U.S. GLOBAL ACCOLADE FUNDS
REGENT EASTERN EUROPEAN FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the prospectus dated March 11, 1997, as amended March 19,
1997, (the "Prospectus"), which you may request from U. S. Global Investors,
Inc. (the "Advisor"), 7900 Callaghan Road, San Antonio, Texas 78229, or
1-800-US-FUNDS (1-800-873-8637).
The date of this Statement of Additional Information is March 11, 1997, amended
March 19, 1997.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.......................................................3
INVESTMENT OBJECTIVES AND POLICIES........................................3
RISK FACTORS..............................................................5
PORTFOLIO TRANSACTIONS...................................................12
MANAGEMENT OF THE FUND...................................................13
PRINCIPAL HOLDERS OF SECURITIES..........................................14
INVESTMENT ADVISORY SERVICES.............................................15
TRANSFER AGENCY AND OTHER SERVICES.......................................16
DISTRIBUTION PLAN........................................................16
CERTAIN PURCHASES OF SHARES OF THE FUND..................................17
ADDITIONAL INFORMATION ON REDEMPTIONS....................................18
CALCULATION OF PERFORMANCE DATA..........................................18
TAX STATUS...............................................................19
CUSTODIAN................................................................20
INDEPENDENT ACCOUNTANTS .................................................20
FINANCIAL STATEMENTS.....................................................20
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GENERAL INFORMATION
U.S. Global Accolade Funds (the "Trust") is an open-end management investment
company and is a business trust organized under the laws of the Commonwealth of
Massachusetts. There are several series within the Trust, each of which
represents a separate diversified portfolio of securities (a "Portfolio"). This
Statement of Additional Information ("SAI") presents important information
concerning the Regent Eastern European Fund (the "Fund") and should be read in
conjunction with the Prospectus.
The assets received by the Trust from the issue or sale of shares of the Fund
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are separately allocated to such Fund. They constitute the
underlying assets of the Fund, are required to be segregated on the books of
accounts, and are to be charged with the expenses with respect to such fund. Any
general expenses of the Trust, not readily identifiable as belonging to a
particular fund, will be allocated by or under the direction of the Board of
Trustees in such manner as the Board determines to be fair and equitable.
Each share of the Fund represents an equal proportionate interest in the 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.
As described under "The Trust" in the Prospectus, the Trust's Master Trust
Agreement provides that no annual or regular meeting of shareholders is
required. The Trustees serve for six-year terms. Thus, there will ordinarily be
no shareholder meetings unless otherwise required by the Investment Company Act
of 1940.
On any matter submitted to shareholders, the holder of each share is entitled to
one vote per share, with proportionate voting for fractional shares. On matters
affecting any individual fund, a separate vote of that fund would be required.
Shareholders of any fund are not entitled to vote on any matter that does not
affect their fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objectives and policies discussed in the Fund's Prospectus.
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 foregoing restrictions.
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FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund will not change any of the
following investment restrictions without the affirmative vote of a majority of
the outstanding voting securities of the Fund, which, as used herein, means the
lesser of: (1) 67% of that Fund's outstanding shares present at a meeting at
which more than 50% of the outstanding shares of that Fund are represented
either in person or by proxy, or (2) more than 50% of that Fund's outstanding
shares.
The Fund may not:
(1) Issue senior securities.
(2) Borrow money, except that the Fund may borrow not in excess of 5% of its
total assets from banks as a temporary measure for extraordinary purposes,
may borrow up to 33 1/3% of the amount of its total assets (reduced by
the amount of all liabilities and indebtedness other than such borrowing)
when deemed desirable or appropriate to effect redemptions provided,
however, that the Fund will not purchase additional securities while
borrowings exceed 5% of the total assets of the Fund.
(3) Underwrite the securities of other issuers.
(4) Invest in real estate.
(5) Engage in the purchase or sale of commodities or commodity futures
contracts, except that the Fund may invest in futures contracts, forward
contracts, options, and other derivative investments in conformance with
policies disclosed in the Fund's then current Prospectus and/or Statement
of Additional Information.
(6) Lend its assets, except that the Fund may purchase money market debt
obligations and repurchase agreements secured by money market obligations,
and except for the purchase or acquisition of bonds, debentures or other
debt securities of a type customarily purchased by institutional investors
and except that any Fund may lend portfolio securities with an aggregate
market value of not more than one-third of such Fund's total net assets.
(Accounts receivable for shares purchased by telephone shall not be deemed
loans.)
(7) Purchase any security on margin, except that it may obtain such short-term
credits as are necessary for clearance of securities transactions.
(8) Sell short more than 5% of its total assets.
(9) Invest more than 25% of its total assets in securities of companies
principally engaged in any one industry. For the purposes of determining
industry concentration, the Fund relies on the Standard Industrial
Classification as compiled by Bloomberg as in effect from time to time.
