are linked to the price of gold. Prices of gold and
other precious metals can be influenced by a variety of global economic,
financial and political factors and may fluctuate substantially over short
periods of time and be more volatile than other types of investments.
DIVERSIFICATION RISK
The funds are non-diversified and may invest a significant portion of their
total assets in a small number of companies. This may cause the performance of a
fund to be dependent upon the performance of one or more selected companies,
which may increase the volatility of the fund.
PRICE VOLATILITY RISK
The value of a fund's shares may fluctuate significantly in the short term.
OPTIONS RISK
Investing in LEAPS and other options may increase transaction expenses and the
volatility of a fund. An option may expire without value, resulting in a loss of
a fund's initial investment and may be less liquid and more volatile than an
investment in the underlying securities.
CASH MANAGEMENT RISK
The inflow and outflow of money in the gold funds may result in higher portfolio
turnover and related transaction costs.
The funds are not intended to be a complete investment program, and there is no
assurance that their investment objectives can be achieved.
As with all mutual funds, loss of money is a risk of investing in any of the
funds. Additional risks of the funds are described on page XXX.
An investment in these funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
7
<PAGE>
VOLATILITY AND PERFORMANCE INFORMATION
The following bar charts and tables show the volatility of each fund's returns,
which is one indicator of the risks of investing in the fund. The bar charts
show changes in each fund's returns from year to year during the period
indicated. The tables compare each fund's average annual returns for the last
1-, 5- and 10-year periods (or life of the fund, if shorter), to those of a
broad-based securities market index. How each fund performed in the past is not
an indication of how it will perform in the future.
GOLD SHARES FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
* As of September 30, 2000, the fund's year-to-date return was XXX%.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
GOLD SHARES FUND
S&P 500 Index*
Financial Times Gold Mines Index (from 1/31/92)***
* The S&P 500 Stock Index is a widely recognized index of common stock prices
in U.S. companies.
** The Johannesburg All Gold Index is a capitalization-weighted index of all
domestic gold stocks traded on the Johannesburg Stock Exchange.
*** The Financial Times Gold Mines Index is a market capitalization-weighted
total return index of the leading North American, Australian and African
gold mining companies.
Additional performance information relating to the Gold Shares Fund for the
fiscal year ended June 30, 2000, is contained in the Appendix.
8
<PAGE>
WORLD GOLD FUND
Annual Total Returns*
[GRAPHIC: Bar chart showing annual total returns]
* As of September 30, 2000, the fund's year-to-date return was XXX%.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
WORLD GOLD FUND
S&P 500 INDEX*
Philadelphia Stock Exchange Gold & Silver Index***
* The S&P 500 Stock Index is a widely recognized index of common stock prices
in U.S. companies.
** The Toronto Stock Exchange Gold & Precious Minerals Index (TSE) is a
capitalization-weighted index designed to measure the performance of the
gold and silver sector of the TSE 300 Index.
*** The Philadelphia Stock Exchange Gold & Silver Index (XAU) is a
capitalization-weighted index which includes the leading companies involved
in the mining of gold and silver.
Additional performance information relating to the China Region Fund for the
fiscal year ended June 30, 2000, is contained in the Appendix.
9
<PAGE>
GLOBAL RESOURCES FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
* As of September 30, 2000, the fund's year-to-date return was XXX%.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
GLOBAL RESOURCES FUND
Dow Jones Basic Materials and Energy Index (from
12/31/92)**
* The S&P 500 Stock Index is a widely recognized index of common stock prices
in U.S. companies.
** The Dow Jones Basic Materials and Energy Index is a combination of the Dow
Jones Basic Materials Index and the Dow Jones Energy Index allocated based
on their respective market capitalization weightings.
10
<PAGE>
TAX-FREE FUNDS
Tax Free Fund
Near-Term Tax Free Fund
FUNDAMENTAL INVESTMENT OBJECTIVE
The two tax-free funds seek to provide a high level of current income that is
exempt from federal income taxation and to preserve capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, each of the tax-free funds invests at least 80%
of its total assets in investment grade municipal securities whose interest is
free from federal income tax, including the federal alternative minimum tax.
The tax-free funds differ in the maturity of the debt securities they purchase.
While the Tax Free Fund may invest in debt securities of any maturity, the
Near-Term Tax Free Fund will maintain a weighted-average portfolio maturity of
five years or less.
The funds' portfolio team applies a two-step approach in choosing investments.
They begin by analyzing various macroeconomic factors in an attempt to forecast
interest rate movements, and then they position each fund's portfolio by
selecting investments that they believe will, in the whole, best fit that
forecast.
For more information on the funds' investment strategies, please see page XXX.
MAIN RISKS
The funds are designed for investors who primarily seek current income that is
substantially free from federal taxes.
INTEREST RATE RISK
Because the funds invest primarily in municipal securities, there is a risk that
the value of these securities will fall if interest rates rise. Ordinarily, when
interest rates go up, municipal security prices fall. The opposite is also true:
municipal security prices usually go up when interest rates fall. The longer a
fund's weighted-average maturity, the more sensitive it is to changes in
interest rates. Since the Tax Free Fund normally has a longer weighted-average
maturity than the Near-Term Tax Free Fund, it is subject to greater interest
rate risks.
CREDIT RISK
There is a possibility that an issuer of a municipal security cannot make timely
interest and principal payments on its debt securities. With municipal
securities, the sources of funds for the payment of principal and interest may
be limited by state or local law.
11
<PAGE>
INCOME RISK
The funds are subject to income risk, which is the risk that a fund's dividends
(income) will decline due to falling interest rates.
The funds are not intended to be a complete investment program, and there is no
assurance that their investment objectives can be achieved.
As with all mutual funds, loss of money is a risk of investing in each fund.
Additional risks of the funds are described on page XXX.
An investment in these funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Volatility and Performance Information
VOLATILITY AND PERFORMANCE INFORMATION
The following bar charts and tables show the volatility of each fund's returns,
which is one indicator of the risks of investing in the fund. The bar charts
show changes in each fund's returns from year to year during the period
indicated. The tables compare each fund's average annual returns for the last
1-, 5- and 10-year periods (or life of the fund, if shorter), to those of a
broad-based securities market index. How each fund performed in the past is not
an indication of how it will perform in the future.
TAX FREE FUND
TAX FREE FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
* As of September 30, 2000, the fund's year-to-date return was XXX%. The
Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
TAX FREE FUND*
Lehman 10-Year Municipal Bond Index **
* The Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
12
<PAGE>
** The Lehman Brothers Bond Indexes include fixed-rate debt issues rated
investment grade or higher by Moody's Investment Service, Standard & Poor's
Corporation, or Fitch Investor's Service, in that order. All issues have at
least one year to maturity and an outstanding par value of at least $100
million. Intermediate indexes include bonds with maturities of up to ten
years, and long-term indexes include whose with maturities of ten years or
longer.
13
<PAGE>
NEAR-TERM TAX FREE FUND
Annual Total Returns*
[GRAPHIC: Bar chart showing annual total returns]
* As of September 30, 2000, the fund's year-to-date return was XXX%. The
Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
NEAR-TERM TAX FREE FUND*
Lehman 3-Year Municipal Bond Index**
* The Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
** The Lehman Brothers Municipal Bond Indexes include fixed-rate debt issues
rated investment grade or higher by Moody's Investment Service, Standard &
Poor's Corporation, or Fitch Investor's Service, in that order. All issues
have at least one year to maturity and an outstanding par value of at least
$100 million. Intermediate indexes include bonds with maturities of up to
ten years, and long-term indexes include whose with maturities of ten years
or longer.
14
<PAGE>
GOVERNMENT MONEY MARKET FUNDS
U.S. Treasury Securities Cash Fund
U.S. Government Securities Savings Fund
FUNDAMENTAL INVESTMENT OBJECTIVES
o U.S. Treasury Securities Cash Fund (Treasury Securities Cash Fund) seeks to
obtain a high level of current income while maintaining the highest degree
of safety of principal and liquidity.
o U.S. Government Securities Savings Fund (Government Securities Savings
Fund) seeks to achieve a consistently high yield with safety of principal.
MAIN INVESTMENT STRATEGIES
The U.S. Treasury Securities Cash Fund invests at least 65% of its total assets
in United States Treasury debt securities, which are protected by the "full
faith and credit" of the United States government. The income from these
obligations may be exempt from state and local income taxes. The fund also
invests in repurchase agreements collateralized with such obligations.
The U.S. Government Securities Savings Fund invests at least 65% of its total
assets in United States Treasury debt securities, which are protected by the
"full faith and credit" of the United States government, and obligations of
agencies and instrumentalities of the United States. The fund may also invest in
repurchase agreements collateralized with such obligations.
15
<PAGE>
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 funds seek to provide a stable net asset value of $1 per share by investing
in securities with maturities of 397 days or less, and by maintaining an average
maturity of 90 days or less. However, there can be no assurance that they can
always do so (each, as measured in accordance with SEC rules applicable to money
market funds).
Each fund also may engage in securities lending transactions as a method of
increasing its returns. When lending securities, cash received by a fund as
collateral may be invested in instruments in which the fund would normally
invest.
The funds' portfolio team applies a two-step approach in choosing investments.
They begin by analyzing various macroeconomic factors in an attempt to forecast
interest rate movements, and then they position each fund's portfolio by
selecting investments that they believe will, in the whole, best fit that
forecast.
For more information on the funds' investment strategies, please see page XXX.
MAIN RISKS
The funds are designed for investors who primarily seek current income.
INCOME RISK
The funds are subject to income risk, which is the risk that a fund's dividends
(income) will decline due to falling interest rates.
The funds are not intended to be a complete investment program, and there is no
assurance that their investment objectives can be achieved.
Additional risks of the funds are described on page XXX.
An investment in the funds is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the funds seek to
preserve the value of your investment at $1 per share, it is possible to lose
money by investing in the funds.
16
<PAGE>
VOLATILITY AND PERFORMANCE INFORMATION
The following bar charts and tables show the volatility of each fund's returns,
which is one indicator of the risks of investing in the fund. The bar charts
show changes in each fund's returns from year to year during the period
indicated. The tables compare each fund's average annual returns for the last
1-, 5- and 10-year periods (or life of the fund, if shorter). How each fund
performed in the past is not a indication of how it will perform in the future.
TREASURY SECURITIES CASH FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
* As of September 30, 2000, the fund's year-to-date return was XXX%.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
TREASURY SECURITIES CASH FUND
The 7-day yield on December 31, 1999 was XXX%. For the fund's current yield call
1-800-US-FUNDS.
17
<PAGE>
GOVERNMENT SECURITIES SAVINGS FUND
[GRAPHIC: Bar chart showing annual total returns]
Annual Total Returns*
* As of September 30, 2000, the fund's year-to-date return was XXX%. The
Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
Best quarter shown in the bar chart above: XXXXX
Worst quarter shown in bar chart above: XXXXX
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
---------------------------- ------ ------- --------
GOVERNMENT SECURITIES SAVINGS FUND*
* The Adviser has agreed to limit the fund's total operating expenses. In the
absence of this limitation, the fund's total returns would have been lower.
The 7-day yield on December 31, 1999, was XXX%. For the fund's current yield
call 1-800-US-FUNDS.
18
<PAGE>
FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES--DIRECT FEES
These fees are paid directly from your account.
Maximum sales charge ................................ None
Account closing fee* ................................ $10
Administrative exchange fee ......................... $ 5
Account Maintenance Fee (Only for the
All American Fund) ................................ $12
Trader's fee
o Gold Shares Fund, World Gold Fund
and Global Resources Fund shares held less ... 0.25%**
o Equity Income Fund and All American
Fund shares held less than one month ......... 0.10%**
o China Region Fund shares held less than
six months ................................... 1.00%**
* Does not apply to exchanges
** Percentage of value of shares redeemed or exchanged
ANNUAL FUND OPERATING EXPENSES--INDIRECT FEES
Fund operating expenses are paid out of the fund's assets and are reflected in
the fund's share price and dividends.
EQUITY FUNDS
CHINA ALL EQUITY
REGION AMERICAN INCOME
FUND FUND FUND
------------------------------------ ------ -------- ------
Management Fees 1.25% 0.75% 0.75%
Distribution (12b-1) Fees
Other Expenses
Total Annual Fund Operating Expenses
Expense Reimbursement
Net Expenses
* Interest expenses are reduced to the extent short-term trading fees are
collected to cover them.
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GOLD AND NATURAL RESOURCES FUNDS
GOLD WORLD GLOBAL
SHARES GOLD RESOURCES
FUND FUND FUND
------------------------------------ ------ -------- ------
Management Fees 0.75% 1.00% 1.00%
Distribution (12b-1) Fees
Other Expenses*
Total Annual Fund Operating Expenses*
* Interest expenses are reduced to the extent short-term trading fees are
collected to cover them. With these expense reductions, other expenses and
total annual fund operating expenses were XXXXX % and XXXXX % for the Gold
Shares Fund and XXXXX % and XXXXX % for the World Gold Fund.
TAX-FREE AND GOVERNMENT MONEY MARKET FUNDS
GOVERNMENT TREASURY
TAX NEAR-TERM SECURITIES SECURITIES
FREE TAX FREE SAVINGS CASH
FUND FUND FUND FUND
------------------------- ------ -------- ------ ----------
Management Fees 0.75% 0.50% 0.41% 0.50%
Distribution (12b-1) Fees
Other Expenses
Total Annual Fund
Operating Expenses
Expense Reimbursement
Net Expenses
The tables above show operating expenses as a percentage of each fund's net
assets during the fiscal year ended June 30, 2000.
