[GRAPHIC: U.S. GLOBAL INVESTORS, INC. LOGO]
March 11, 1997
Mr. John Grzeskiewicz
Senior Examiner
Securities Exchange Commission
Washington, D.C.
Re: Representation Letter
U.S. Global Investors Accolade Funds
Regent Eastern Europe Fund ("Fund")
File Numbers 811-7662 and 33-61542
Dear Mr. Grzeskiewicz:
We received your comments on Thursday, March 6, 1997, and responded by amending
the prospectus, which has been marked for changes and filed via EDGAR today.
The Fund hereby provides you with this written representation letter whereby the
Fund makes the following four representations and undertakings:
1. The Fund, U.S. Global Investors, Inc. ("Advisor"), and Regent Fund
Management Limited ("Sub-Advisor") are aware of their responsibilities
under the Investment Company Act of 1940 ("1940 Act") with respect to
pricing and liquidity.
2. The Fund's Board of Trustees will closely monitor pricing and liquidity of
the Fund's portfolio securities. Each quarterly meeting of the Board of
Trustees includes, and will continue to include, a review of all Board
valued securities, liquidity, and a review of recent developments in
eastern European countries.
3. The Board of Trustees has already approved procedures addressing pricing
and liquidity issues, including a pricing committee which meets daily,
written policies concerning Board valued securities, stale pricing
procedures and overriding pricing procedures. The Board has also approved
an agreement with the Fund's custodian whereby the Fund may borrow up to
33 1/3% of its total assets when deemed desirable or appropriate to meet
redemption requests.
7900 Callaghan Road
.......................
Mail Address:
P.O. BOX 29467
SAN ANTONIO, TEXAS
78229-0467
.......................
Tel 210-308-1234
.......................
1-800-US-FUNDS
.......................
Fax 210-308-1223
.......................
email [email protected]
<PAGE>
Mr. John Grzeskiewicz
March 11, 1997
Page 2
4. When determining the daily net asset value of all the funds which it
advises, the Advisor maintains records supporting the price for each
portfolio security. The Fund will be included in this practice and is
prepared to provide copies of these records to the SEC upon request.
If you have any additional questions, please call the undersigned at (210)308-
1234, extension 133.
Respectfully,
/S/ Thomas Tays
Thomas Tays
Vice President, Securities Counsel
TDT:kle
cc: Mr. Frank E. Holmes
President, U.S. Global Accolade Funds
Chief Executive Officer and Chairman, U.S. Global Investors, Inc.
Mr. Peter Everington
Chairman, Regent Fund Management Limited
Dr. Richard E. Hughs
Chairman, Audit Committee, U.S. Global Accolade Funds
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
U.S. GLOBAL ACCOLADE FUNDS
REGENT EASTERN EUROPEAN FUND
P.O. Box 781234
San Antonio, Texas 78278-1234
1-800-US-FUNDS (1-800-873-8637)
(Information, Shareholder Services and Requests)
INTERNET: http://www.usfunds.com
PROSPECTUS
March 11, 1997
This prospectus presents information that a prospective investor should know
about the Regent Eastern European Fund (the "Fund"), a diversified series of
U.S. Global Accolade Funds (the "Trust"), formerly Accolade Funds. The Trust is
an open-end management investment company. The Fund's investment objective is
long-term growth of capital. The Fund will invest primarily in companies located
in the emerging markets of Eastern Europe. THE FUND INVOLVES SPECULATIVE
INVESTMENTS AND SPECIAL RISKS, SUCH AS POLITICAL, ECONOMIC AND LEGAL
UNCERTAINTIES, CURRENCY FLUCTUATIONS, PORTFOLIO SETTLEMENT AND CUSTODY RISKS AND
RISKS OF LOSS ARISING OUT OF INADEQUATE SHARE REGISTRATION SYSTEMS. Investors
are responsible for determining whether or not an investment in the Fund is
appropriate for their needs. Read and retain this prospectus for future
reference.
A Statement of Additional Information dated March 11, 1997, has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
The Statement is available free from U.S. Global Accolade Funds by calling
1-800-US-FUNDS (1-800-873-8637) or writing to the address shown above.