(10) With respect to 75% of its total assets, the Fund will not: (a) invest
more than 5% of the value of its total assets in securities of any one
issuer, except such limitation shall not apply to obligations issued or
guaranteed by the United States ("U.S.") Government, its agencies or
instrumentalities; or (b) acquire more than 10% of the voting securities
of any one issuer.
(11) Invest more than 10% of its total net assets in investment companies. To
the extent that the Fund shall invest in open-end investment companies,
the Fund's Advisor and Sub-Advisor shall waive a proportional amount of
their management fee.
RISK FACTORS
The following information supplements the discussion of the Fund's risk factors
discussed in the Fund's Prospectus. The following are among the most significant
risks associated with an investment in the Fund.
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EQUITY PRICE FLUCTUATION. Equity securities are subject to price fluctuations
depending on a variety of factors, including market, business, and economic
conditions.
FOREIGN INVESTMENTS. Investing in securities issued by companies whose principal
business activities are outside the United States may involve significant risks
not present in domestic investments. For example, there is generally less
publicly available information about foreign companies, particularly those not
subject to the disclosure and reporting requirements of the United States
securities laws. Foreign issuers are generally not bound by uniform accounting,
auditing, and financial reporting requirements and standards of practice
comparable to those applicable to domestic issuers. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, foreign exchange rates, 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 located in developing countries) may be less liquid and more
volatile than securities of comparable United States companies. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities markets, broker-dealers, and issuers than in the United States.
EMERGING MARKETS. 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 risks listed below before making an investment in the
Fund. Investing in emerging markets is considered speculative and involves the
risk of total loss. Because the Fund's investments will be subject to the market
fluctuations and risks inherent in all investments, there can be no assurance
that the Fund's stated objective will be realized. The Fund's Advisor and
Sub-Advisor will seek to minimize these risks through professional management
and investment diversification. As with any long-term investment, the value of
shares when sold may be higher or lower than when purchased.
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, which 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;
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(7) controls on foreign investment and limitations on repatriation of invested
capital and on the Fund's ability to exchange local currencies for U.S.
dollars;
(8) greater governmental involvement in and control over the economy;
(9) the fact that emerging market companies may be smaller, less seasoned and
newly organized;
(10) the difference in, or lack of, auditing and financial reporting standards
that may result in unavailability of material information about issuers;
(11) the fact that the securities of many companies may trade at prices
substantially above book value, at high price/earnings ratios, or at
prices that do not reflect traditional measures of value;
(12) the fact that statistical information regarding the economy of many
emerging market countries may be inaccurate or not comparable to
statistical information regarding the United States or other economies;
(13) less extensive regulation of the securities markets;
(14) certain considerations regarding the maintenance of Fund portfolio
securities and cash with foreign subcustodians and securities
depositories;
(15) the risk that it may be more difficult, or impossible, to obtain and/or
enforce a judgment than in other countries;
(16) the risk that the Fund may be subject to income, capital gains or
withholding taxes imposed by emerging market countries 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;
(18) the risk that 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) the risk that businesses in emerging markets have only a very recent
history of operating within a market- oriented economy. In general,
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) 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) the fact that 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
Advisor or Sub-Advisor. As a result, the return and net asset value of the
Fund will fluctuate;
(21) the fact that the Sub-Advisor 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
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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 Sub-Advisor
attempts to minimize currency risk through hedging activities. While
currency hedging may reduce portfolio volatility, there are costs
associated with such hedging, including the loss of potential profits,
losses on hedging transactions, and increased transaction expenses; and
(22) disposition of illiquid securities often takes more time than for more
liquid securities, may result in higher selling expenses and may not be
able to be made at desirable prices or at the prices at which such
securities have been valued by the Fund. As a non-fundamental policy the
Fund will not invest more than 15% of its net assets in illiquid
securities.
LOWER-RATED AND UNRATED DEBT SECURITIES. The Fund may invest up to 5% of its
total assets in debt rated less than investment grade (or unrated) by Standard &
Poor's Corporation (Chicago), Moody's Investors Service (New York), Duff &
Phelps (Chicago), Fitch Investors Service (New York), Thomson Bankwatch (New
York), Canadian Bond Rating Service (Montreal), Dominion Bond Rating Service
(Toronto), IBCA (London), The Japan Bond Research Institute (Tokyo), Japan
Credit Rating Agency (Tokyo), Nippon Investors Service (Tokyo), or S&P-ADEF
(Paris). In calculating the 5% limitation, a debt security will be considered
investment grade if any one of the above listed credit rating agencies rates the
security as investment grade.
Overall, the market for lower-rated or unrated bonds may be thinner and less
active, such bonds may be less liquid and their market prices may fluctuate more
than those of higher-rated bonds, particularly in times of economic change and
market stress. In addition, because the market for lower-rated or unrated
corporate debt securities has in recent years experienced a dramatic increase in
the large-scale use of such securities to fund highly leveraged corporate
acquisitions and restructuring, past experience may not provide an accurate
indication of the future performance of that market or of the frequency of
default, especially during periods of economic recession. Reliable objective
pricing data for lower-rated or unrated bonds may tend to be more limited; in
that event, valuation of such securities in the Fund's portfolio may be more
difficult and will require greater reliance on judgment.