These expenses are paid indirectly by shareholders. "Other Expenses" include
fund expenses such as custodian, accounting and transfer agent fees. The adviser
has contractually limited total fund operating expenses to not exceed 1.00% for
the All American Fund, 0.70% for the Tax Free Fund and Near-Term Tax Free Fund
and 0.40% for the Government Securities Savings Fund on an annualized basis
through June 30, 2001, and until such later date as the adviser determines.
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EXAMPLE OF EFFECT OF FUNDS' OPERATING EXPENSES
This hypothetical example is intended to help you compare the cost of investing
in the funds with the cost of investing in other mutual funds. The example
assumes that:
o You initially invest $10,000.
o Your investment has a 5% annual return.*
o The fund's operating expenses and returns remain the same.*
o All dividends and distributions are reinvested.
This example reflects the $10 account closing fee that you would pay if you
redeem all of your shares in a fund. This example also includes a quarterly $3
account maintenance fee for the All American Fund.
You would pay the following expenses if you redeemed all of your shares at the
end of the periods shown:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------- ------ ------- ------- --------
China Region Fund
All American Fund
Equity Income Fund
Gold Shares Fund
World Gold Fund
Global Resources Fund
Tax Free Fund
Near-Tax Free Fund
Government Securities Savings Fund
Treasury Securities Cash Fund
* Actual annual returns and fund operating expenses may be greater or less
than those provided for in the assumptions.
** The example for these funds reflect the affect of the Adviser's
undertaking to limit the expenses of the fund through June 30, 2001.
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INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
EQUITY FUNDS
INVESTMENT PROCESS
The Adviser applies both a "top-down" macroeconomic analysis using broad
economic indicators to identify trends in countries, states, sectors, and
industries and a "bottom-up" fundamental analysis with screens to select the
leading stocks within this macroeconomic environment.
Once the Adviser puts these two processes together, it can select securities
that it believes meet each fund's investment objective. The Adviser and
Sub-adviser regularly review the security selection processes and forecasts to
keep current with changing market conditions. The skill of the Adviser will play
a significant role in each fund's ability to achieve its investment objective.
GENERAL PORTFOLIO POLICIES
PRINCIPAL TYPES OF INVESTMENTS AND RELATED RISKS
The All American Fund may invest in long-term equity anticipation securities
(LEAPS) in order to take advantage of the long-term growth of large-cap
companies without having to make outright stock purchases. LEAPS allow the fund
to imitate a purchase or sale of a stock for a fraction of its price (premium)
and hold that option for up to three years before it expires. The underlying
stock can be purchased or sold at a predetermined price for the life of the
option. LEAPS also help in managing the cash components of the portfolio. The
fund will not commit more than 5% of its total assets to premiums on options.
Investing in LEAPS and other options may result in a loss of a fund's initial
investment and may be more volatile than a direct investment in the underlying
securities.
The China Region Fund will normally invest at least 65% of its total assets 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.
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, the fund anticipates that the trading activities of the fund in PRC
securities will be focused in the authorized China
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securities market; in particular, the Hong Kong, Shenzhen and Shanghai stock
exchanges.
The China Region Fund is non-diversified and may invest a significant portion of
its assets in a small number of companies. This may cause the performance of a
fund to be dependent upon the performance of one or more selected companies,
which may increase the volatility of the fund.
Because the China Region Fund invests in foreign securities and emerging
markets, it may be subject to risks not usually associated with owning
securities of U.S. companies. The risks of investing in foreign securities is
further discussed on page XXX.
The Equity Income Fund normally invests at least 80% of its total assets in
income-producing equity and debt securities. Equity securities include common
stocks, preferred stocks and convertible securities. While the fund tends to
invest
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primarily in common stocks, it may also invest in REITs, corporate bonds,
convertible securities, U.S. Treasury bills and notes, and other obligations
backed by the U.S. government and its agencies.
The Equity Income Fund focuses on large-cap companies that have a consistent
growth in earnings and dividend payout, and generally are less expensive, using
price-to-earnings ratios, rather than pure growth stocks.
Because each equity fund invests primarily in equity securities, the main risk
is that the value of the securities held may decrease in response to general
market, business and economic conditions. If this occurs, the fund's share price
may also decrease.
OTHER TYPES OF INVESTMENTS, RELATED RISKS AND CONSIDERATIONS
While not principal strategies, the funds may invest to a limited extent in
other types of investments. These investment practices and their related risks
are described on page 33 and in the Statement of Additional Information.
GOLD AND NATURAL RESOURCES FUNDS
INVESTMENT PROCESS
The Adviser for the funds is U.S. Global Investors, Inc. In selecting
investments for the gold funds, the Adviser applies a "top-down" approach to
look for countries with favorable mining laws, a relatively stable currency and
liquid securities markets and a "bottom-up" approach to look for companies with
robust reserve growth profiles, healthy production and strong cash flows.
As part of the top-down approach, the Adviser for the Global Resources Fund
evaluates the global macroeconomic environment, natural resources supply and
demand fundamentals and industry selection. For its bottom-up selection
strategy, the Adviser looks at a company's peer group ranking and its valuation
parameters such as price to cash flow, debt to cash flow, earnings to growth and
earnings to capital.
Once the Adviser puts these two processes together, it can select securities
that it believes meet each fund's investment objective. The Adviser regularly
reviews its security selection process and its forecast to keep current with
changing market conditions. The skill of the Adviser will play a significant
role in each fund's ability to achieve its investment objective.
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GENERAL PORTFOLIO POLICIES
PRINCIPAL TYPES OF INVESTMENTS AND RELATED RISKS
Under normal conditions, the Gold Shares Fund will invest at least 65% of its
total assets in equity securities of companies involved in more established gold
operations. The fund concentrates its investments in common stocks of
intermediate and senior gold producers, which may include companies involved in
mining, processing or dealing in gold. The fund focuses on selecting senior
producing mines, most of which are in North America, South Africa and Australia.
A senior mine normally produces over one million ounces of gold or precious
metals per year. The fund reserves the right to invest up to 35% of its total
assets in the securities of companies principally engaged in natural resource
operations.
Under normal conditions, the World Gold Fund will invest at least 65% of its
total assets in the securities of companies involved in the exploration for,
mining and processing of, or dealing in, gold. Although the fund may invest in
senior mining companies, the fund normally focuses on junior and intermediate
exploration gold companies from around the world.
Junior exploration companies search for deposits that could create cash flow
where intermediate mining companies already have deposits that create a modest
cash flow. Senior mining companies have large deposits that create a larger
stream of cash flow. Typically, junior exploration gold companies produce up to
100,000 ounces of gold or precious metals per year and intermediate companies
produce up to a million ounces of gold or precious metals. The price performance
of junior exploration companies relates to the success of finding, and
increasing, reserves, thus involving both greater opportunity and risk. Stock
price performance of intermediate and senior mining companies that have proven
reserves is more strongly influenced by the price of gold. The securities of
junior and intermediate exploration gold companies tend to be less liquid and
more volatile in price than securities of larger companies.
Additionally, the World Gold Fund may invest up to 35% of its total assets in
the securities of companies principally engaged in natural resource operations.
>From time to time, a substantial portion of the shares of the Gold Shares Fund
and the World Gold Fund may be held by market timers and similar investors who
seek to realize profits by frequently purchasing and selling shares of the
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fund. The short-term trading fees imposed on these short-term investors have
historically retained sufficient capital to offset many of these costs. Trading
activities may cause a fund to experience a high portfolio turnover rate, which
could increase tax liability. Each fund seeks to minimize the adverse
consequences of these activities and may invest in long-term equity options
called LEAPS (long-term equity anticipation securities). LEAPS allow a fund to
imitate a purchase or sale of a stock for a fraction of its price (premium) and
hold that option for up to three years before it expires. The underlying stock
can be purchased or sold at a predetermined price for the life of the option.
LEAPS, therefore, allow a fund to gain exposure to individual securities in the
gold sector over the long-term while allowing the fund to preserve some cash for
large or unexpected redemptions. A fund 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.
Investing in LEAPS and other options may result in a loss of a fund's initial
investment and may be more volatile than a direct investment in the underlying
securities. While options may incur higher transaction costs, LEAPS generally
have lower transaction expenses.
Securities of gold operation companies are affected by the price of gold and
other precious metals. The price of gold and other precious metals is affected
by several factors including (1) the unpredictable monetary policies and
economic and political conditions affecting gold producing countries throughout
the world; (2) increased environmental, labor or other costs in mining; and (3)
changes in laws relating to mining or gold production or sales. Furthermore, the
price of mining stocks tends to increase or decrease with the price of the
underlying commodities but are more volatile.
The Global Resources Fund concentrates its investments in the equity securities
of large-capitalization companies within the natural resources industry, which
include the following sectors:
Energy Sectors Basic Materials Sectors
Natural Gas Aluminum
International Oil Companies Chemicals
Oil Drilling Diversified Mining
Oil Exploration and Production Gold And Precious Metals
Oil and Gas Refining Iron and Steel
Oilfield Equipment/Services Paper and Forest Products
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Consistent with its investment objective, the Global Resources Fund may invest
without limitation in any sector of the natural resources industry.
The value of the Global Resources Fund's shares is particularly vulnerable to
factors affecting the natural resources industry, such as increasing regulation
of the environment by both U.S. and foreign governments. Increased environmental
regulations may, among other things, increase compliance costs and affect
business opportunities for the companies in which the fund invests. The value is
also affected by changing commodity prices, which can be highly volatile and are
subject to risks of oversupply and reduced demand.
Because the Global Resources Fund's portfolio focuses its investments in the
natural resources industry, the value of fund shares may rise and fall more than
the value of shares of a fund that invests more broadly.
Because each fund invests primarily in common stocks of foreign and domestic
companies, the main risk is that the value of the stocks held may decrease in
response to general foreign or domestic market, business and economic
conditions. If this occurs, the fund's share price may also decrease.
OTHER TYPES OF INVESTMENTS, RELATED RISKS AND CONSIDERATIONS
While not principal strategies, the funds may invest to a limited extent in
other types of investments. These investment practices and their related risks
are described on page 33 and in the Statement of Additional Information.
TAX-FREE FUNDS
INVESTMENT PROCESS
The Adviser for the funds is U.S. Global Investors, Inc. In selecting
investments, the Adviser's analysis encompasses an interest rate forecast that
considers such factors as gross domestic product, current inflation outlook,
state tax regulations and rates, geographic regions and the prevailing
unemployment rate. After establishing an interest rate outlook, the Adviser
applies a process of selecting bonds for the funds' portfolios. The criteria for
this process includes yield, maturity, and bond rating. Once the Adviser puts
these two processes together, it can select securities that it believes meet
each fund's investment objective. The Adviser regularly reviews its security
selection process and its forecast to keep current with changing market
conditions. The skill of the Adviser will play a significant role in each fund's
ability to achieve its investment objective.
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GENERAL PORTFOLIO POLICIES
PRINCIPAL TYPES OF INVESTMENTS AND RELATED RISKS
Under normal market conditions, the tax-free funds invest primarily in
investment grade municipal securities whose interest is free from federal income
tax including the federal alternative minimum tax. Municipal securities are
issued by state and local governments, their agencies and authorities, as well
as by the District of Columbia and U.S. territories and possessions, to borrow
money for various public and private projects. These debt securities generally
include general obligation bonds, revenue bonds, industrial development bonds,
municipal lease obligations and similar instruments.
General obligation bonds are backed by the issuer's authority to levy taxes.
Since revenue bonds are issued to finance public works such as bridges or
tunnels, they are supported by the revenues of the projects. Industrial
development bonds are typically issued by municipal issuers on behalf of private
companies. Because these bonds are backed only by income from a certain source
and may not be an obligation of the issuer itself, they may be less creditworthy
than general obligation bonds. Municipal lease obligations generally are issued
to finance the purchase of public property. The property is leased to a state or
local government and the lease payments are used to pay the interest on the
obligations. These differ from other municipal securities because the money to
make the lease payments must be set aside each year or the lease can be canceled
without penalty. If this happens, investors who own the obligations may not be
paid.
Although the fund tries to invest all of its assets in tax-free securities, it
is possible, although not anticipated, that up to 20% of its assets may be in
securities that pay taxable interest.
The tax-free funds invest only in debt securities that, at the time of
acquisition, have one of the four highest ratings by Moody's Investors Services
(Aaa, Aa, A, Baa) or by Standard & Poor's Corporation (AAA, AA, A, BBB) (or, if
not rated by Moody's or S&P, are determined by the Adviser to be of comparable
quality). The tax-free funds will not invest more than 10% of their total assets
in the fourth rating category. Investments in the fourth category may have
speculative characteristics and, therefore, may involve higher risks.
The tax-free funds differ in the maturity of the debt securities they purchase.
While the Tax Free Fund may have a weighted-average maturity that varies widely,
it tends to keep a weighted-average maturity of more than five years. The
Near-Term Tax Free Fund will maintain a weighted-average portfolio maturity of
five years or less. A weighted-average
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maturity of a fund is the average of the remaining maturities of all the debt
securities the fund owns, with each maturity weighted by the relative value of
the security.
The funds are subject to income risk, which is the chance that the funds'
dividends (income) will decline due to falling interest rates. Income risk is
generally greater for the Near-Term Tax Free Fund and less for the Tax Free
Fund.
There is a possibility that an issuer of any bond could be unable to make
interest payments or repay principal. Changes in an issuer's financial strength
or in a security's credit rating may affect a security's value.
The funds' performance may be affected by political and economic conditions at
the state, regional and federal level. These may include budgetary problems,
declines in the tax base and other factors that may cause rating agencies to
downgrade the credit ratings on certain issues. As on the state and federal
level, events in U.S. Territories where the fund is invested may affect a fund's
investments in that territory and its performance.
A municipal security may be prepaid (called) before its maturity. An issuer is
more likely to call its securities when interest rates are falling, because the
issuer can issue new securities with lower interest payments. If a security is
called, the funds may have to replace it with a lower-yielding security.