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
Summary of Fees and Expenses................................................3
Investment Objectives and Practices.........................................4
Special Risk Considerations.................................................5
Special Risks of Representative Emerging Markets
in Eastern European Countries............................................6
Additional Investment Practices.............................................9
Futures Contracts and Options..............................................11
How to Purchase Shares.....................................................12
How to Exchange Shares.....................................................14
How to Redeem Shares.......................................................16
How Shares Are Valued......................................................19
Dividends and Taxes........................................................20
The Trust..................................................................22
Management of the Fund.....................................................22
Distribution Expense Plan..................................................24
Performance Information....................................................24
Page 2
<PAGE>
SUMMARY OF FEES AND EXPENSES
The following summary is provided to help you understand the various costs and
expenses a shareholder in the Fund could bear directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load............................................None
Redemption Fee................................................None
Administrative Exchange Fee....................................$ 5
Account Closing Fee (does not apply to exchanges)..............$10
Trader's Fee (shares held less than 30 days).................0.25%
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) (1)
Management Fees..............................................1.25%
12b-1 Fees...................................................0.25%
Other Expenses, including Transfer Agency....................1.85%
and Accounting Services Fees
Total Fund Operating Expenses................................3.35%
Except for active ABC Investment Plan(R) accounts, custodial accounts for
minors and retirement accounts, if an account balance falls, for any reason
other than market fluctuations, below $5,000 anytime during a month, that
account will be subject to a monthly small account charge of $1 that will be
payable quarterly. See SMALL ACCOUNTS.
A shareholder who requests delivery of redemption proceeds by wire transfer will
be subject to a $10 charge. International wires will be higher.
HYPOTHETICAL EXAMPLE OF EFFECT OF FUND EXPENSES (1):
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return and redemption at the end of each period.
1 year...................... $ 64
3 years......................$113
The Hypothetical Example is based on the Fund's projected expenses, which are
expected to decline as the Fund's net assets increase. In conformance with SEC
regulations, the example is based on a $1,000 investment; however, the Fund's
minimum investment is $5,000. In practice, a $1,000 account would be assessed a
monthly $1.00 small account charge which is not reflected in the example. See
SMALL ACCOUNTS. Included in these estimates is the account closing fee of $10
for each period. This fee is a flat charge which does not vary with the size of
your investment. Accordingly, for investments larger than $1,000, your total
expenses will be substantially lower in percentage terms than the illustration
implies. The example should not be considered a representation of future
expenses. Actual expenses may be more or less than those shown.
- -----------------
(1) Annual Fund Operating Expenses and the Hypothetical Example are based
on the Fund's projected expenses and on the advisor's and sub-advisor's
agreement to cap total fund operating expenses at 3.25%. The Fund pays
management fees to U.S. Global Investors, Inc. (the "Advisor") for managing its
investments and business affairs. The Advisor then pays a portion of the
management fee to Regent Fund Management Limited (the "Sub-Advisor") for serving
as sub-advisor. See MANAGEMENT OF THE FUND for further information.
Page 3
<PAGE>
INVESTMENT OBJECTIVES AND PRACTICES
The Fund is designed for investors who believe that a rigorous program of
investing in securities of companies located in the emerging markets of Eastern
Europe will provide significant opportunities. Please read the prospectus
carefully before you invest. You are responsible for determining the suitability
of the Fund to meet your long-term investment goals.
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT PRACTICES
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve this objective by investing primarily in companies located in the
emerging markets of Eastern Europe. Investment in the Fund involves a high
degree of risk, and there can be no assurance that the Fund will achieve its
objective. The Fund's objective is not a fundamental policy and may be changed
by the Board of Trustees without shareholder approval. However, shareholders
will be notified in writing at least 30 days before any material change in the
Fund's objective. The Fund is not intended to be a complete investment program,
and a prospective investor should take into account personal objectives and
other investments when considering the purchase of Fund shares.
The Fund's investment strategies and portfolio investments will differ from
those of most other mutual funds. The Sub-Advisor seeks rigorously to identify
favorable securities, economic and market sectors, and investment opportunities
that other investors and investment advisers may not have identified. When the
Sub-Advisor identities such an investment opportunity, it may devote more of the
Fund's assets to pursuing that opportunity and may select investments for the
Fund that would be inappropriate for less opportunistic mutual funds.