Since the risk of default is generally higher among lower-rated or unrated
bonds, the Sub-Advisor's research and analysis are especially important in the
selection of such bonds, which are often described as "high yield bonds" because
of their generally higher yields and referred to figuratively as "junk bonds"
because of their greater risks.
In selecting lower-rated bonds for investment by the Fund, the Sub-Advisor does
not rely exclusively on ratings, which in any event evaluate only the safety of
principal and interest, not market value risk, and which furthermore, may not
accurately reflect an issuer's current financial condition. The Fund does not
have any minimum rating criteria for its investments in bonds. Through portfolio
diversification, good credit analysis and attention to current developments and
trends in interest rates and economic conditions, investment risk can be
reduced, although there is no assurance that losses will not occur.
RESTRICTED SECURITIES. The Fund may, from time to time, purchase securities that
are subject to restrictions on resale. While such purchases may be made at an
advantageous price and offer attractive opportunities for investment not
otherwise available on the open market, the Fund may not have the same freedom
to dispose of such securities as in the case of the purchase of securities in
the open market or in a public distribution. These securities may often be
resold in a liquid dealer or institutional trading market, but the Fund may
experience delays in its attempts to dispose of such securities. If adverse
market conditions develop, the Fund may not be able to obtain as favorable a
price as that prevailing at the time the decision is made to sell. In any case,
where a thin market exists for a particular security, public knowledge of a
proposed sale of a large block may have the effect of depressing the market
price of such securities.
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CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities that are
convertible into or exchangeable for another security, usually common stock.
Convertible debt securities and convertible preferred stocks, until converted,
have general characteristics similar to both debt and equity securities.
Although to a lesser extent than with debt securities generally, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion or exchange feature, the market value of convertible securities
typically increases or declines as the market value of the underlying common
stock increases or declines, although usually not to the same extent.
Convertible securities generally offer lower yields than non-convertible fixed
income securities of similar quality because of their conversion or exchange
features. Convertible bonds and convertible preferred stock typically have lower
credit ratings than similar non-convertible securities because they are
generally subordinated to other similar but non-convertible fixed income
securities of the same issuer.
OTHER RIGHTS TO ACQUIRE SECURITIES. The Fund 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 underling 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.
ADRS AND GDRS. The Fund may invest in sponsored or unsponsored American
Depository Receipts ("ADRs") or Global Depository Receipts ("GDRs") representing
shares of companies located in the Eastern Europe region. ADRs are depository
receipts typically issued by a U.S. bank or trust company that evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation. Generally,
depository receipts in registered form are designed for use in the U.S.
securities market, and depository receipts in bearer form are designed for use
in securities markets outside the United States. Depository receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the securities
underlying unsponsored depository receipts are not obligated to disclose
material information in the United States; and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depository receipts. For
purposes of the Fund's investment policies, the Fund's investments in depository
receipts will be deemed to be investments in the underlying securities.
FUTURES CONTRACTS. The Fund may sell futures contracts to hedge against a
decline in the market price of securities it owns or to defend the portfolio
against currency fluctuations. When the Fund establishes a short position by
selling a futures contract, the Fund will be required to deposit with the broker
an amount of cash or U.S. Treasury bills equal to approximately 5% of the
contract amount ("initial margin"). The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract is returned to the Fund
upon termination of the futures contract assuming all the Fund's contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker will be made on a daily basis as the price of the
underlying currency or stock index fluctuates making a short position in the
futures contract more or less valuable, a process known as "marking-to-market."
For example, when the Fund has sold a currency futures contract and the prices
of the stocks included in the underlying currency has fallen, that position will
have increased in value and the Fund will receive from the broker a variation
margin payment equal to that increase in value. Conversely, when the Fund has
sold a currency futures contract and the prices of the underlying currency has
risen, the position would be less valuable and the Fund would be required to
make a variation margin payment to the broker. At any time before expiration of
the futures contract, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund's position in the
futures contract. A final
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determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and it realizes a loss or a gain.
There is a risk that futures contract price movements will not correlate
perfectly with movements in the value of the underlying stock index. For a
number of reasons the price of the stock index future may move more than or less
than the price of the securities that make up the index. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions that could
distort the normal relationship between the index and futures markets. Secondly,
from the point of view of speculators, the deposit requirements in the futures
market are less onerous than margin requirements in the stock market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions.