OTHER TYPES OF INVESTMENTS, RELATED RISKS AND CONSIDERATIONS
While not principal strategies, the funds may invest, to a limited extent, in
other types of investments. These investment practices and their related risks
are described on page 33 and in the Statement of Additional Information.
GOVERNMENT MONEY MARKET FUNDS
INVESTMENT PROCESS
The Adviser for the funds is U.S. Global Investors, Inc. In selecting
investments, the Adviser's analysis encompasses an interest rate forecast that
considers such factors as Gross Domestic Product, current inflation outlook,
state tax regulation and rates, geographic regions and the prevailing
unemployment rate. After establishing a reasonable interest rate outlook, the
Adviser applies a process of selecting securities for the funds' portfolios. The
criteria for this process include yield, maturity, and security structure. Once
the Adviser puts these two processes together, it can select securities that it
believes meet each fund's investment objective. The Adviser regularly reviews
its security selection process and its forecast to keep current with changing
market conditions. The
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skill of the Adviser will play a significant role in each fund's ability to
achieve its investment objective.
GENERAL PORTFOLIO POLICIES
PRINCIPAL TYPES OF INVESTMENTS AND RELATED RISKS
Under federal law, the income received 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 allow
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 primarily in
obligations that qualify for the exemption from state taxation.
The Government Securities Savings Fund may invest in fixed-rate and
floating-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. While fixed-rate
securities have a set interest rate, floating-rate securities have a variable
interest rate that is closely tied to a money-market index such as Treasury Bill
rates. Floating rate securities provide holders with protection against rises in
interest rates, but typically pay lower yields than fixed-rate securities of the
same maturity.
Because the funds may invest substantially all of their assets in short-term
debt securities, the main risk is that the funds' dividends (income) may decline
because of falling interest rates.
The funds' yields will vary as the short-term securities in their portfolios
mature and the proceeds are reinvested in securities with different interest
rates. Over time, the real value of a fund's yield may be eroded by inflation.
There is a possibility that an issuer of a security could be unable to make
interest payments or repay principal. Changes in an issuer's financial strength
or in a security's credit rating may affect a security's value.
OTHER TYPES OF INVESTMENTS, RELATED RISKS AND CONSIDERATIONS
While not principal strategies, the funds may invest, to a limited extent, in
other types of investments. These investment practices and their related risks
are described on page 33 and in the Statement of Additional Information.
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FUND MANAGEMENT
INVESTMENT ADVISER
U.S. Global Investors, Inc., 7900 Callaghan Road, San Antonio, Texas 78229,
furnishes investment advice and manages the funds' business affairs. The Adviser
was organized in 1968 and also serves as investment adviser to U.S. Global
Accolade Funds, a family of mutual funds with approximately $145 million in
assets. For the fiscal year ended June 30, 2000, each fund paid the following
percentages of its average net assets to the Adviser for advisory services:
China Region Fund 1.25% Global Resources Fund 1.00%
All American Fund 0.75% Tax Free Fund 0.75%
Equity Income Fund 0.75% Near-Term Tax Free Fund 0.50%
Real Estate Fund 0.75%* Government Securities
Gold Shares Fund 0.75% Savings Fund 0.41%
World Gold Fund 1.00% Treasury Securities Cash Fund 0.50%
* The fund was liquidated on September 1, 2000.
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COMMON INVESTMENT PRACTICES AND RELATED RISKS
ILLIQUID AND RESTRICTED SECURITIES
Each fund may invest up to 15% of its net assets (up to 10% in the case of the
money market funds) in illiquid securities. Illiquid securities are those
securities which cannot be disposed of in seven days or less at approximately
the value at which a fund carries them on its balance sheet.
The gold and natural resources and the equity funds may make direct equity
investments. These investments may involve a high degree of business and
financial risk. Because of the thinly traded markets for these investments, a
fund may be unable to liquidate its securities in a timely manner, especially if
there is negative news regarding the specific securities or the markets overall.
These securities could decline significantly in value before a fund can
liquidate these 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. For additional
risks see "Small Companies" on page XXX.
REPURCHASE AGREEMENTS
Each fund may enter into repurchase agreements. A repurchase agreement is a
transaction in which a fund purchases a security from a commercial bank or
recognized securities dealer and has a simultaneous commitment to sell it back
at an agreed upon price on an agreed upon date. This date is usually not more
than seven days from the date of purchase. The resale price reflects the
original purchase price plus an agreed upon market rate of interest, which is
unrelated to the coupon rate or maturity of the purchased security.
In effect, a repurchase agreement is a loan by a fund collateralized with
securities, usually securities issued by the U.S. Treasury or a government
agency. The repurchase agreements entered into by each government money market
fund are collateralized with cash and securities of the type in which that fund
may otherwise invest.
Repurchase agreements carry several risks, including the risk that the
counterparty defaults on its obligations. For example, if the seller of the
securities underlying a repurchase agreement fails to pay the agreed resale
price on the agreed delivery date, a fund may incur costs in disposing of the
collateral and may experience losses if there is any delay in its ability to do
so.
SECURITIES LENDING
Each fund may lend its portfolio securities to qualified securities dealers or
other institutional investors. When lending securities, a fund will receive cash
or high-quality securities as collateral for the loan. Each fund, except the
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government money market funds, may invest cash collateral in repurchase
agreements, including repurchase agreements collateralized with non-governmental
securities. The government money market funds may invest cash collateral in
repurchase agreements collateralized by obligations in which each fund may
normally invest. Under the terms of the funds' current securities lending
agreements, the funds' lending agent has guaranteed performance of the
obligation of each borrower and each counterparty to each repurchase agreement
in which cash collateral is invested.
A failure by a borrower to return the loaned securities when due could result in
a loss to the fund if the value of the collateral is less than the value of the
loaned securities at the time of the default. In addition, a fund could incur
liability to the borrower if the value of any securities purchased with cash
collateral decreases during the term of the loan.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each fund may purchase securities on a when-issued or delayed-delivery basis.
This means the fund purchases securities for delivery at a later date and at a
stated price or yield. There is 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.
TEMPORARY INVESTMENTS
The Adviser may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility, a prolonged
general decline or other adverse conditions. Under these circumstances, each
fund may invest 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.
In addition, the China Region Fund may invest in money market investments,
deposits or other investment grade short-term investments in the local China
region currencies as may be appropriate at the time.
When the funds are in a defensive investment position, they may not achieve
their investment objective.
BORROWING
As a fundamental policy, each fund may borrow money, as permitted by the
Investment Company Act of 1940, as amended (1940 Act), and as interpreted or
modified from time to time by regulatory authority having jurisdiction. As a
nonfundamental policy, each fund may borrow money for temporary or emergency
purposes (not for leveraging or investment) in an amount not exceeding 331/3% of
the fund's total assets (including the amount borrowed) less liabilities (other
than borrowings). To the extent that a 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.
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FOREIGN SECURITIES
Since the gold and natural resources funds and the equity funds may invest in
foreign securities, they may be subject to greater risks than when investing in
U.S. securities. The risks of investing in foreign securities are generally
greater when they involve emerging markets. These risks include:
CURRENCY RISK
The value of a foreign security will be affected by the value of the local
currency relative to the U.S. dollar. When the fund sells a foreign denominated
security, its value may be worth less in U.S. dollars even if the security
increases in value in its home country. U.S. dollar-denominated securities of
foreign companies may also be affected by currency risk.
POLITICAL, SOCIAL AND ECONOMIC RISK
Foreign investments may be subject to heightened political, social and economic
risks, particularly in emerging markets, which may have relatively unstable
governments, immature economic structures, national policies restricting
investments by foreigners, different legal systems and economies based on only a
few industries. In some countries, a risk may exist that the government may take
over the assets or operations of a company or that the government may impose
taxes or limits on the removal of the fund's assets from that country.
REGULATORY RISK
There may be less government supervision of foreign securities markets. As a
result, foreign companies may not be subject to the uniform accounting, auditing
and financial reporting standards and practices applicable to domestic
companies, and there may be less publicly available information about foreign
companies.
MARKET RISK
Foreign securities markets, particularly those of emerging markets, may be less
liquid and more volatile than domestic markets. Certain markets may require
payment for securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be protection
against failure by other parties to complete transactions.
TRANSACTION COSTS
Costs of buying, selling and holding foreign securities, including brokerage,
tax and custody costs, may be higher than those involved in domestic
transactions.
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The Gold Shares Fund may have 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 gold and natural resources funds and the equity funds may invest in
sponsored or unsponsored American Depositary Receipts (ADRs) or Global
Depositary Receipts (GDRs) representing shares of companies in foreign
countries. ADRs are depositary 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.
CONVERTIBLE SECURITIES
The gold and natural resources funds and the equity funds may invest in
convertible securities. A convertible security is generally a debt obligation or
preferred stock that may be converted within a specified period of time into a
certain amount of common stock of the same or a different issuer. As with a
typical fixed-income security, a convertible security tends to increase in
market value when interest rates decline and decrease in value when interest
rates rise. Like a common stock, the value of a convertible security also tends
to increase as the market value of the underlying stock rises, and it tends to
decrease as the market value of the underlying stock declines. Because its value
can be influenced by both interest rate and market movements, a convertible
security is not as sensitive to interest rates as a similar fixed-income
security, nor is it as sensitive to changes in share price as its underlying
stock.
SMALL COMPANIES
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.
DERIVATIVE SECURITIES
The gold and natural resources funds and the equity funds may, but are not
required to, invest in derivative securities,
35
<PAGE>
which include purchasing and selling exchange-listed and over-the-counter put
and call options or LEAPS 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, or options on currencies or currency futures. The
funds may, but are not required to, invest in derivative securities for hedging,
risk management or portfolio management purposes. Derivative securities 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. The ability of the
funds to use derivative securities successfully will depend upon the Adviser's
ability to predict pertinent market movements, which cannot be assured.
Investing in derivative securities 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 investing in
derivative securities. For more information on derivative securities and
specific fund limitations, see the Statement of Additional Information.
CURRENCY HEDGING
The World Gold, Gold Shares, All American and China Region Funds may, but are
not required to, invest in derivative securities 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 derivative
securities and increased transaction expenses.
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 a 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
36
<PAGE>
securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains for shareholders. Portfolio turnover rates
for the funds are described in the Financial Highlights section.
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 the investments in these securities do not exceed
3% of the total voting stock of any such closed-end investment company, do not
individually exceed 5% of the total assets of the fund 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.
SECURITIES RATINGS
The Adviser will use the ratings provided by independent rating agencies in
evaluating the credit quality of a debt security and in determining whether a
security qualifies as eligible for purchase under a fund's investment policies.
If a security is not rated, the Adviser may determine that the security is
comparable in quality to a rated security for purposes of determining
eligibility. In the event that an agency downgrades the rating of a security
below the quality eligible for purchase by a fund, the fund reserves the right
to continue holding the security if the Adviser believes such action is in the
best interest of shareholders.
37
<PAGE>
HOW TO BUY SHARES
INITIAL SUBSEQUENT
MINIMUMS INVESTMENT INVESTMENT
o Regular Account $5,000 $50
o Regular Money Market Accounts $1,000 $50
o ABC Investment Plan(R) $100 $30
o Custodial accounts for minors $50 $50
o Retirement account None None
SEND NEW ACCOUNT APPLICATIONS TO:
Shareholder Services
U.S. Global Investors Funds
P.O. Box 781234
San Antonio, TX 78278-1234
BY MAIL
o Read this prospectus.
o Fill out the application if you are opening a new account.
o Write your check for the amount you want to invest. Make it payable to the
fund you are buying.
o Send the completed application and check in the envelope provided.
o To add to an existing account, be sure to include your account number on your
check and mail it with the investment slip found on your confirmation
statement.
BY TELEPHONE
o We automatically grant all shareholders telephone exchange privileges unless
they decline them explicitly in writing.
o If you have a U.S. Global Investors Funds account, you may purchase
additional shares by telephone order.
o You must pay for them within seven business days.
o Telephone purchases are not available for money market funds or U.S. Global
retirement accounts.
o Telephone purchase orders may not exceed ten times the value of the collected
balance of all like-registered accounts on the date the order is placed.
BY WIRE
o Call 1-800-US FUNDS for current wire instructions and a confirmation number.
BY AUTOMATIC INVESTMENT
o To purchase more shares automatically each month, fill out the ABC Investment
Plan(R) form.
38
<PAGE>
o U.S. Global Investors Funds automatically withdraws monies from your bank
account monthly.
o Shares purchased through the ABC Plan(R) are not available for redemption
until the seventh business day after the purchase is made.
o See details on the application. By Direct Deposit
BY DIRECT DEPOSIT
o You may buy shares of the money market funds through direct deposit. For more
information, call 1-800-US-FUNDS for a direct deposit application.
IMPORTANT NOTES ABOUT PAYING FOR YOUR SHARES
You may not purchase shares by credit card.
You may not exchange shares purchased by telephone until the fund has received
and accepted payment and has posted it to your account.
Checks drawn on foreign banks will not be invested until the collection process
is complete.
The funds will cancel unpaid telephone orders, and any decline in price of the
shares will be collected from shares of any affiliated funds you own.
If a check or ACH investment is returned unpaid due to insufficient funds, stop
payment or other reasons, the funds will charge you $20, and you will be
responsible for any loss incurred by the fund. To recover any such loss or
charge, the funds reserve the right to redeem shares of any affiliated funds you
own, and you could be prohibited from placing further orders unless full payment
by wire or cashier's check accompanies the investment request.
EFFECTIVE TIME FOR PURCHASE OR REDEMPTION ORDERS
Purchases of shares in the funds require payment by check or wire at the time
the order is received except for telephone purchases which require payment
within seven business days after the order is received and accepted.