INVESTMENTS
The Fund's investments will normally include common stocks, preferred stocks,
securities convertible into common or preferred stocks, and warrants to purchase
common stocks or preferred stocks.
"Eastern European countries" are countries in and surrounding Europe that in the
opinion of the Sub-Advisor are generally considered to be in the early stages of
industrial, economic, or capital market development. Eastern European countries
may include countries that were until recently governed by communist governments
or countries that, for any other reason, have failed to achieve levels of
industrial production, market activity, or other measures of economic
development typical of the developed European countries. Eastern European
countries might currently include, by way of example, Russia, Poland, the Czech
Republic, the Slovak Republic, and Hungary.
Under normal circumstances, the Fund will invest at least 65% of its assets in
equity securities of companies located in Eastern European countries. The Fund
may invest the remainder of its assets in securities (including debt securities
if the Sub-Advisor believes they offer potential for capital appreciation ) of
companies located anywhere in the world if the Sub-Advisor believes that such
investments are consistent with the Fund's investment objective. The Fund will
consider an issuer of securities to be located in an emerging European country
if (1) it is organized under the laws of any emerging European country and has a
principal office in an emerging European country, (2) it derives 50% or more of
its total revenues from business in Eastern European countries, or (3) its
equity securities are traded principally on a securities exchange in an emerging
European country. For this purpose, investment companies that invest principally
in securities of companies located in one or more Eastern European countries
will also be considered to be located in an emerging European country, as will
American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) with
respect to the securities of companies located in Eastern European countries.
The Fund will not invest more than 15% of its net assets in illiquid securities.
Securities may be illiquid because they are unlisted, subject to contractual or
legal restrictions on resale or subject to other factors which, in the Sub-
Advisor's opinion, raise a question concerning the Fund's ability to liquidate
the securities in a timely and orderly fashion without substantial loss.
The Fund may invest up to 10% of its total assets in the securities of
investment companies with investment policies similar to those of the Fund,
provided its investments in these securities do not exceed limitations imposed
by the Investment Company Act of 1940 in effect at the time of purchase. The
Fund will indirectly bear its proportionate share of any management fees paid by
investment companies in which it invests in addition to the advisory fee paid by
the Fund.
TEMPORARY DEFENSIVE INVESTMENT
For temporary defensive purposes during periods that, in the Sub-Advisor's
opinion, present the Fund with adverse changes in the economic, political or
securities markets of Eastern European countries, the Fund may seek to protect
the capital value of the Fund's assets by temporarily investing up to 100% of
its assets in:
(1) money market instruments, deposits or such other investment grade
short-term investments in local Eastern European country currencies as are
considered appropriate at the time;
(2) U.S. Government bills, 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
(3) repurchase agreements as described herein.
SPECIAL RISK CONSIDERATIONS
Investments by the Fund in securities of companies in Eastern European countries
may provide the potential for above-average capital appreciation, but are
subject to special risks. The Fund is designed for long-term investors who can
accept the special risks of investing in Eastern European countries not
typically associated with investing in other more established economies or
securities markets. Investors should carefully consider their ability to assume
these risks before making an investment in the Fund. An investment in shares of
the Fund should not be considered a complete investment program. It should be
considered speculative and thus may not be appropriate for all investors.
RISKS IN EASTERN EUROPEAN COUNTRIES
Political and economic structures in many Eastern European countries are in
their infancy and developing rapidly, and such countries may lack the social,
political and economic stability characteristic of many more developed
countries. Eastern European countries have in the past failed to recognize
private property rights and have at times nationalized or expropriated the
assets of private companies. As a result, the risks normally associated with
investing in any foreign country may be heightened in Eastern European
countries. In addition, unanticipated political or social developments may
affect the values of the Fund's investment in Eastern European countries. The
small size and inexperience of the securities markets in Eastern European
countries and the limited volume of trading in securities in those markets may
make the Fund's investments in such countries illiquid and more volatile than
investments in more developed countries. There may be little financial or
accounting information available with respect to companies located in certain
emerging European countries, and it may be difficult as a result to assess the
value or prospects of an investment in such companies.