There is an additional risk that a liquid secondary trading market may not exist
at all times for these futures contracts, in which event the Fund might be
unable to terminate a futures position at a desired time. Positions in stock
index futures may be closed out only on an exchange or board of trade that
provides a secondary market for such futures. Although the Fund intends to
purchase futures only on exchanges or boards of trade where there appears to be
an active secondary market, there is no assurance that a liquid secondary market
on an exchange or board of trade will exist for any particular contract or at
any particular time. If there is not a liquid secondary market at a particular
time, it may not be possible to close a futures position at such time, and in
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments of variation margin.
OPTIONS. The Fund may sell call options or purchase put options on futures
contracts to hedge against a decline in the market price of securities that it
owns or to defend the portfolio against currency fluctuations. Options on
futures contracts differ from options on individual securities in that the
exercise of an option on a futures contract does not involve delivery of an
actual underlying security. Options on futures contracts are settled in cash
only. The purchaser of an option receives a cash settlement amount and the
writer of an option is required, in return for the premium received, to make
delivery of a certain amount if the option is exercised. A position in an option
on a futures contract may be offset by either the purchaser or writer by
entering into a closing transaction, or the purchaser may terminate the option
by exercising it or allowing it to expire.
The risks associated with the purchase and sale of options on futures contracts
are generally the same as those relating to options on individual securities.
However, the value of an option on a futures contract depends primarily on
movements in the value of the currency or the stock index underlying the futures
contract rather than in the price of a single security. Accordingly, the Fund
will realize a gain or loss from purchasing or writing an option on a futures
contract as a result of movements in the related currency or in the stock market
generally rather than changes in the price for a particular security. Therefore,
successful use of options on futures contracts by the Fund will depend on the
Advisor's ability to predict movements in the direction of the currency or stock
market underlying the futures contract. The ability to predict these movements
requires different skills and techniques than predicting changes in the value of
individual securities.
Because index options are settled in cash, the Fund cannot be assured of
covering its potential settlement obligations under call options it writes on
futures contracts by acquiring and holding the underlying securities. Unless the
Fund has cash on hand that is sufficient to cover the cash settlement amount, it
would be required to sell securities owned in order to satisfy the exercise of
the option.
As a non-fundamental policy the Fund will not invest more than 5% of its total
net assets in options.
SEGREGATED ASSETS AND COVERED POSITIONS. When purchasing a stock index futures
contract, selling an uncovered call option, or purchasing securities on a
when-issued or delayed delivery basis, the Fund will restrict cash that may be
invested in repurchase obligations) or liquid securities. When purchasing a
stock index futures contract, the amount of restricted cash or liquid
securities, when added to the amount deposited with the broker
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as margin, will be at least equal to the market value of the futures contract
and not less than the market price at which the futures contract was
established. When selling an uncovered call option, the amount of restricted
cash or liquid securities, when added to the amount deposited with the broker as
margin, will be at least equal to the value of securities underlying the call
option and not less than the strike price of the call option. When purchasing
securities on a when-issued or delayed delivery basis, the amount of restricted
cash or liquid securities will be at least equal to the Fund's when-issued or
delayed delivery commitments.
The restricted cash or liquid securities will either be identified as being
restricted in the Fund's accounting records or physically segregated in a
separate account at Bankers Trust Company, the Fund's custodian. For the purpose
of determining the adequacy of the liquid securities 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 the Fund.
Fund assets need not be segregated if the Fund "covers" the futures contract or
call option sold. For example, the Fund could cover a futures or forward
contract that it has sold short by owning the securities or currency underlying
the contract. The Fund may also cover this position by holding a call option
permitting the Fund to purchase the same futures or forward contract at a price
no higher than the price at which the sell position was established.
The Fund could cover a call option that it has sold by holding the same currency
or security (or, in the case of a stock index, a portfolio of stock
substantially replicating the movement of the index) underlying the call option.
The Fund may also cover by holding a separate call option of the same security
or stock index with a strike price no higher than the strike price of the call
option sold by the Fund. The Fund could cover a call option that it has sold on
a futures contract by entering into a long position in the same futures contract
at a price no higher than the strike price of the call option or by owning the
securities or currency underlying the futures contract. The Fund could also
cover a call option that it has sold by holding a separate call option
permitting it to purchase the same futures contract at a price no higher than
the strike price of the call option sold by the Fund.
FOREIGN CURRENCY TRANSACTIONS. Investments in foreign companies usually involve
use of currencies of foreign countries. The Fund also may hold cash and
cash-equivalent investments in foreign currencies. The value of the Fund's
assets as measured in U.S. dollars will be affected by changes in currency
exchange rates and exchange control regulations. The Fund may, as appropriate
markets are developed, but is not required to, engage in currency transactions
including cash market purchases at the spot rates, forward currency contracts,
exchange listed currency futures, exchange listed and over-the-counter options
on currencies, and currency swaps for two purposes. One purpose is to settle
investment transactions. The other purpose is to try to minimize currency risks.
All currency transactions involve a cost. Although foreign exchange dealers
generally do not charge a fee, they do realize a profit based on the difference
(spread) between the prices at which they are buying and selling various
currencies. Commissions are paid on futures options and swaps transactions, and
options require the payment of a premium to the seller.