If you purchase shares by check, you can sell (redeem) those shares beginning
seven calendar days after your check is received by Shareholder Services--you
can exchange into other U.S. Global Investors Funds anytime. The fund reserves
the right to refuse to honor redemptions if your check has not cleared.
Orders to purchase or redeem shares received after 4:00 p.m. Eastern time (3:00
p.m. Eastern time for the Gold Shares Fund and World Gold Fund) or the close of
the New York Stock Exchange (NYSE), whichever is earlier, will not become
effective until the next business day.
Any expenses charged to the funds for collection procedures will be deducted
from the amount invested.
39
<PAGE>
An order to establish a new account will become effective, if accepted, at the
time the fund next determines its net asset value (NAV) (see page 45 for
determination of NAV) per share after the fund's transfer agent or sub-agent has
received:
o a completed and signed application, and
o a check or wire transfer for the full amount.
If you already have an account with a fund, your order to purchase or redeem
shares will become effective at the time the fund next determines NAV after the
transfer agent or sub-agent receives and accepts your written request or
telephone order or, in the case of a purchase into a money market fund, after
the transfer agent or sub-agent receives and accepts your check or wire
transfer.
In all cases, the shares purchased or redeemed will be priced at the NAV per
share next determined after the time of effectiveness.
All purchases of shares are subject to acceptance by the funds and are not
binding until accepted.
40
<PAGE>
HOW TO SELL (REDEEM) SHARES
BY MAIL
o Send a written request showing your account number and the dollar amount or
number of shares you are redeeming to the address shown under "How to Buy
Shares."
o Each registered shareholder must sign your request, with the signature(s)
appearing exactly as it does on your account registration.
o Redemptions of more than $15,000 require a signature guarantee.
o A signature guarantee may be required for other circumstances. See "Signature
Guarantee/Other Documentation" section.
o Call 1-800-US-FUNDS for additional requirements.
BY TELEPHONE
o Call 1-800-US-FUNDS.
o If you have an identically registered account in a U.S. Global Investors
money market fund with checkwriting, you may call the fund and direct an
exchange of your fund shares into your existing money market fund account.
You may then write a check against your money market fund account.
o For telephone redemptions, see "Signature Guarantee/Other Documentation" for
limitations.
o Telephone redemptions are available through our money market funds.
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. All checks are subject
to the terms and conditions for checkwriting of the bank identified on the face
of the check.
BY WIRE
o You may receive payment for redeemed shares via wire. To elect these
services, send the fund a written request giving your bank information with
signature guarantee for all registered owners. (See "Signature
Guarantee/Other Documentation.")
o You will be charged $10 for a wire transfer. International wire charges will
be higher.
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<PAGE>
o We will usually send a wire transfer the next business day after receipt of
your order.
IMPORTANT NOTES ABOUT REDEEMING YOUR SHARES
Generally, we will send payment for your redeemed shares to you within two
business days after your redemption request has been received and accepted by a
fund.
Proceeds from the redemption of shares purchased by check or ABC Investment
Plan(R) may be delayed until full payment for the shares has been received and
cleared, which may take up to seven business days from the purchase date.
If you are interested in setting up an automatic recurring payment plan in a
Money Market Fund, please call 1-800-USFUNDS to obtain the appropriate
application.
To protect shareholders from the expense burden of excessive trading, the funds
charge a trader's fee which is described in the Fees and Expenses table on page
XXX.
Upon closing your account, you will be charged a $10 account closing fee.
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<PAGE>
EXCHANGING SHARES
When exchanging shares into other funds in the U.S. Global Investors family of
funds:
o Each account must be registered identically; each must have the same
signatures and addresses.
o You will be charged $5 by the transfer agent for each exchange out of any
fund account.
o Retirement accounts administered by the Adviser or its agents may exchange up
to three times per quarter at no charge. (Short-term trading fees may apply.)
o You may exchange shares using the automated telephone system, speaking to an
investment representative, or by mail. Certain restrictions apply to the
automated telephone system. Please call 1-800-US-FUNDS for more details.
o You are responsible for obtaining and reading the prospectus for the fund
into which you are exchanging.
o Exchanges result in the sale of one fund's shares and the purchase of another
fund's shares, which is usually a taxable event to you.
o Exchanges into any new fund are subject to that fund's initial and subsequent
investment minimums.
o Exchanges out of a fund may be subject to a trader's fee. See page XXX for
details.
o An exchange order is effective on any given day when the exchange request is
received by the funds by 4:00 p.m. Eastern time, except that exchanges into
and out of the Gold Shares and/or World Gold Funds are not permitted after
3:00 p.m. Eastern time or the close of the NYSE, whichever is earlier. Any
exchange order into or out of the Gold Shares and/or World Gold Funds after
3:00 p.m. Eastern time will be effective on the next business day. A
shareholder of the Gold Shares Fund or the World Gold Fund, however, may
redeem shares at any time until 4:00 p.m. Eastern time (or the close of the
NYSE, if earlier).
o Exchanges into a money market fund may be delayed until such time as the
proceeds from the sale of the fund out of which you wish to exchange are
available to the money market fund, which could take up to seven days. In
general, the funds expect to exercise this right to delay the effectiveness
of the purchase only on exchanges of $50,000 or more. If your purchase will
be delayed, you will be notified immediately.
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<PAGE>
IMPORTANT INFORMATION ABOUT PURCHASES, REDEMPTIONS AND EXCHANGES
FUNDS RESERVE CERTAIN RIGHTS
o To hold redemption proceeds for up to seven days, or longer if permitted by
the SEC.
o To waive investment minimums or account minimum fees.
o To refuse any application, investment or exchange.
o To require a signature guarantee or any other documentation.
o To freeze any account and suspend account services when notice is received
that there is a dispute between registered or beneficial owners or there is
reason to believe a fraudulent or illegal transaction has or may occur.
ACCOUNT MINIMUMS
To reduce its expenses, each fund may redeem the shares in your account if your
balance drops below $5,000 (or $1,000 for the money market funds) for any reason
other than share value decline. The fund also may deduct a monthly $5 minimum
balance fee (or the value of the account if less than $5) from such accounts.
Active ABC Investment Plan(R) accounts, retirement accounts and custodial
accounts for minors are not subject to these involuntary redemptions and balance
fee policies.
You will receive a 30-day written notice before the fund undertakes any
involuntary redemption. During that time, you may buy more shares to bring your
account above the minimum.
NET ASSET VALUE (NAV) CALCULATION
The price at which you buy, sell or exchange fund shares is the NAV. The NAV of
a fund is calculated at the close of regular trading of the NYSE, which is
usually 4:00 p.m. Eastern time, each day that the NYSE is open. NAV is
determined by adding the value of the fund's investments, cash and other assets,
deducting liabilities, and dividing that value by the total number of fund
shares outstanding.
For a purchase, redemption or exchange of fund shares, your price is the NAV
next calculated after your request is received in good order and accepted by the
fund, its agent or designee. To receive a specific day's price, your request
must be received before the close of the NYSE on that day. For the Gold Shares
and World Gold Funds, your request must be received by 3:00 p.m. Eastern time or
the close of the NYSE, whichever is earlier.
When the fund calculates its NAV, it values the securities it holds at market
value. When market quotes are not available
44
<PAGE>
or do not fairly represent market value, or if a security's value has been
materially affected by events occurring after the close of a foreign market on
which the security principally trades, the securities may be valued at fair
value. Fair value will be determined in good faith using consistently applied
procedures that have been approved by the trustees. Money market instruments
maturing within 60 days may be valued at amortized cost, which approximates
market value. Assets and liabilities expressed in foreign currencies are
converted into U.S. dollars at the prevailing market rates quoted by one or more
banks or dealers at 12:00 noon Eastern time each day.
Certain funds invest in portfolio securities that are primarily listed on
foreign exchanges or other markets that trade on weekends and other days when
the funds do not price their shares. As a result, the NAV of these funds may
change on days when you will not be able to purchase or redeem shares.
SIGNATURE GUARANTEE/OTHER DOCUMENTATION
The funds require signature guarantees to protect you and the funds from
attempted fraudulent requests for redeemed shares. Your redemption request must
therefore be in writing and accompanied by a signature guarantee if:
o Your redemption request exceeds $15,000.
o You request that payment be made to a name other than the one on your account
registration.
o You request that payment be mailed to an address other than the one of record
with the fund.
o You change or add information relating to your designated bank.
o You have changed your address of record within the last 30 days.
You may obtain a signature guarantee from most banks, credit unions,
broker/dealers, savings and loans, and other eligible institutions. You cannot
obtain a signature guarantee from a notary public.
The guarantor must use a stamp "SIGNATURE GUARANTEED" and the name of the
financial institution. An officer of the institution must sign the guarantee. If
residing outside the United States, a Consular's seal will be accepted in lieu
of a signature guarantee. Military personnel may acknowledge their signatures
before officers authorized to take acknowledgments, e.g., legal officers and
adjutants.
The signature guarantee must appear together with the signature(s) of all
registered owner(s) of the redeemed shares
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<PAGE>
on the written redemption request. Each signature must have a signature
guarantee stamp.
Additional documents are required for redemptions by corporations, executors,
administrators, trustees, and guardians. For instructions call 1-800-US-FUNDS.
OTHER INFORMATION ABOUT YOUR ACCOUNT
The funds take precautions to ensure that telephone transactions are genuine,
including recording the transactions, testing shareholder identity and sending
written confirmations to shareholders of record. The funds and its service
providers are not liable for acting upon instructions that they believe to be
genuine if these procedures are followed.
CONFIRMATIONS
After any transaction, you will receive written confirmation including the per
share price and the dollar amount and number of shares bought or redeemed.
PURCHASES THROUGH BROKER/DEALERS
You may buy fund shares through financial intermediaries such as broker/dealers
or banks, who may charge you a fee or have different account minimums which are
not applicable if you buy shares directly from the funds.
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<PAGE>
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
The funds are offered through a range of qualified retirement plans, including
IRAs, SEPs, 401(k) plans, 403(b) plans and other pension and profit-sharing
plans. Each fund in an account will be charged an annual maintenance fee as
follows:
Regular IRA $10
Roth IRA $10
Education IRA $10
SEP IRA $15
SIMPLE IRA $25
Profit-sharing plan $15
The funds offer many other services, such as payroll deductions, custodial
accounts and systematic withdrawals.
Please call 1-800-US-FUNDS for more information.
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<PAGE>
DISTRIBUTIONS AND TAXES
Unless you elect to have your distributions in cash, they will automatically be
reinvested in fund shares. The funds generally distribute capital gains, if any,
annually in December. The funds generally declare and pay income dividends, if
any, as follows:
o Gold and natural resources funds and the China Region Fund--dividends are
declared and paid annually, usually in December.
o All American and Equity Income Funds--dividends are declared and paid
quarterly.
o Tax-free funds--dividends are declared and paid monthly.
o Money market funds--all net income is declared and accrued as a daily
dividend and paid monthly. Shares of the money market funds are eligible to
receive dividends beginning on the first business day after the effective
date of the purchase. Shares of the money market funds receive dividends on
the day shares are redeemed. However, redemptions by checkwriting draft do
not earn dividends on the day shares are redeemed.
TAXES TO YOU
You will generally owe taxes on amounts paid or distributed to you by a fund,
whether you reinvest the distributions in additional shares or receive them in
cash.
Distributions of gains from the sale of assets held by a fund for more than a
year generally are taxable to you at the long-term capital gains rate,
regardless of how long you have held fund shares. Distributions from other
sources generally are taxed as ordinary income.
Each year the fund will send you a statement that will detail distributions made
to you for that year.
If you redeem fund shares that have gone up in value, you will have a taxable
gain when you redeem unless you hold your shares in a tax-deferred account, such
as an IRA. Exchanges are treated as a redemption and purchase for tax purposes.
Therefore, you will also have a taxable gain upon exchange if the shares
redeemed have gone up in value unless the exchange is between tax-deferred
accounts.
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<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to show you each fund's financial performance for
the past five years. Some of the information reflects financial results for a
single fund share. The total returns represent the rate that an investor would
have earned (or lost) on an investment in each fund. It assumes that all
dividends and capital gains have been reinvested.
PricewaterhouseCoopers LLP has audited this information. PricewaterhouseCoopers'
report and the fund's financial statements are included in the annual report,
which is available by request.