Investments in foreign securities, whether in emerging or more developed
countries, are subject to risks and uncertainties not typically associated with
investments in domestic securities. These risks and uncertainties include
currency exchange rates and exchange control regulations, less publicly
available information, different accounting and reporting standards, less liquid
markets, more volatile markets, higher brokerage commissions
Page 4
<PAGE>
and other fees, possibility of nationalization or expropriation, confiscatory
taxation, political instability, and less protection provided by the judicial
system.
Eastern European securities markets are substantially smaller, less liquid and
significantly more volatile than the securities markets in the United States or
Western Europe. Because the markets are smaller and less liquid, obtaining
prices on portfolio securities from independent sources may be more difficult
than in other more developed markets. These factors may make it more difficult
for the Fund to calculate an accurate net asset value on a daily basis and to
respond to significant shareholder redemptions.
Many of the countries in which the Fund will invest experienced extremely high
rates of inflation, particularly between 1990 and 1996 when central planning was
first being replaced by the capitalist free market system. As a consequence, the
exchange rates of such countries experienced very significant depreciation
relative to the U.S. dollar. While the inflation experience of such countries
has generally improved significantly in recent times, there can be no assurance
that such improvement will be sustained. Consequently the possibility of
significant loss arising from foreign currency depreciation must be considered
as a serious risk.
Investments in European countries may include the securities of both large and
small companies. Small companies may offer greater opportunities for capital
appreciation than larger companies, but investments in small companies may
involve certain special risks. Small companies may have limited product lines,
markets, or financial resources and may be dependent on a limited management
group. Securities issued by small companies may trade less frequently and in
smaller volume than more widely held securities issued by large companies. The
values of securities issued by small companies may fluctuate more sharply than
those issued by larger companies, and the Fund may experience some difficulty in
establishing or closing out positions in small company securities at prevailing
prices.
Although the Fund expects to invest primarily in securities of established
companies, it may, subject to local investment limitations, invest in companies
that have business associations in emerging European countries, 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 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 emerging European country markets in general. Such securities
could decline significantly in value prior to the Fund's being able to liquidate
such securities.
For more information concerning the special risks of investing in the Fund, see
the Statement of Additional Information.
SPECIAL RISKS OF REPRESENTATIVE EMERGING MARKETS
IN EASTERN EUROPEAN COUNTRIES
The Fund may invest in any emerging European country. In addition to the special
risks common to most emerging European countries described above, each
individual emerging European country also necessarily involves special risks
which may be unique to that country. Following is a brief description of special
risks which may be incurred when the Fund invests in Russia, Poland, the Czech
Republic, the Slovak Republic, and Hungary.
RUSSIA
Russia began reforms under "perestroika" as a member of the Soviet Union in
1985. After the collapse of the Soviet Union, Russia accelerated market-oriented
reforms. Privatization began in 1992 and economic conditions have begun to
stabilize.
Page 5
<PAGE>
Privatization of Russian industry through voucher systems has been substantial.
The government has also instituted a controversial loan-for-share program to
raise much needed cash. Banks now control many major Russian enterprises as a
result of this program. There is also speculation that organized crime exerts
significant influence on Russia industry. Concentrated ownership and control of
Russian companies limits the ability of outsiders to influence corporate
governance. Legal reforms to protect stockholders' rights have been implemented,
but stock markets remain underdeveloped and illiquid.
Privatization of agricultural land has been unsuccessful due to disputes between
executive and legislative branches regarding property rights. To date, the
Russian government has not authorized any form of property restitution.
Russian industry is in need of restructuring to close out-dated facilities and
increase investment in technology and management. Financial institutions do not
allocate capital in an efficient manner. Bankruptcy laws are restrictive and
offer little protection to creditors. Foreign creditors must file insolvency
claims through Russian subsidiaries. Bankruptcies remain rare.
The Russian system of taxation deters investment and hinders financial stability
by concentrating on the taxation of industry with relatively little emphasis on
individual taxation. Additionally, the energy sector bears a relatively small
tax burden. Proposals for a new tax system exist, but the impact of a new tax
scheme remains uncertain.
Russia does not have a centralized stock exchange, although exchange activity
has developed regionally and shares are now traded on exchanges located
throughout the country. The majority of stocks in Russia are traded on the
over-the-counter market. It is through the over-the-counter market that foreign
investors typically participate in the Russian equity market.