A forward contract involves a privately negotiated obligation to purchase or
sell at a price set at the time of the contract with delivery of the currency
generally required at an established future date. A futures contract is a
standardized contract for delivery of foreign currency traded on an organized
exchange that is generally settled in cash. An option gives the right to enter
into a contract. A swap is an agreement based on a nominal amount of money to
exchange the differences between currencies.
The Fund will generally use spot rates or forward contracts to settle a security
transaction or handle dividend and interest collection. When the Fund enters
into a contract for the purchase or sale of a security denominated in a foreign
currency or has been notified of a dividend or interest payment, it may desire
to lock in the price of the security or the amount of the payment in dollars. By
entering into a spot rate or forward contract, the Fund will
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be able to protect itself against a possible loss resulting from an adverse
change in the relationship between different currencies from the date the
security is purchased or sold to the date on which payment is made or received
or when the dividend or interest is actually received.
The Fund may use forward or futures contracts, options, or swaps when the
investment manager believes the currency of a particular foreign country may
suffer a substantial decline against another currency. For example, it may enter
into a currency transaction to sell, for a fixed amount of dollars, the amount
of foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the securities transactions and the value of securities involved generally
will not be possible. The projection of short-term currency market movements is
extremely difficult and successful execution of a short-term strategy is highly
uncertain.
The Fund may cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to decline in value relative to
other currencies in which the Fund has (or expects to have) portfolio exposure.
The Fund may engage in proxy hedging. Proxy hedging is often used when the
currency to which a fund's portfolio is exposed is difficult to hedge. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and simultaneously buy U.S. dollars. The amount of
the contract would not exceed the value of the Fund's securities denominated in
linked securities.
The Fund will not enter into a currency transaction or maintain an exposure as a
result of the transaction when it would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. The Fund will designate cash or
securities in an amount equal to the value of the Fund's total assets committed
to consummating the transaction. If the value of the securities declines,
additional cash or securities will be designated on a daily basis so that the
value of the cash or securities will equal the amount of the Fund's commitment.
On the settlement date of the currency transaction, the Fund may either sell
portfolio securities and make delivery of the foreign currency or retain the
securities and terminate its contractual obligation to deliver the foreign
currency by purchasing an offsetting position. It is impossible to forecast what
the market value of portfolio securities will be on the settlement date of a
currency transaction. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the securities are less than the amount of
foreign currency the Fund is obligated to deliver and a decision is made to sell
the securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver. The Fund will realize gains
or losses on currency transactions.
The Fund may also buy put options and write covered call options on foreign
currencies to try to minimize currency risks. The risk of buying an option is
the loss of premium. The risk of selling (writing) an option is that the
currency option will minimize the currency risk only up to the amount of the
premium, and then only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy the
underlying currency at the loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund may also
be required to forego all or part of the benefits that might otherwise have been
obtained from favorable movements on exchange rates. All options written on
foreign currencies will be covered; that is, the Fund will own securities
denominated in the foreign currency, hold cash equal to its obligations or have
contracts that offset the options.
The Fund may construct a synthetic foreign currency investment, sometimes called
a structured note, by (a) purchasing a money market instrument that is a note
denominated in one currency, generally U.S. dollars, and
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(b) concurrently entering into a forward contract to deliver a corresponding
amount of that currency in exchange for a different currency on a future date
and at a specified rate of exchange. Because the availability of a variety of
highly liquid short-term U.S. dollar market instruments, or notes, a synthetic
money market position utilizing such U.S. dollar instruments may offer greater
liquidity than direct investment in foreign currency.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES. Under the Code, gains or
losses attributable to fluctuations in exchange rates which occur between the
time the Fund accrues interest or other receivables, or accrues expenses or
other liabilities denominated in a foreign currency and the time the 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 the 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.
PORTFOLIO TRANSACTIONS
The Sub-Advisor may use research services provided by and place agency
transactions with Regent European Securities, an affiliated broker-dealer of the
Sub-Advisor, if the commissions are fair, reasonable and comparable to
commissions charged by non-affiliated, qualified brokerage firms for similar
services. Regent European Securities was established in 1995 as a specialist
broker-dealer in the Russian securities market and has since developed into a
significant participant in the growing Russian market. As of the date of this
Statement of Additional Information, the Fund had not executed any portfolio
transactions through Regent European Securities.
The Fund's management buys and sells securities for the Fund to accomplish its
investment objectives. The Fund's investment policy may lead to frequent changes
in investments, particularly in periods of rapidly changing markets. The Fund's
investments may also be traded to take advantage of perceived short-term
disparities in market values.
A change in the securities held by the Fund is known as "portfolio turnover." A
high portfolio turnover rate may cause the Fund to pay higher transaction
expenses, including more commissions and markups, and also result in quicker
recognition of capital gains, resulting in more capital gain distributions that
may be taxable to shareholders. Any short term gain realized on securities will
be taxed to shareholders as ordinary income. See "Tax Status."