CHINA REGION OPPORTUNITY FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Net asset value, beginning of
year $ 4.09 $ 8.60 $ 6.43 $ 6.67
======= ======= ======= =======
Investment activities
Net investment income (loss) (0.03) 0.03 0.05 0.08
Net realized and unrealized
gain (loss) 1.55 (4.49) 2.15 (0.22)
------- ------- ------- -------
Total from investment
activities 1.52 (4.46) 2.20 (0.14)
------- ------- ------- -------
Distributions
From net investment income -- (0.05) (0.03) (0.08)
In excess of net investment
income (0.03) -- -- (0.02)
From net realized gains -- -- -- --
------- ------- ------- -------
Total distributions (0.03) (0.05) (0.03) (0.10)
------- ------- ------- -------
Net asset value, end of year $ 5.58 $ 4.09 $ 8.60 $ 6.43
======= ======= ======= =======
Total return (excluding
account fees) 37.50% (52.06)% 34.38% (2.07)%
Ratios/Supplemental data
Net assets, end of year (in
thousands) $29,156 $19,460 $42,099 $20,967
Ratios to average net
assets (a)
Expenses 4.41% 2.60% 2.22% 2.15%
Expenses excluding fee
reimbursements and expense
reductions 4.41% 2.60% 2.54% 2.60%
Net investment income (loss) (1.18)% 0.39% 0.87% 1.24%
Portfolio turnover rate 13% 17% 24% 37%
(a) These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
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<PAGE>
ALL AMERICAN EQUITY FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Net asset value, beginning of
year $ 38.80 $ 31.34 $ 24.55 $ 20.08
======= ======= ======= =======
Investment activities
Net investment income 0.26 0.38 0.38 0.41
Net realized and unrealized
gain 7.10 8.06 7.64 4.44
------- ------- ------- -------
Total from investment
activities 7.36 8.44 8.02 4.85
------- ------- ------- -------
Distributions
From net investment income (0.25) (0.37) (0.43) (0.38)
In excess of net investment
income (0.01) (0.03) -- --
From net realized gains (1.12) (0.58) (0.80) --
In excess of net realized
gains -- -- -- --
------- ------- ------- -------
Total distributions (1.38) (0.98) (1.23) (0.38)
------- ------- ------- -------
Net asset value, end of year $ 44.78 $ 38.80 $ 31.34 $ 24.55
======= ======= ======= =======
Total return (excluding
account fees) 19.49% 27.31% 33.68% 24.31%
Ratios/Supplemental data
Net assets, end of year (in
thousands) $53,202 $34,671 $25,478 $15,220
Ratios to average net
assets (a)
Expenses 1.00% 0.97% 0.67% 0.68%
Expenses excluding fee
reimbursements
and expense reductions 1.56% 1.61% 1.81% 1.90%
Net investment income 0.66% 1.03% 1.51% 1.84%
Portfolio turnover rate 25% 24% 7% 16%
o These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
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EQUITY INCOME FUND
EQUITY INCOME FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
--------------------------------------------
2000 1999 1998 1997 1996
------- ------ ------- ------ ------
Net asset value, beginning of
year $15.32 $ 14.49 $14.94 $13.35
====== ======= ====== ======
Investment activities
Net investment income 0.17 0.23 0.31 0.35
Net realized and unrealized
gain 0.72 2.84 1.77 1.84
------ ------- ------ ------
Total from investment
activities 0.89 3.07 2.08 2.19
------ ------- ------ ------
Distributions
From net investment income (0.17) (0.28) (0.27) (0.35)
In excess of net investment
income -- -- -- --
From net realized gains (1.45) (1.96) (2.26) (0.25)
In excess of net realized gains -- -- -- --
------ ------- ------ ------
Total distributions (1.62) (2.24) (2.53) (0.60)
------ ------- ------ ------
Net asset value, end of year $14.59 $ 15.32 $14.49 $14.94
====== ======= ====== ======
Total return (excluding account
fees) 6.50% 23.92% 15.58% 16.60%
Ratios/Supplemental data
Net assets, end of year (in
thousands) $9,933 $11,137 $9,615 $9,698
Ratios to average net assets (a)
Expenses 2.56% 2.14% 2.19% 2.08%
Expenses excluding fee
reimbursements and expense
reductions 2.56% 2.14% 2.20% 2.10%
Net investment income 1.15% 1.54% 2.18% 2.45%
Portfolio turnover rate 101% 29% 88% 51%
o These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
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GOLD SHARES FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
------------------------------------------------
2000 1999 1998 * 1997 * 1996 *
------- ------- ------- ------- -------
Net asset value, beginning
of year $ 3.79 $ 9.40 $ 18.40 $ 21.40
======= ======= ======= =======
Investment activities
Net investment income
(loss) (0.11) 0.01 0.40 0.50
Net realized and
unrealized gain (loss) (0.26) (5.50) (8.90) (3.00)
------- ------- ------- -------
Total from investment
activities (0.37) (5.49) (8.50) (2.50)
------- ------- ------- -------
Distributions
From net investment income -- (0.11) (0.50) (0.50)
In excess of net
investment income -- (0.01) -- --
From net realized gains -- -- -- --
------- ------- ------- -------
Total distributions -- (0.12) (0.50) (0.50)
------- ------- ------- -------
Net asset value, end of year $ 3.42 $ 3.79 $ 9.40 $ 18.40
======= ======= ======= =======
Total return (excluding
account fees) (9.76)% (58.83)% (46.49)% (11.73)%
Ratios/Supplemental data
Net assets, end of year (in
thousands) $38,286 $46,251 $79,523 $153,839
Ratios to average net
assets (a)
Expenses 5.24% 2.47% 1.80% 1.54%
Expenses excluding fee
reimbursements and
expense reductions 5.59% 2.67% 1.84% 1.58%
Net investment income
(loss) (2.88)% 0.53% 2.68% 1.81%
Portfolio turnover rate 388% 220% 44% 24%
* Adjusted to reflect a 1-for-10 reverse stock split as of July 1, 1998
(a) These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
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WORLD GOLD FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Net asset value,
beginning of year $ 9.86 $ 15.95 $ 21.12 $ 15.81
======= ======= ======= =======
Investment activities
Net investment income
(loss) 0.02 (0.05) (0.12) (0.08)
Net realized and
unrealized gain
(loss) (2.08) (5.90) (3.94) 5.39
------- ------- ------- -------
Total from investment
activities (2.06) (5.95) (4.06) 5.31
------- ------- ------- -------
Distributions
From net investment
income (0.01) -- (1.11) --
In excess of net
investment income -- (0.14) -- --
From net realized
gains -- -- -- --
------- ------- ------- -------
Total distributions (0.01) (0.14) (1.11) --
------- ------- ------- -------
Net asset value, end
of year $ 7.79 $ 9.86 $ 15.95 $ 21.12
======= ======= ======= =======
Total return (excluding
account fees) (20.89)% (37.41)% (20.10)% 33.59%
Ratios/Supplemental
data
Net assets, end of year
(in thousands) $96,057 $149,759 $187,466 $248,781
Ratios to average net
assets (a)
Expenses 2.12% 1.74% 1.52% 1.51%
Expenses excluding
fee reimbursements
and expense
reductions 2.18% 1.74% 1.54% 1.53%
Net investment income
(loss) 0.27% (0.72)% (0.60)% (0.40)%
Portfolio turnover rate 252% 43% 40% 26%
o These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
53
<PAGE>
GLOBAL RESOURCES FUND
GLOBAL RESOURCES FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Net asset value, beginning of
year $ 4.47 $ 7.33 $ 6.98 $ 5.76
======= ======= ======= =======
Investment activities
Net investment income (loss) (0.07) (0.01) (0.05) (0.01)
Net realized and unrealized
gain (loss) (0.15) (1.95) 1.34 1.31
------- ------- ------- -------
Total from investment
activities (0.22) (1.96) 1.29 1.30
------- ------- ------- -------
Distributions
From net investment income -- -- (0.04) --
In excess of net investment
income -- -- -- (0.01)
From net realized gains -- (0.04) (0.90) (0.07)
In excess of net realized
gain (0.24) (0.86) -- --
------- ------- ------- -------
Total distributions (0.24) (0.90) (0.94) (0.08)
------- ------- ------- -------
Net asset value, end of year $ 4.01 $ 4.47 $ 7.33 $ 6.98
======= ======= ======= =======
Total return (excluding
account fees) (4.12)% (29.79)% 18.96% 22.80%
Ratios/Supplemental data
Net assets, end of year (in
thousands) $16,964 $18,958 $29,983 $24,534
Ratios to average net
assets (a)
Expenses 4.34% 2.38% 2.30% 2.57%
Expenses excluding fee
reimbursements and expense
reductions 4.34% 2.42% 2.34% 2.58%
Net investment income (loss) (1.83)% (1.51)% (0.76)% (0.13)%
Portfolio turnover rate 153% 192% 52% 117%
o These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
54
<PAGE>
TAX FREE FUND
TAX FREE FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Net asset value, beginning of
year $ 12.20 $ 11.89 $ 11.58 $ 11.55
======= ======= ======= =======
Investment activities
Net investment income 0.55 0.57 0.59 0.59
Net realized and unrealized
gain (loss) (0.37) 0.33 0.31 0.01
------- ------- ------- -------
Total from investment
activities 0.18 0.90 0.90 0.60
------- ------- ------- -------
Distributions
From net investment income (0.55) (0.59) (0.59) (0.57)
In excess of net investment
income -- -- -- --
From net realized gains (0.03) -- -- --
------- ------- ------- -------
Total distributions (0.58) (0.59) (0.59) (0.57)
------- ------- ------- -------
Net asset value, end of year $ 11.80 $ 12.20 $ 11.89 $ 11.58
======= ======= ======= =======
Total return (excluding
account fees) 1.39% 7.71% 7.93% 5.25%
Ratios/Supplemental data
Net assets, end of year (in
thousands) $24,042 $21,400 $18,327 $19,949
Ratios to average net
assets (a)
Expenses 0.70% 0.70% 0.40% 0.36%
Expenses excluding fee
reimbursements and expense
reductions 1.45% 1.45% 1.46% 1.44%
Net investment income 4.54% 4.77% 5.00% 5.06%
Portfolio turnover rate 42% 49% 87% 69%
o These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
55
<PAGE>
NEAR-TERM TAX FREE FUND
NEAR-TERM TAX FREE FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
------------------------------------------
2000 1999 1998 1997 1996
------- ------ ------ ------ ------
Net asset value, beginning of year $10.64 $10.49 $10.38 $10.47
====== ====== ====== ======
Investment activities
Net investment income 0.42 0.43 0.48 0.47
Net realized and unrealized gain
(loss) (0.17) 0.19 0.12 (0.09)
------ ------ ------ ------
Total from investment activities 0.25 0.62 0.60 0.38
------ ------ ------ ------
Distributions
From net investment income (0.42) (0.47) (0.49) (0.47)
From net realized gains -- -- -- --
------ ------ ------ ------
Total distributions (0.42) (0.47) (0.49) (0.47)
------ ------ ------ ------
Net asset value, end of year $10.47 $10.64 $10.49 $10.38
====== ====== ====== ======
Total return (excluding account
fees) 2.35% 6.02% 5.85% 3.68%
Ratios/Supplemental data
Net assets, end of year (in
thousands) $7,411 $8,061 $7,360 $6,545
Ratios to average net assets (a)
Expenses 0.70% 0.70% 0.40% 0.52%
Expenses excluding fee
reimbursements and expense
reductions 2.25% 1.83% 1.92% 1.75%
Net investment income 3.93% 4.12% 4.67% 4.41%
Portfolio turnover rate 38% 39% 103% 83%
o These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
56
<PAGE>
U.S. GOVERNMENT SECURITIES SAVINGS FUND
U.S. GOVERNMENT SECURITIES SAVINGS FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998 1997 1996
------- -------- -------- -------- --------
Net asset value,
beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Investment activities
Net investment income 0.05 0.05 0.05 0.05
Net realized and
unrealized gain (loss) -- -- -- --
-------- -------- -------- --------
Total from investment
activities 0.05 0.05 0.05 0.05
-------- -------- -------- --------
Distributions
From net investment
income (0.05) (0.05) (0.05) (0.05)
From net realized gains -- -- -- --
-------- -------- -------- --------
Total distributions (0.05) (0.05) (0.05) (0.05)
Capital contribution by
manager -- -- -- --
-------- -------- -------- --------
Net asset value, end of
year $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return (excluding
account fees) 4.90% 5.38% 5.27% 5.34%
Ratios/Supplemental data
Net assets, end of year
(in thousands) $790,148 $761,518 $691,769 $588,409
Ratios to average net
assets (a)
Expenses 0.31% 0.31% 0.29% 0.26%
Expenses excluding fee
reimbursements and
expense reductions 0.61% 0.67% 0.70% 0.71%
Net investment income 4.78% 5.25% 5.13% 5.28%
(a) These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
(2) Total return includes the effect of a voluntary capital contribution by the
adviser; otherwise, the return would have been 4.19%.
57
<PAGE>
U.S. TREASURY SECURITIES SAVINGS FUND
U.S. TREASURY SECURITIES CASH FUND
PER SHARE FOR EACH YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998 1997 1996
------- -------- -------- -------- --------
Net asset value,
beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Investment activities
Net investment income 0.04 0.04 0.04 0.04
Net realized and
unrealized gain -- -- -- --
-------- -------- -------- --------
Total from investment
activities 0.04 0.04 0.04 0.04
-------- -------- -------- --------
Distributions
From net investment
income (0.04) (0.04) (0.04) (0.04)
From net realized gains -- -- -- --
-------- -------- -------- --------
Total distributions (0.04) (0.04) (0.04) (0.04)
-------- -------- -------- --------
Net asset value, end of
year $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return (excluding
account fees) 3.92% 4.55% 4.35% 4.54%
Ratios/Supplemental data
Net assets, end of year
(in thousands) $155,767 $149,421 $231,882 $188,844
Ratios to average net
assets (a)
Expenses 1.01% 0.96% 1.04% 1.03%
Expenses excluding fee
reimbursements and
expense reductions 1.01% 0.96% 1.04% 1.03%
Net investment income 3.87% 4.37% 4.22% 4.42%
o These ratios include fee reimbursements and expense reductions. Such amounts
would decrease the net investment income ratio had such reductions not
occurred.
58
<PAGE>
APPENDIX
The following compares the performance information for the fiscal year ended
June 30, 2000, for the following funds. Past performance is not predictive of
future results.
CHINA REGION OPPORTUNITY FUND
CHINA REGION OPPORTUNITY FUND
[GRAPHIC: Linear graph plotted from data in table below]
MORGAN STANLEY INTERNATIONAL
CHINA REGION HANG SENG CAPITAL FAR EAST FINANCE
DATE OPPORTUNITY FUND 100 INDEX EX JAPAN INDEX CORPORATION
-------- ---------------- ---------- ---------------- -------------
AVERAGE ANNUAL
PERFORMANCE INCEPTION FIVE YEAR ONE YEAR
---------------------- --------- --------- --------
CHINA REGION
OPPORTUNITY FUND
(Inception 2/10/94)
Hang Seng 100 Index
Morgan Stanley
Capital Far East ex
Japan Index
International Finance
Corporation China
Index
The Hang Seng 100 Index is a capitalization-weighted index. The index
is comprised of the 100 highest companies in terms of market
capitalization and turnover, listed on The Stock Exchange of Hong Kong
Limited. The Morgan Stanley Capital Far East ex Japan Index is one
index in a series representing both the developed and the emerging
markets for a particular region. The International Finance Corporation
China Index is one global index in a series representing a large part
of the market and shows trends in the markets from the perspective of
local investors.