The largest problem in the equity market continues to be shareholders' property
rights. In Russia the only proof of ownership of shares is an entry in the
shareholders' register. Despite a presidential decree requiring companies with
over 1,000 shareholders to have an independent body to act as its registrar, in
practice a company's register is still susceptible to manipulation by
management. To solve this and related problems, the Federal Securities
Commission was created. Also, Russian law requires banks and market
professionals to acquire a licence before handling securities.
POLAND
Poland began market-oriented reforms in 1981. In late 1989, more comprehensive
reforms were enacted. Most small enterprise has been privatized. Privatization
of larger entities has been a slower process, delayed by disputes regarding the
compensation of fund managers and the role of investment funds charged with
privatizing industry.
Barriers to trade were significantly reduced in 1990, but many have since been
reinstituted. The banking system has been reformed to increase capitalization,
but continues to under-perform. Bank privatization has occurred at a slower pace
than expected.
A 1991 law permitted the formation of mutual funds in Poland. The Warsaw Stock
Exchange also opened in 1991 and has grown dramatically, becoming one of the
most liquid markets in Eastern Europe. However, it is a young market with a
capitalization much lower than the capitalization of markets in Western Europe
and America.
Legal reforms have been instituted and laws regarding investments are published
on a routine basis. However, important court decisions are not always accessible
to practitioners. While there are currently no obstacles to foreign ownership of
securities and profits may be repatriated, these laws may be changed at any time
without notice.
Page 6
<PAGE>
The Warsaw Stock Exchange reopened in 1991. The Act establishing the Warsaw
Stock Exchange (1991) provided the basic legal framework for securities
activities. The Law on Public Trading in Securities and Trust Funds (1991)
regulates the public offerings of securities, the establishment of open-ended
investment funds and the operations of securities brokers. Polish equities are
held on a paperless book-entry system, based on a computerized central
depository. For listed securities it is a requirement that trades take place
through the market for the change of ownership to take place.
THE CZECH REPUBLIC
The Czech Republic was formerly governed by a communist regime. In 1989, a
market-oriented reform process began. The market-oriented economy in the Czech
Republic is young and still evolving. These reforms leave many uncertainties
regarding market and legal issues.
The Czech Republic has instituted substantial privatization since 1992, when the
first wave of privatization began. Information suggests that dominant or
majority shareholders now control many of the larger privatized companies, and
that further restructuring is likely. Members of management and owners of these
companies are often less experienced than managers and owners of companies in
Western European and American markets. Additionally, securities markets on which
the securities of these companies are traded are in their infancy.
The legal system of the Czech Republic is still evolving. Bankruptcy laws have
been liberalized, giving creditors more power to force bankruptcies. The number
of bankruptcies, while still relatively low, is increasing each year.
Laws regulating direct and indirect foreign investment, as well as repatriation
of profits and income, exist and are subject to change at any time. Tax laws
include provisions for both value-added taxes and income taxes.
Courts of law are expected to, but may not, enforce the legal rights of private
parties.
The Prague Stock Exchange opened in April 1993 with 12 monetary institutes and
five brokerage firms as its founding shareholders. The trading and information
systems are based on a central automated trading system.
The market price of all securities is set in this automated system once a day.
Direct trades are concluded between members, recorded in the automated trading
system and settled through the Exchange Register of Securities. Only members of
the Prague Stock Exchange can be participants in automated trades in blocks of
securities.
Another method of trading is the over-the-counter market which operates by
directly accessing the Securities Centre. The Securities Act allows for
off-exchange trading, which primarily benefits the millions of local
shareholders who hold shares as a result of the original privatization of Czech
industry.
Concluded exchange deals are cleared by Securities Register Ltd., an offshoot of
the Prague Stock Exchange. All exchange deals between members are guaranteed
clearing; a guarantee fund covers the risks and liabilities inherent in exchange
trading.
THE SLOVAK REPUBLIC
The Slovak Republic was formerly governed by a communist regime. In 1989, a
market-oriented reform process began. The market-oriented economy in the Slovak
Republic is young and still evolving. These reforms leave many uncertainties
regarding economic and legal issues.
The Slovak Republic's path toward privatization differs from the path of the
Czech Republic. The Slovak government has issued bonds which can be held until
maturity, sold immediately, or redeemed for shares of stock in companies being
privatized. This method of privatization creates uncertainty about future
restructuring which may occur as bonds are sold and/or converted.