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MANAGEMENT OF THE FUND
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Except as otherwise indicated, the
business address of each is 7900 Callaghan Road, San Antonio, Texas 78229.
Frank E. Holmes(1) Trustee Chairman of the Board of Directors and
President, Chief Executive Officer of the Advisor.
Chief Executive Since October 1989 Mr. Holmes has served
Officer and continues to serve in various
positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors. Director of
Franc-Or Resource Corp. from November
1994 to November 1996. Director of
Marleau, Lemire Inc. from January 1995
to December 1995.
Richard E. Hughs Trustee Professor at the School of Business of
11 Dennin Drive the State University of New York at
Menands, NY 12204 Albany from 1990 to present; Dean,
School of Business 1990-1994; Director
of the Institute for the Advancement of
Health Care Management, 1994-present.
Corporate Vice President, Sierra Pacific
Resources, Reno, NV, 1985- 1990. Dean
and Professor, College of Business
Administration, University of Nevada,
Reno, 1977- 1985. Associate Dean, Stern
School of Business, New York University,
New York City, 1970-1977.
Clark R. Mandigo Trustee Business consultant since 1991. From
1250 N.E. Loop 410 1985 to 1991, President, Chief Executive
Suite 900 Officer, and Director of Intelogic
San Antonio, Texas Trace, Inc., a nationwide company that
78209 sells, leases and maintains computers
and telecommunications systems and
equipment. Before 1985, President 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.
(1) This Trustee may be deemed an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
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NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- ---------------- -------------- ----------------------------------------
Bobby D. Duncan Executive Vice Executive Vice President, Strategic
President, Development and Special Projects of the
Strategic Advisor. Since January 1985 Mr. Duncan
Development and has served and continues to serve in
Special Projects various positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors.
Thomas D. Tays Vice President, Vice President and Securities Specialist
Secretary of the of the Advisor. Since September 1993 Mr.
Trust, Chief Tays has served and continues to serve
Financial Officer in various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Before September
1993 Mr. Tays was an attorney in private
practice.
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Assistant Advisor. Since September 1992 Ms. McGee
Secretary has served and continues to serve in
of the Trust various positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors. Before September
1992 Ms. McGee was a student at St.
Mary's Law School.
Kevin C. White Chief Accounting Chief Accounting Officer of the Advisor.
Officer Since November 1995 Mr. White has served
and continues to serve in various
positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors. Closing Manager
for World Savings and Loan from January
1995 to November 1995. Controller of
Swearingen Aircraft from December 1991
to January 1995. Financial Analyst for
Fox Photo from February 1991 to December
1991.
PRINCIPAL HOLDERS OF SECURITIES
As of March 11, 1997, shares of the Fund had not yet been offered to the public.
INVESTMENT ADVISORY SERVICES
The investment adviser to the Fund is U. S. Global Investors, Inc. (the
"Advisor"), a Texas corporation, pursuant to an advisory agreement dated
September 21, 1994. Frank E. Holmes, Chief Executive Officer and a Director of
the Advisor, as well as a Trustee, President and Chief Executive Officer of the
Trust, beneficially owns more than 25% of the outstanding voting stock of the
Advisor and may be deemed to be a controlling person of the Advisor.
In addition to the services described in the Fund's Prospectus, the Advisor will
provide the Trust with office space, facilities and simple business equipment,
and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
officers, and trustees of the Trust, if such persons are employees of the
Advisor or its affiliates, except that the Trust will reimburse the Advisor for
part of the compensation of the Advisor's employees who perform certain legal
services for the Trust, including state securities law regulatory compliance
work, based upon the time spent on such matters for the Trust.
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The Trust and the Advisor, in connection with the Fund, have entered into a
sub-advisory agreement with another firm as discussed in the Prospectus. The
Advisor pays the Sub-Advisor a sub-advisory fee equal to one-half of the
management fee. The Fund will not be responsible for the Sub-Advisor's fee.
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 auditing 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 Advisor,
expenses of attendance by officers and Trustees at professional meetings of the
Investment Company Institute, the No-Load Mutual Fund Association or similar
organizations, and membership or organization dues of such organizations,
expenses of preparing, typesetting and mailing prospectuses and periodic reports
to current shareholders, fidelity bond premiums, cost of maintaining the books
and records of the Trust, and any other charges and fees not specifically
enumerated.
The Sub-Advisor's compensation is set forth in the Prospectus and is paid by the
Advisor.
The Advisor may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers, and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for Fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client Fund shares. The Glass-Steagall Act limits banks in
engaging in the business of underwriting, selling or distributing securities.
However, in the Advisor's opinion, such laws should not preclude a bank from
performing shareholder administrative and servicing functions as contemplated
herein.