59
<PAGE>
GOLD SHARES FUND
[GRAPHIC: Linear graph plotted from data in table below]
FINANCIAL
TIMES
GOLD MINES JOHANNESBURG
INDEX ALL GOLD S&P 500
DATE GOLD SHARES FUND FROM 1/31/97 INDEX INDEX
-------- ---------------- ------------ ------------ ----------
AVERAGE ANNUAL
PERFORMANCE INCEPTION FIVE YEAR ONE YEAR
---------------------- --------- --------- --------
GOLD SHARES FUND
Financial Times Gold
Mines Index
Johannesburg All Gold
Index
S&P 500 Index
The Financial Times Gold Mines Index is a market capitalization-
weighted total return index of the leading North American, Australian
and African gold mining companies. The Johannesburg All Gold Index is
a capitalization-weighted index of all domestic gold stocks traded on
the Johannesburg Stock Exchange. The S&P 500 Stock Index is a widely
recognized index of common stock prices in U.S. companies.
<PAGE>
WORLD GOLD FUND
[GRAPHIC: Linear graph plotted from data in table below]
TORONTO STOCK PHILADELPHIA
EXCHANGE GOLD STOCK EXCHANGE
& PRECIOUS GOLD & SILVER S&P 500
DATE WORLD GOLD FUND MINERALS INDEX INDEX INDEX
-------- --------------- -------------- --------------- ----------
AVERAGE ANNUAL
PERFORMANCE INCEPTION FIVE YEAR ONE YEAR
---------------------- --------- --------- --------
WORLD GOLD FUND
Toronto Stock Exchange
Gold & Precious
Minerals Index
Philadelphia Stock Exchange
Gold & Silver Index
S&P 500 Index
The Toronto Stock Exchange Gold & Precious Minerals Index (TSE) is a
capitalization-weighted index designed to measure the performance of
the gold and silver sector of the TSE 300 Index. The Philadelphia
Stock Exchange Gold & Silver Index (XAU) is a capitalization-weighted
index which includes the leading companies involved in the mining of
gold and silver. The S&P 500 Stock Index is a widely recognized index
of common stock prices in U.S. companies.
60
<PAGE>
More information on the funds is available at no charge, upon request:
ANNUAL/SEMI-ANNUAL REPORT
This report describes each fund's performance, lists holdings, and describes
recent market conditions, fund strategies, and other factors that had a
significant impact on the fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More information about the funds, their investment strategies and related risks
is provided in the SAI. There can be no guarantee that the funds will achieve
their objectives. The current SAI is on file with the SEC and is legally
considered a part of this prospectus.
TO REQUEST INFORMATION:
BY PHONE 1-800-US-FUNDS
BY MAIL Shareholder Services
U.S. Global Investors Funds
P.O. Box 781234
San Antonio, TX 78278-1234
BY INTERNET http://www.usfunds.com.
The SEC also maintains a website at http://www.sec.gov that contains the
Statement of Additional Information, material incorporated by reference and
other information that the funds file electronically with the SEC. You may also
visit or call the SEC's Public Reference Room in Washington, DC (1-800-SEC-0330)
or send a request plus a duplicating fee to the SEC, Public Reference Section,
Washington, DC 20549-6009.
U.S. GLOBAL INVESTORS, INC.
SEC Investment Company Act File No. 811-1800
61
<PAGE>
[GRAPHIC: USGI logo]
<PAGE>
--------------------------------------------------------------------------------
PART B:INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
U.S. GLOBAL INVESTORS FUNDS
Statement of Additional Information
CHINA REGION OPPORTUNITY FUND ("CHINA REGION FUND")
ALL AMERICAN EQUITY FUND ("ALL AMERICAN FUND")
EQUITY INCOME FUND
GOLD SHARES FUND
WORLD GOLD FUND
GLOBAL RESOURCES 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 dated November 1, 2000, 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).
The date of this Statement of Additional Information is November 1, 2000.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................3
FUND POLICIES...............................................................4
INVESTMENT STRATEGIES AND RISKS.............................................6
PORTFOLIO TRANSACTIONS.....................................................21
MANAGEMENT OF THE FUND.....................................................22
PRINCIPAL HOLDERS OF SECURITIES............................................24
CERTAIN PURCHASES OF SHARES OF THE FUND....................................27
CALCULATION OF PERFORMANCE DATA............................................29
TAX STATUS.................................................................32
CUSTODIAN, FUND ACCOUNTANT, AND ADMINISTRATOR..............................36
DISTRIBUTOR................................................................36
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL..................................36
<PAGE>
GENERAL INFORMATION
The Gold Shares, World Gold, Global Resources Funds and China Region Opportunity
Fund are non-diversified series, and each of the other funds is a diversified
series of U.S. Global Investors Funds (the "Trust"), an open-end management
investment company. The Trust was originally incorporated in Texas in 1969 as
United Services Funds, Inc. and reorganized as a Massachusetts business trust on
July 31, 1984. The Trust changed its name to U.S. Global Investors Funds on
February 24, 1997.
On July 1, 1998 the following funds changed their names by deleting the letters
U.S. from the beginning of their names: Gold Shares Fund, World Gold Fund,
Global Resources Fund, All American Fund, Income Fund and Tax Free Fund. Also on
July 1, 1998 United Services Near-Term Tax Free Fund changed its name to
Near-Term Tax Free Fund. On November 1, 1999 the Income Fund changed its name to
the Equity Income Fund.
The assets received by the Trust from the issue or sale of shares of each of the
funds, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are separately allocated to 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.
The Trust's second amended and restated 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, as amended ("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 that 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.
3
<PAGE>
FUND POLICIES
The following information supplements the discussion of each fund's policies
discussed in the funds' prospectus.
INVESTMENT RESTRICTIONS. If a percentage investment 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 following restrictions.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each fund will not change any of the following investment restrictions, without
the affirmative vote of a majority of the outstanding voting securities of the
fund, which, as used herein, means the lesser of (1) 67% of the fund's
outstanding shares present at a meeting at which more than 50% of the
outstanding shares of the fund are represented either in person or by proxy, or
(2) more than 50% of the fund's outstanding shares.
A FUND MAY NOT:
1. Issue senior securities, except as permitted under 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
2. Borrow money, except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
3. Engage in the business of underwriting securities issued by other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, the fund may be deemed to be an underwriter under the Securities
Act of 1933.
4. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate and or mortgages or investments secured
by real estate, or interests therein, except that the fund reserves freedom
of action to hold and to sell real estate acquired as a result of the fund's
ownership of securities.
5. Purchase or sell commodities or commodity contracts, except a fund may
purchase and sell (i) derivatives (including, but not limited to, options,
futures contracts and options on futures contracts) whose value is tied to
the value of a financial index or a financial instrument or other asset
(including, but not limited to , securities indexes, interest rates,
securities, currencies and physical commodities), and (ii) the Gold Shares
Fund, the World Gold Fund and the Global Resources Fund may purchase
precious metals.
6. Make loans except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
7. Purchase securities on margin, except that a fund may obtain such short-term
credits as are necessary for the clearance of transactions, and provided
that margin payments in connection with the futures contracts and options on
futures contracts shall not constitute purchasing securities on margin.
8. Sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short, and provided
that transactions in futures contracts and options are not deemed to
constitute selling securities short.
9. 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
4
<PAGE>
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; and 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. 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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions may be changed by the Board of Trustees
without a shareholder vote.
THE FUND MAY NOT:
1. Borrow money, except that a fund may borrow money for temporary or emergency
purposes (not for leveraging or investment) in an amount not exceeding 33
1/3% of a fund's total assets (including the amount borrowed) less
liabilities (other than borrowings).
2. Purchase securities on margin, except that a fund may obtain such short-term
credits as are necessary for the clearance of transactions, and provided
that margin payments in connection with futures contracts and options on
futures contracts shall not constitute purchasing securities on margin.
3. Sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short, and provided
that transactions in futures contracts and options are not deemed to
constitute selling securities short.
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 at 12:00 noon
Eastern time 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.
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.
5
<PAGE>
Debt securities with maturities of sixty days or less at the time of purchase
are valued based on 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.
INVESTMENT STRATEGIES AND RISKS
The following information supplements the discussion of each fund's investment
strategies and risks 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 may be
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 may have 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
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securities of established companies, it may, subject to local investment
limitations, invest in unlisted securities 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.
The China Region Fund is non-diversified and may invest a significant portion of
its assets in a small number of companies. This may cause the performance of a
fund to be dependent upon the performance of one or more selected companies,
which may increase the volatility of the fund.
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
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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 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.
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
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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 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.
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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 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.
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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 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
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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.
COMMON INVESTMENT STRATEGIES AND RELATED RISKS
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 fund will fluctuate.
FOREIGN SECURITIES. The gold and natural resources funds and the equity funds
may invest in foreign securities. Investing in securities issued by companies
whose principal business activities are outside the United States may involve
significant risks not present in domestic investments. For example, there is
generally less publicly available information about foreign companies,
particularly those not subject to the disclosure and reporting requirements of
the United States securities laws. Foreign issuers are generally not bound by
uniform accounting, auditing, and financial reporting requirements and standards
of practice comparable to those applicable to domestic issuers. Investments in
foreign securities also involve the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitation of the removal of funds or other assets of the fund,
political or financial instability or diplomatic and other developments 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
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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.
AMERICAN DEPOSITORY RECEIPTS. American Depositary Receipts ("ADRs") represent
shares of foreign issuers. ADRs are typically issued by a U.S. bank or trust
company and evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are intended for use in the U.S.
securities market, and ADRs in bearer form are intended for use in securities
markets outside the United States. ADRs 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 ADRs are not
obligated to disclose material information in the United States; therefore,
there may be less information available regarding such issuers. There may not be
a correlation between such information and the market value of the ADRs. For
purposes of the fund's investment policies, the fund's investment in ADRs will
be deemed to be investments in the underlying securities.
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 the fund. Investing in
emerging markets is considered speculative and involves the risk of total loss.
Risks of investing in emerging markets include:
(1) the risk that the fund's assets may be exposed to nationalization,
expropriation, 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 market place, 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;
(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;
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(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 sub-custodians 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 the
fund's 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
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
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valued by the fund. As a non-fundamental policy the fund will not invest
more than 15% of its net assets in illiquid securities.
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.
SECURITIES LENDING. The funds may not make loans except as permitted under the
1940 Act, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time. Each fund may lend its securities to the extent
permitted under the 1940 Act. In case of bankruptcy or breach of agreement by
the borrower of the securities, a fund could experience delays and costs in
recovering the securities lent. A 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.
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.
Each fund may borrow money to the extent permitted under the 1940 Act. As a
nonfundamental policy, a fund may not borrow money, except that a fund may
borrow money for temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33 1/3% of a fund's total assets
(including the amount borrowed) less liabilities (other than borrowing). 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.
LOWER-RATED SECURITIES. The gold and natural resources funds and the equity
funds may invest in lower-rated debt securities (commonly called "junk bonds")
which may be subject to certain risk factors to which other securities are not
subject to the same degree. An economic downturn tends to disrupt the market for
lower-rated bonds and adversely affect their values. Such an economic downturn
may be expected to result in increased price volatility of lower-rated bonds and
of the value of a fund's shares, and an increase in issuers' defaults on such
bonds.
Also, many issuers of lower-rated bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, the securities in
which a fund invests are subordinated to the prior payment of senior
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indebtedness, thus potentially limiting the fund's ability to recover full
principal or to receive payments when senior securities are in default.
The credit rating of a security does no necessarily address its market value
risk. Also, ratings may, from time to time, be changed to reflect developments
in the issuer's financial condition. Lower-rated securities held by a fund have
speculative characteristics that are apt to increase in number and significance
with each lower rating category.
When the secondary market for lower-rated bonds becomes increasingly illiquid,
or in the absence of readily available market quotations for lower-rated bonds,
the relative lack of reliable, objective data makes the responsibility of the
Trustees to value such securities mor difficult, and judgment plays a greater
role in the valuation of portfolio securities. Also, increased illiquidity of
the market for lower-rated bonds may affect a fund's ability to dispose of
portfolio securities at a desirable price.
In addition, if a fund experiences unexpected net redemptions, it could be
forced to sell all or some of its lower-rated bonds without regard to their
investment merits, thereby decreasing the asset base upon which the fund's
expenses can be spread and possibly reducing the fund's rate of return. Prices
of lower-rated bonds have been found to be less sensitive to interest rate
changes and more sensitive to adverse economic changes and individual corporate
developments than more highly rated investments. Certain laws or regulations may
have a material effect on the fund's investments in lower-rated bonds.
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.
RESTRICTED SECURITIES. The funds 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.
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.
DERIVATIVE SECURITIES. 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 "derivative
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securities"). The gold and natural resources funds and equity funds may invest
in derivative securities 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.
Derivative securities 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
derivative securities will depend upon the Adviser's ability to predict
pertinent market movements, and cannot be assured. Investing in derivative
securities will increase transaction expenses and may result in a loss that
exceeds the principal invested in the transactions.
Derivative securities 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 derivative securities 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 derivative securities would reduce net asset value, and possibly
income, and such losses can be greater than if the derivative securities had not
been used.
The gold and natural resources funds' and equity funds' activities involving
derivative securities 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
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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 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.
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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 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
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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 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 "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.