The Advisory Agreement was approved by the Board of Trustees of the Trust
(including a majority of the "disinterested Trustees") with respect to the Fund
and will be submitted for approval by shareholders of the Fund at the initial
meeting of shareholders. The Advisory Agreement provides that it will continue
initially for two years, and from year to year thereafter, with respect to each
fund, as long as it is approved at least annually both (i) by a vote of a
majority of the outstanding voting securities of such fund [as defined in the
Investment Company Act of 1940 (the "Act")] or by the Board of Trustees of the
Trust, and (ii) by a vote of a majority of the Trustees who are not parties to
the Advisory Agreement or "interested persons" of any party thereto cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically if it is assigned.
Both the Advisor and Sub-Advisor provide investment advise to a variety of
clients (the Advisor also provides investment advise to other mutual funds).
Investment decisions for each client are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, as far as possible, averaged
as to price and allocated between such clients in a manner which, in the
Advisor's or Sub-Advisor's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients. The Advisor and Sub-Advisor employ professional
staffs of portfolio managers who draw upon a variety of resources for research
information for the clients.
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In addition to advising client accounts, the Advisor and Sub-Advisor invest in
securities for their own accounts. The Advisor and Sub-Advisor have adopted
policies and procedures intended to minimize or avoid potential conflicts with
their clients when trading for their own accounts. The investment objectives and
strategies of the Advisor and Sub-Advisor are different from those of their
clients, emphasizing venture capital investing, private placement arbitrage and
speculative short-term trading. The Advisor uses a diversified approach to
venture capital investing. Investments typically involve early-stage businesses
seeking initial financing as well as more mature businesses in need of capital
for expansion, acquisitions, management buyouts, or recapitalization. Overall,
the Advisor invests in start-up companies in the natural resources or technology
fields.
TRANSFER AGENCY AND OTHER SERVICES
In addition to the services performed for the Funds and the Trust under the
Advisory Agreement, the Advisor, through its subsidiary USSI, provides transfer
agent and dividend disbursement agent services pursuant to the Transfer Agency
Agreement as described in the Fund's Prospectus under "Management of the Fund --
The Investment Advisor." In addition, lockbox and statement printing services
are provided by USSI.
USSI also maintains the books and records of the Trust and of each fund of the
Trust and calculates their daily net asset value as described in the Fund's
Prospectus under "Management of the Funds -- The Investment Advisor."
A & B Mailers, Inc., a corporation wholly owned by the Advisor, 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.
DISTRIBUTION PLAN
As described under "Distribution Expense Plan" in the Prospectus, the Fund has
adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act (the
"Distribution Plan"). The Distribution Plan allows the Fund to pay for or
reimburse expenditures in connection with sales and promotional services related
to the distribution of Fund shares, including personal services provided to
prospective and existing Fund shareholders, and includes the costs of: printing
and distribution of prospectuses and promotional materials, making slides and
charts for presentations, assisting shareholders and prospective investors in
understanding and dealing with the Fund, and travel and out-of-pocket expenses
(e.g., copy and long distance telephone charges) related thereto.
The total amount expended pursuant to the Distribution Plan may not exceed 0.25%
of the Fund's net assets on an annual basis. Distribution expenses paid by the
Advisor or other third parties in prior periods that exceeded 0.25% of net
assets may be paid by the Fund with distribution expenses accrued pursuant to
the 12b-1 plan in the current or future periods, so long as the 0.25% limitation
is never exceeded.
Expenses that the Fund incurs pursuant to the distribution plan are reviewed
quarterly by the Board of Trustees. The distribution plan is reviewed annually
by the Board of Trustees as a whole, and the Trustees who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Distribution plan
("Qualified Trustees"). In their review of the Distribution plan the Board of
Trustees, as a whole, and the Qualified Trustees determine whether, in their
reasonable business judgment and considering their fiduciary duties under state
law and under Section 36(a) and (b) of the 1940 Act there is a reasonable
likelihood that the Distribution plan will benefit the Fund and its
shareholders. The Distribution plan may be terminated at any time by vote of a
majority of the Qualified Trustees, or by a majority vote of the outstanding
voting securities of the Fund.
The Fund is unaware of any Trustee or any interested person of the Fund who had
a direct or indirect financial interest in the operations of the Distribution
plan.
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<PAGE>
The Fund expects that the Distribution plan will be used primarily to pay a
"service fee" to persons who provide personal services to prospective and
existing Fund shareholders. Shareholders of the Fund will benefit from these
personal services and the Fund expects to benefit from economies of scale as it
attracts more shareholders.
CERTAIN PURCHASES OF SHARES OF THE FUND
Shares of the Fund are continuously offered by the Trust at their net asset
value next determined after an order is accepted. The methods available for
purchasing shares of the Fund are described in the Prospectus. In addition,
shares of the Fund may be purchased using stock, so long as the securities
delivered to the Trust meet the investment objectives and concentration policies
of the Fund, and are otherwise acceptable to the Advisor, which reserves the
right to reject all 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 AMEX, the NYSE, or NASDAQ;
(4) any securities so acquired by any 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 "How Shares Are Valued" in the Prospectus.
The number of shares of the Fund, having a net asset value as of the close of
business on the day of receipt equal to the value of the securities delivered by
the investor, will be issued to the investor, less applicable stock transfer
costs or 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
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
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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, that makes it not practicable for the
Trust to dispose of securities owned by it or to determine fairly the value of
its assets; or (3) as the SEC may otherwise permit.
REDEMPTION IN KIND. The Trust reserves the right to redeem shares of the 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 Fund solely in cash up to the lesser of
$250,000 or one percent of the net asset value of the Fund during any 90-day
period for any one shareholder. Any shareholder of the Fund receiving a
redemption in kind would then have to pay brokerage fees in order to convert his
Fund investment into cash. All redemptions in kind will be made in marketable
securities of the Fund.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN. The Fund may advertise performance in terms of average annual
total return for 1-, 5- and 10-year periods, or for such lesser periods as the
Fund has been in existence. Average annual total return is computed by finding
the average annual compounded rates of return over the periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the 1-, 5- or 10-year
periods at the end of the year or
period.
The calculation assumes that (1) all charges are deducted from the initial
$1,000 payment, (2) all dividends and distributions by the Fund are reinvested
at the price stated in the prospectus on the reinvestment dates during the
period, and (3) all recurring fees charged to all shareholder accounts are
included.
NONSTANDARDIZED TOTAL RETURN. The Fund may provide the above described standard
total return results for a period that ends not earlier than the most recent
calendar quarter end and begins either twelve months before or at the time of
commencement of the Fund's operations. In addition, the Fund may provide
nonstandardized total return results for differing periods, such as for the most
recent six months. Such nonstandardized total return is computed as otherwise
described under "Total Return" except that no annualization is made.
TAX STATUS
TAXATION OF THE FUND -- IN GENERAL. As stated in its prospectus, the Fund
intends to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund
will not be liable for Federal income taxes on its taxable net investment income
and capital gain net income distributed to shareholders if the Fund distributes
at least 90% of its net investment income and net short-term capital gain for
the taxable year.
To qualify as a regulated investment company, the Fund must, among other things:
(1) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies (the "90% test"); (2) derive in each taxable year less than 30% of
its gross income from the sale or other disposition of stock or securities held
less than three months (the "30% test"); and (3) satisfy certain diversification
requirements at the close of each quarter of the Fund's taxable year.
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The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of: (1) at least 98% of its ordinary income for the calendar year; (2)
at least 98% of its capital gain net income for the twelve-month period ending
on October 31 of the calendar year; and (3) any portion (not taxable to the
Fund) of the respective balance from the preceding calendar year. The Fund
intends to make such distributions as are necessary to avoid imposition of this
excise tax.
TAXATION OF THE FUND'S INVESTMENTS. The Fund's ability to make certain
investments may be limited by provisions of the Code that require inclusion of
certain unrealized gains or losses in the Fund's income for purposes of the 90%
test, the 30% test, and the distribution requirements of the Code, and by
provisions of the Code that characterize certain income or loss as ordinary
income or loss rather than capital gain or loss. Such recognition,
characterization and timing rules generally apply to investments in certain
forward currency contracts, foreign currencies and debt securities denominated
in foreign currencies.
TAXATION OF THE SHAREHOLDER. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November or December and paid to
shareholders of record in such a month, will be deemed to have been received on
December 31 if a fund pays the dividends during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just before a distribution. The price of such shares
purchased then includes the amount of any forthcoming distribution. Investors
purchasing the Fund's shares immediately before a distribution may receive a
return of investment upon distribution that will nevertheless be taxable to
them.
A shareholder of the Fund should be aware that a redemption of shares (including
any exchange into other funds offered, affiliated or administered by U. S.
Global Investors, Inc.) is a taxable event and, accordingly, a capital gain or
loss may be recognized. If a shareholder of the Fund receives a distribution
taxable as long-term capital gain with respect to shares of the Fund and redeems
or exchanges shares before he has held them for more than six months, any loss
on the redemption or exchange (not otherwise disallowed as attributable to an
exempt-interest dividend) will be treated as long-term capital loss to the
extent of the long-term capital gain recognized.
CUSTODIAN
Bankers Trust Company acts as custodian for the Fund. Services with respect to
the retirement accounts will be provided by Security Trust and Financial Company
of San Antonio, Texas, a wholly-owned subsidiary of the Advisor.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, One Riverwalk Place, San Antonio, Texas 78205, is the
independent accountant for the Trust.
FINANCIAL STATEMENTS
The Fund was established as a separate series of the Trust on March 11, 1997,
and does not yet have any operating history. The Advisor will send shareholders
annual and semi-annual reports as they become available.
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