SPECIFIC FUND LIMITATIONS ON DERIVATIVE SECURITIES. The gold and natural
resources funds will limit their investments in derivative securities 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 investments in derivative securities to
purchasing stock index futures contracts or purchasing options thereon,
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 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 Equity Income Funds will limit their investments in
derivative securities 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 transactions for an
identical option.
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USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many derivative securities, 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.
TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes during periods
that, in the Adviser's opinion, present the funds with adverse changes in the
economic, political or securities markets, the funds may seek to protect the
capital value of its assets by temporarily investing up to 100% of its assets
in: 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 repurchase agreements.
When a fund is in a defensive investment position, it may not achieve its
investment objective.
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 for shareholders. Portfolio turnover rates for the funds are described in
the Financial Highlights section of the prospectus. From time to time, a
substantial portion of the shares of the Gold Shares Fund and the World Gold
Fund may be held by "market timers" and similar investors that seek to realize
profits by frequently purchasing and redeeming (or exchanging) shares of the
fund. Such activities may cause the fund to experience a high portfolio turnover
rate. Each fund seeks to minimize the adverse consequences of these activities
by imposing a trading fee on such investors and by investing in various types of
derivative securities.
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
21
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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 were as follows:
1998 1999 2000
---------- ---------- --------
Gold Shares Fund ............ $1,042,140 $1,039,858 $xxxxxxx
World Gold Fund ............. $ 420,285 $1,977,308 $xxxxxxx
Global Resources Fund ....... $ 420,285 $ 102,134 $xxxxxxx
China Region Fund ........... $ 51,295 $ 30,898 $xxxxxxx
All American Fund ........... $ 17,647 $ 37,881 $xxxxxxx
Equity Income Fund .......... $ 7,782 $ 28,171 $xxxxxxx
MANAGEMENT OF THE FUND
The Trust's Board of Trustees manages the business affairs of the Trust. The
Trustees establish policies and review and approve contracts and their
continuance. Trustees also elect the officers and select the Trustees to serve
as executive and audit committee members. 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 AGE POSITION PRINCIPAL OCCUPATION
------------------- --- -------------- -----------------------------------
John P. Allen 70 Trustee President, Deposit Development
P.O. Box 160323 Associ ates Inc., a bank market-
San Antonio, ing firm. President, Paragon Press.
Texas 78280 Inc., President, Rio Cibolo Ranch,
Inc.
E. Douglas Hodo 65 Chairman of Chief Executive Officer of Houston
7702 Fondren the Board Baptist University. Formerly Dean
Houston, Texas and Professor of Economics and
77074 Finance, College of Busi- ness,
University of Texas at San Antonio.
Clark R. Mandigo 57 Trustee Business consultant since 1991.
15050 Jones From 1985 to 1991, President, Chief
Maltsberger Executive Officer, and Director of
San Antonio, Intelogic Trace, Inc., a nationwide
Texas 78247 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.
W.W. McAllister III 58 Trustee Director, Texas Capital Banc
7550 IH-10 West Shares, Inc from 1999 to present.
Suite 700 Chairman of the Board of Texas
San Antonio, Insurance Agency, Inc. from 1981 to
Texas 78247 present. Chairman of the Board of
Bomac Sports Limited d.b.a. SA
Sports Unlimited from December 1995
to present. Cur- rently 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.
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<PAGE>
TRUST
NAME AND ADDRESS AGE POSITION PRINCIPAL OCCUPATION
------------------- --- -------------- -----------------------------------
W.C.J. van Rensburg 61 Trustee Professor of Geological Science and
6010 Sierra Arbor Petroleum Engineering, Uni- versity
Court of Texas at Austin. Former
Austin, Texas 78759 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) 45 Trustee, Chairman of the Board of Directors,
President, Chief Executive Officer, and Chief
Chief Investment Officer of the Adviser.
Executive Since October 1989 Mr. Holmes has
Officer, Chief served and continues to serve in
Investment various positions with the Adviser,
Officer its sub- sidiaries and the
investment companies it sponsors.
Director of Franc-Or Resource Corp.
from November 1994 to November 1996
and from June, 2000 to present.
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 41 Executive President, Corporate Secretary and
Vice General Counsel of the Adviser.
President, Since September 1992 Ms. McGee has
Secretary, served and continues to serve in
General various positions with the Adviser,
Counsel its subsidiaries, and the
investment companies it sponsors.
David J. Clark 39 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.
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<PAGE>
COMPENSATION TABLE
TOTAL COMPENSATION TOTAL COMPENSATION FROM
FROM U.S. INVESTORS U.S. GLOBAL FUND
NAME FUNDS TO BOARD MEMBERS COMPLEX (1) TO BOARD MEMBERS
--------------------- ---------------------- ----------------------------
Frank E. Holmes $0 $0
E. Douglas Hodo $ $
John P. Allen $ $
W.C.J. van Rensburg $ $
W. W. McAllister III $ $
Clark R. Mandigo $ $
(1) Total compensation paid by U.S. Global Fund Complex for period ended June
30, 2000. As of this date there were fifteen funds in the complex. Messrs.
Holmes and Mandigo serve on all thirteen funds.
PRINCIPAL HOLDERS OF SECURITIES
As of XXXXXXXXXXX, 2000, the officers and Trustees of the Trust, as a group,
owned less than 1% of the outstanding shares of each fund. The Trust is aware of
the following person(s) owning of record, or beneficially, more than 5% of the
outstanding shares of any fund as of XXXXXXXXXX, 2000.
PERCENTAGE TYPE OF
FUND SHAREHOLDERS OWNED OWNERSHIP
------------------------ ------------ ---------- ---------
China Region Fund
World Gold Fund
All American Fund
Equity Income Fund
Near-Term Tax Free Fund
Tax Free Fund
Gold Shares Fund
Global Resources Fund
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.
MANAGEMENT FEES
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. The Adviser has
contractually limited total Fund operating expenses to not exceed 1.00% for the
All American Fund, 0.70% for the Tax Free Fund and Near-Term Tax Free Fund and
0.40% for the Government Securities Savings Fund on an annualized basis through
June 30, 2001, and until such later date as the Adviser determines. For the last
three fiscal years ended June 30, 2000, the funds paid the following management
fees (net of expenses paid by the adviser or voluntary fee waivers):
24
<PAGE>
FUND 1998 1999 2000
----------------------------------- ---------- ---------- -------------
Gold Shares Fund $616,410 $314,052 $
World Gold Fund $1,521,454 $1,119,941 $
Global Resources Fund $295,610 $159,064 $
China Region Fund $385,682 $200,343 $
All American Fund $33,254 $200,343 $
Equity Income Fund $77,558 $78,288 $
Tax Free Fund $0 $0 $
Near-Term Tax Free Fund $0 $0 $
Government Securities Savings Fund $418,522 $900,908 $
Treasury Securities Cash Fund $906,071 $876,133 $
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 specified.
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. Currently, there are no sub-advisor agreements in
place.
ADVISORY FEE SCHEDULE
ANNUAL PERCENTAGE
NAME OF FUND OF AVERAGE DAILY NET ASSETS
-------------------------------------- ---------------------------------------
Gold Shares, All American, 0.75% of the first $250,000,000 and
Equity Income, and Tax Free Funds 0.50% of the excess
Treasury Securities Cash, and 0.50% of the first $250,000,000 and
Government Securities Savings Funds 0.375% of the excess
World Gold and Global Resources Funds 1.00% of the first $250,000,000 and
0.50% 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, XXXXX, 2000. 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
25
<PAGE>
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.
DISTRIBUTION, TRANSFER AGENCY AND OTHER SERVICES
U.S. Global Brokerage, Inc., 7900 Callaghan Road, San Antonio, Texas 78229, a
subsidiary of the Adviser ("U.S. Global Brokerage"), is the principal
underwriter and [exclusive] agent for distribution of the fund's shares. U.S.
Global Brokerage is obligated to use all reasonable efforts, consistent with its
other business, to secure purchasers for the fund's shares, which are offered on
a continuous basis.
Beginning September 3, 1998, U.S. Global Brokerage commenced marketing the fund
and distributing the fund's shares pursuant to a Distribution Agreement between
the Trust and U.S. Global Brokerage (the "Distribution Agreement"). Under the
Distribution Agreement, U.S. Global Brokerage may enter into agreements with
selling brokers, financial planners and other financial representatives for the
sale of the fund's shares. Following such sales, a fund will receive the net
asset value per share.
Pursuant to the Distribution Agreement, the Trust is responsible for the payment
of all fees and expenses (i) in connection with the preparation, setting in type
and filing of any registration statement under the 1933 Act, and any amendments
thereto, for the issuance of the fund's shares; (ii) in connection with the
registration and qualification of the fund's shares for sale in states in which
the Board of Trustees shall determine it advisable to qualify such shares for
sale; (iii) of preparing, setting in type, printing and mailing any report or
other communication to holders of the fund's shares in their capacity as such;
and (iv) of preparing, setting in type, printing and mailing Prospectuses,
Statements of Additional Information, and any supplements thereto, sent to
existing holders of the fund's shares. U.S. Global Brokerage is responsible for
paying the cost of (i) printing and distributing Prospectuses, Statements of
Additional Information and reports prepared for its use in connection with the
offering of the fund's shares for sale to the public; (ii) any other literature
used in connection with such offering; (iii) advertising in connection with such
offering; and (iv) any additional out-of-pocket expenses incurred in connection
with these costs.
The Distribution Agreement continues in effect 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 the Trustees
of the Trust who are not interested persons of the Trust and who are not parties
to the Distribution Agreement or interested persons of any party to the
Distribution Agreement; however, the Distribution Agreement may be terminated at
any time 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. For these purposes, the term "vote of a majority of the
outstanding voting securities" is deemed to have the meaning specified in the
1940 Act and the rules enacted thereunder.
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, 2000, the funds paid the following amounts for transfer
agency fees and expenses (net of expenses paid by the Adviser or voluntary fee
waivers):
26
<PAGE>
Gold Shares Fund $
World Gold Fund $
Global Resources Fund $
China Region Fund $
All American Fund $
Equity Income Fund $
Tax Free Fund $
Government Securities Savings Fund $
Treasury Securities Cash Fund $
The Near-Term Tax Free Fund $
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 upon
average net assets and subject to an annual minimum fee. Beginning November
1997, Brown Brothers Harriman & Co. , an independent service provider, began
providing the funds with bookkeeping, accounting and custody services and
determined the daily net asset value for each of the funds. For the fiscal
period ended June 30, 2000, 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 $
Equity Income Fund $
Tax Free Fund $
Government Securities Savings Fund $
Treasury Securities Cash Fund $
The Near-Term Tax Free Fund $
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 XXXXXXXXXX. For the three fiscal years ended June 30, 1998, 1999 and
2000, the Trust paid USSI total transfer agency fees and expenses of $3,421,224,
$3,432,941 and XXXXXXXXXX, respectively, for all funds.
All fees paid to the Adviser during the fiscal year ended June 30, 2000,
(including management and transfer agency but net of reimbursements) totaled
$XXXXXXXXXX.
Additionally, the Adviser was reimbursed at cost for in-house legal and internal
administration services pertaining to each fund during the year ended June 30,
2000, in the amount of $XXXXXXXXXX.
A & B Mailers, Inc., a corporation wholly owned by the Adviser, provides the
Trust with certain mail handling services. The charges for such services have
been negotiated by the Audit Committee of the Trust and A & B Mailers, Inc. Each
service is priced separately. For the fiscal year ended June 30, 2000, the funds
paid A&B Mailers, Inc. $XXXXXXXXXX for mail handling services.
CERTAIN PURCHASES OF SHARES OF THE FUND
The following information supplements the discussion of how to buy fund shares
as discussed in the prospectus.
27
<PAGE>
Shares of each fund are continuously offered by the Trust at their net asset
value next determined after an order is accepted. The methods available for
purchasing shares of the fund are described in the Prospectus. In addition,
shares of the fund may be purchased using stock, so long as the securities
delivered to the Trust meet the investment objectives and concentration policies
of the fund and are otherwise acceptable to the Adviser, which reserves the
right to reject all or any part of the securities offered in exchange for shares
of the fund. On any such "in kind" purchase, the following conditions will
apply:
(1) the securities offered by the investor in exchange for shares of the fund
must not be in any way restricted as to resale or otherwise be illiquid;
(2) securities of the same issuer must already exist in the fund's portfolio;
(3) the securities must have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
NYSE, or Nasdaq-AMEX;
(4) any securities so acquired by the fund shall not comprise over 5% of the
fund's net assets at the time of such exchange;
(5) no over-the-counter securities will be accepted unless the principal
over-the-counter market is in the United States; and,
(6) the securities are acquired for investment and not for resale.
The Trust believes that this ability to purchase shares of the fund using
securities provides a means by which holders of certain securities may obtain
diversification and continuous professional management of their investments
without the expense of selling those securities in the public market.
An investor who wishes to make an "in kind" purchase should furnish a list
(either in writing or by telephone) to the Trust with a full and exact
description of all of the securities he or she proposes to deliver. The Trust
will advise him or her as to those securities it is prepared to accept and will
provide the investor with the necessary forms to be completed and signed by the
investor. The investor should then send the securities, in proper form for
transfer, with the necessary forms to the Trust and certify that there are no
legal or contractual restrictions on the free transfer and sale of the
securities. The securities will be valued as of the close of business on the day
of receipt by the Trust in the same manner as portfolio securities of the fund
are valued. See the section entitled Net Asset Value in the prospectus. The
number of shares of the fund, having a net asset value as of the close of
business on the day of receipt equal to the value of the securities delivered by
the investor, will be issued to the investor, less applicable stock transfer
taxes, if any.
The exchange of securities by the investor pursuant to this offer is 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 and bank wire instructions are established), or by mailing
instructions with a signature guarantee 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.
28
<PAGE>
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.
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.
29
<PAGE>
The yield fluctuates daily as the income earned on the investments of the
Treasury Securities Cash Fund and the Government Securities Savings Fund
fluctuates. Accordingly, there is no assurance that the yield quoted on any
given occasion will remain in effect for any period of time, nor is there any
guarantee that the net asset value or any stated rate of return will remain
constant. A shareholder's investment in the Treasury Securities Cash Fund and
the Government Savings Fund is not insured, although the underlying portfolio
securities are, of course, backed by the United States Government or, in the
case of the Government Securities Savings Fund, by a government agency.
Investors comparing results of the Treasury Securities Cash Fund and Government
Securities Savings Fund with investment results and yields from other sources,
such as banks or savings and loan associations, should understand this
distinction.
The seven-day yield and effective yield for the Treasury Securities Cash Fund
and the Government Securities Savings Fund at June 30, 2000 were XXXXX% and
XXXXX%, and XXXXX% and XXXXX%, respectively, with an average weighted maturity
of investments on that date of XXXXX and XXXXX days, respectively.
TOTAL RETURN
The Gold Shares Fund, Global Resources Fund, World Gold Fund, Equity Income
Fund, Tax Free 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, 1999, is as follows:
1 YEAR 5 YEARS 10 YEARS
---------- ----------- ----------
Gold Shares Fund
World Gold Fund
Global Resources Fund
China Region Fund
All American Fund
Equity Income Fund
Tax Free Fund
Near-Term Tax Free Fund
------------------------
1 (02/10/94 inception)
2 (12/04/90 inception)
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<PAGE>
YIELD
The Tax Free and Near-Term Tax Free Funds each may advertise performance in
terms of a 30-day yield quotation. The 30-day yield quotation is computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD=2[({{A-B} OVER CD}+1) SUP 6-1]
Where: A = dividends and interest earned during the period
B = expenses accrued for the period (net of reimbursement)
C = the average daily number of shares outstanding
during the period that were entitled to receive dividends
D = the maximum offering price per share onthe last day
of the period
The 30-day yield for the 30 days ended June 30, 2000, for each fund was as
follows:
Tax Free Fund XXXXX%
Near-Term Tax Free Fund XXXXX%
TAX EQUIVALENT YIELD
The Tax Free Fund's tax equivalent yield for the 30 days ended June 30, 2000,
was XXXXX% based on a Federal income tax rate of 39.6%.
The Near-Term Tax Free Fund's tax equivalent yield for the 30 days ended June
30, 2000, was XXXXX% based on a Federal income tax rate of 39.6%.
The tax equivalent yield is computed by dividing that portion of the yield of
the Tax Free Fund (computed as described under "Yield" above) which is
tax-exempt, by one minus the Federal income tax rate of 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.
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,
31
<PAGE>
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"); and (b) 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
Securities sold during a period may generate gains or losses based on the cost
at which they were purchased. Net realized capital losses, for federal income
tax purposes, may be carried forward to offset current or future capital gains
until expiration. The loss carryforward and related expiration dates for each
fund, as of June 30, 2000, are as follows:
32
<PAGE>
LOSS EXPIRATION
FUND CARRYFORWARDS DATE
---------------------------------- ------------- ----------
U.S. Treasury Securities Cash $
U.S. Government Securities Savings
Near-Tern Tax Free
China Region Opportunity
Global Resources
World Gold
Gold Shares
POST- POST-
OCTOBER 31, 1998 OCTOBER 31, 1998
FUND CAPITAL LOSSES CURRENCY LOSS DEFERRAL
---------------------------------- -------------- ----------------------
U.S. Treasury Securities Cash $ $
China Region Opportunity
Global Resources
World Gold
Gold Shares
The amounts above, in accordance with tax rules, are deemed to have occurred on
July 1, 2000.
A fund's ability to make certain investments may be limited by provisions of the
Code that require inclusion of certain unrealized gains or losses in the fund's
income for purposes of the 90% test, the 30% test and the distribution
requirements of the Code, and by provisions of the Code that characterize
certain income or loss as ordinary income or loss rather than capital gain or
loss. Such recognition, characterization and timing rules generally apply to
investments in certain forward currency contracts, foreign currencies and debt
securities denominated in foreign currencies.
For Federal income tax purposes, debt securities purchased by a fund may be
treated as having original issue discount. Original issue discount can generally
be defined as the excess of the stated redemption price at maturity of a debt
obligation over the issue price. Original issue discount is treated as interest
for Federal income tax purposes as earned by a fund, whether or not any income
is actually received, and therefore, is subject to the distribution requirements
of the Code. However, original issue discount with respect to tax-exempt
obligations generally will be excluded from a fund's taxable income, although
such discount will be included in gross income for purposes of the 90% test and
the 30% test described above. Original issue discount with respect to tax-exempt
securities is accrued and added to the adjusted tax basis of such securities for
purposes of determining gain or loss upon sale or at maturity. Generally, the
amount of original issue discount is determined on the basis of a constant yield
to maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
will result in original issue discount.
Debt securities may be purchased by a fund at a discount which exceeds the
original issue price plus previously accrued original issue discount remaining
on the securities, if any, at the time a fund purchases the securities. This
additional discount represents market discount for income tax purposes. To the
extent that a fund purchases municipal bonds at a market discount, the
accounting accretion of such discount may generate taxable income for the fund
and its shareholders. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest income for purposes of the 90% test to the extent it does not exceed
the accrued market discount on the security (unless the fund elects to include
such accrued market discount in income in the tax year to which it is
attributable). Generally, market discount is accrued on a daily basis.
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.
33
<PAGE>
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 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 includable in
their "modified adjusted gross income" for purposes of determining the amount of
such Social Security benefits, if any, that are required to be included in their
gross income.
All distributions of investment income during the year will have the same
percentage designated as tax exempt. This method is called the "average annual
method." Since the Tax Free Fund and the Near-Term Tax Free Fund invest
primarily in tax-exempt securities, the percentage is expected to be
substantially the same as the amount actually earned during any particular
distribution period.
34
<PAGE>
A shareholder of a fund should be aware that a redemption of shares (including
any exchange into another U.S. Global Investors fund) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
Tax Free Fund or the Near-Term Tax Free Fund receives an exempt-interest
dividend with respect to any share and such share has been held for six months
or less, any loss on the redemption or exchange will be disallowed to the extent
of such exempt-interest dividend. Similarly, if a shareholder of a fund receives
a distribution taxable as long-term capital gain with respect to shares of the
fund and redeems or exchanges shares before he has held them for more than six
months, any loss on the redemption or exchange (not otherwise disallowed as
attributable to an exempt-interest dividend) will be treated as long-term
capital loss to the extent of the long-term capital gain recognized.
The Tax Free Fund and the Near-Term Tax Free Fund may invest in private activity
bonds. Interest on private activity bonds issued after August 7, 1986, is
subject to the Federal alternative minimum tax ("AMT"), although the interest
continues to be excludable from gross income for other purposes. AMT is a
supplemental tax designed to ensure that taxpayers pay at least a minimum amount
of tax on their income, even if they make substantial use of certain tax
deductions and exclusions (referred to as "tax preference items"). Interest from
private activity bonds is one of the tax preference items that is added into
income from other sources for the purposes of determining whether a taxpayer is
subject to the AMT and the amount of any tax to be paid. Prospective investors
should consult their own tax advisors with respect to the possible application
of the AMT to their tax situation.
Opinions relating to the validity of tax-exempt securities and the exemption of
interest thereon from Federal income tax are rendered by recognized bond counsel
to the issuers. Neither the 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.
35
<PAGE>
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.
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 advisors.
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 advisors about the
status of distributions from the fund in their own states and localities.
CUSTODIAN, FUND ACCOUNTANT, AND ADMINISTRATOR
Brown Brothers Harriman & Co. serves 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
Arthur Andersen LLP, 225 Franklin Street, Boston Massachusetts 02110-2812, were
appointed auditors for the Trust effective July 1, 1999. The accountants audit
and report on the funds' annual financial statements, review certain regulatory
reports and the funds' federal income tax returns, and perform other
professional accounting, auditing, tax, and advisory services when engaged to do
so by the Trust.
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, serves
as legal counsel to the Trust.
36
<PAGE>
--------------------------------------------------------------------------------
PART C: OTHER INFORMATION
--------------------------------------------------------------------------------
ITEM 23. EXHIBITS
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference to the previously filed
documents indicated below, except as noted.
(a)1. Second Amended and Restated Master Trust Agreement, dated August 16, 2000,
is included herein.
(b) By-laws, incorporated by reference from Post-Effective Amendment No. 44 to
Registration Statement (EDGAR Accession No. 0000101507-99-000019).
(c) Instruments Defining Rights of Security Holders. Not applicable
(d)1. Advisory Agreement with U.S. Global Investors, Inc., dated October 1989
incorporated by reference from Post-Effective Amendment No. 62 (EDGAR
Accession No. 0000101507-99-000019).
(e)1. Distribution Agreement between Registrant and U.S. Global Brokerage, Inc.
dated September 3, 1998, incorporated by reference from PEA 84 filed
August 31, 1999 (EDGAR Accession No. 0000101507-99- 000019).
2. Specimen Selling Group Agreement between principal underwriter and dealers
incorporated by reference from Post-Effective Amendment No. 82 filed
September 2, 1998 (EDGAR Accession No. 0000101507-98-000031).
(f) Bonus or Profit Sharing Contracts. Not applicable.
(g) Custodian Agreement between Registrant and Brown Brothers Harriman & Co.
dated November 1, 1997, incorporated by reference from Post-Effective
Amendment No. 82 filed September 2, 1998 (EDGAR Accession No.
0000101507-98-000031).
(h)1. Transfer Agency Agreement, as amended, between Registrant and United
Shareholder Services, Inc. dated November 1, 1988, incorporated by
reference to Post Effective Amendment No. 79 filed September 3, 1996
(EDGAR Accession No. 0000101507-96-000065).
2. Expense Cap Agreement, dated July 1, 1999, will be submitted with 485(b)
filing.
(i)1. Opinion of Goodwin, Procter & Hoar incorporated by reference from
Post-Effective-Amendment No. 59.
2 Opinion of Goodwin Procter & Hoar incorporated by reference from
Post-Effective amendment No. 74.
(j)1. Consent of independent accountants, PricewaterhouseCoopers LLP, will be
submitted with 485(b) filing.
2. Consent of independent accountants, Arthur Andersen LLP, will be submitted
with 485(b) filing.
3. Consent of Goodwin Procter & Hoar LLP, will be submitted with 485(b)
filing.
(k) Omitted Financial Statements. Not applicable
(l) Initial Capital Agreements. Not applicable.
(m) Rule 12b-1 Plan. Not applicable
(n) Rule 18f-3 Plan. Not applicable.
(o) Power of Attorney dated August 13, 1999, incorporated by reference from
PEA 84 filed August 31, 1999 (EDGAR Accession No. 0000101507-99-000019).
ITEM 24. 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 25. 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 pindemnitee 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
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 "Fund Management" in the Prospectus and
"Investment Advisory Services" in the Statement of Additional Information.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) U.S. Global Brokerage, Inc., a wholly owned subsidiary of U.S. Global
Investors, Inc., is registered as a limited- purpose broker/dealer for the
purpose of distributing U.S. Global Investors Funds and U.S. Global
Accolade Funds shares, effective September 3, 1998.
(b) The following table lists, for each director and officer of U.S. Global
Investors Funds, the information indicated.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
Elias Suarez President Vice President,
7900 Callaghan Road Institutional Sales
San Antonio, TX 78229
David J. Clark Chief Financial Treasurer
7900 Callaghan Road Officer
San Antonio, TX 78229
Tammy J. Ross Vice President, Compliance Officer
7900 Callaghan Road Compliance
San Antonio, TX 78229
Tracy C. Peterson Chief Accounting Assistant Treasurer
7900 Callaghan Road Officer
San Antonio, TX 78229
Kathleen L. Eicher Secretary Assistant Secretary
7900 Callaghan Road
San Antonio, TX 78229
(c) Not applicable
ITEM 28. 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,
fund accountant, and administrator for U.S. Global Accolade Funds are maintained
at 40 Water Street, Boston, Massachusetts 02109.
ITEM 29. MANAGEMENT SERVICES
Not applicable
ITEM 30. UNDERTAKINGS
Not applicable
<PAGE>
SIGNATURES
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(b) 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, thereto duly authorized in the city of San Antonio, State of
Texas, on the 1st day of September 2000.
U.S. GLOBAL INVESTORS FUNDS
By: /s/ Frank E. Holmes
----------------------------------
Frank E. Holmes
President, Chief Executive Officer
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 1, 2000
-------------------------------
John P. Allen
*/S/ EDWARD D. HODO Trustee September 1, 2000
-------------------------------
Edward D. Hodo
/S/ FRANK E. HOLMES Trustee, President, September 1, 2000
------------------------------- Chief Executive Officer
Frank E. Holmes
*/S/ CLARK R. MANDIGO Trustee September 1, 2000
-------------------------------
Clark R. Mandigo
*/S/ WALTER W. MCALLISTER, III Trustee September 1, 2000
-------------------------------
Walter W. McAllister, III
*/S/ W.C.J. VAN RENSBURG Trustee September 1, 2000
-------------------------------
W.C.J. van Rensburg
/S/ SUSAN B. MCGEE
------------------------------- Executive Vice President September 1, 2000
Susan B. McGee Secretary
*BY: /S/ SUSAN B. MCGEE
-------------------------
Susan B. McGee
Attorney-in-Fact under
Power of Attorney
dated August 13, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.DESCRIPTION OF EXHIBIT
(a) 1. Second Amended and Restated Master Trust Agreement, dated August 16, 2000