Page 7
<PAGE>
Owners and managers of Slovak enterprises are often less experienced with market
economies than owners and managers of companies in Western European and American
markets. The securities markets on which the securities of these companies are
traded are also in their infancy.
Laws regarding bankruptcy, taxation and foreign ownership of Slovak enterprises
are evolving and may be changed dramatically at any time. Import and export
regulations are minimal.
The Bratislava Stock Exchange and the RM-system (an over-the-counter exchange)
began operations during the first half of 1993. The RM-system trades in all
companies distributed under the voucher privatization scheme as well as newly
established companies. Foreigners are free to participate in the market for
shares; profit repatriation is subject to payment of income taxes on capital
gains.
From the beginning the Slovak Republic's markets were fragmented and have lacked
liquidity. Over 80 percent of all trades were executed outside of the Bratislava
Stock Exchange and RM-system. With the adoption of the new capital markets
legislation more than 70 percent of all trades have been executed on the
Bratislava Stock Exchange or the RM-system. Parliament has adopted amendments to
the Securities Law which provide for the establishment of an independent
regulatory body to protect investors' right; it centralizes trading on the
official market with the requirement that all trades be registered, published
and completed at prices posted on the Bratislava Stock Exchange, thus promoting
greater transparency. The revised law also increases the minimum capital
requirements for brokers.
HUNGARY
Hungary was formerly governed by a communist regime and tried unsuccessfully to
implement market-oriented reforms in 1968. Beginning in 1989, Hungary again
undertook transformation to a market-oriented economy. These reforms are still
relatively recent and leave many uncertainties regarding economic and legal
issues.
Privatization in Hungary has been substantial but is not yet complete. It is
unclear whether a consolidation of ownership has occurred or will occur as a
result of privatization.
Owners and managers of Hungarian enterprises are often less experienced with
market economies than owners and managers of companies in Western European and
American markets. The securities markets on which the securities of these
companies are traded are in their infancy.
Laws governing taxation, bankruptcy, restrictions on foreign investments, and
enforcement of judgments are subject to change.
The Budapest Commodity and Stock Exchange opened in 1864 and became one of the
largest markets in Central Europe. After the Second World War, the exchange was
closed down by the Communists and it took 42 years before it was reopened in
June 1990. The Budapest Stock Exchange is a two tier market consisting of listed
and traded stocks. The over-the-counter market is not regulated and any public
company's shares can be traded on it.
ADDITIONAL INVESTMENT PRACTICES
BORROWING
As a fundamental policy which cannot be changed without a vote by shareholders,
the Fund may borrow from a bank up to a limit of 5% of its total assets for
temporary or emergency purposes; and, it may borrow up to 33 1/3% of its total
assets (reduced by the amount of all liabilities and indebtedness other than
such borrowings) when deemed desirable or appropriate to meet redemption
requests. Such borrowing is intended only as a temporary solution until
securities can be sold in an orderly fashion. To the extent that the Fund
borrows money
Page 8
<PAGE>
prior to selling securities, the Fund may be leveraged. At such times, the Fund
may appreciate or depreciate in value more rapidly than an unleveraged
portfolio. The Fund will repay any money borrowed in excess of 5% of the value
of its total assets prior to purchasing additional portfolio securities.
LENDING OF PORTFOLIO SECURITIES
The Fund may lend securities to broker-dealers or institutional investors for
their use in connection with short sales, arbitrages and other securities
transactions. This is a fundamental policy which cannot be changed without a
vote by shareholders. The Fund will not lend portfolio securities unless the
loan is secured by collateral (consisting of any combination of cash, United
States Government securities or irrevocable letters of credit) in an amount at
least equal (on a daily marked-to-market basis) to the current market value of
the securities loaned. In the event of a bankruptcy or breach of agreement by
the borrower of the securities, the Fund could experience delays and costs in
recovering the securities loaned. The Fund will not enter into securities
lending agreements unless its custodian bank/lending agent will fully indemnify
the Fund against loss due to borrower default. The Fund may not lend securities
with an aggregate market value of more than one-third of the Fund's total net
assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery basis.
Securities purchased on a when-issued or delayed delivery basis are purchased
for delivery beyond the normal settlement date at a stated price and yield. No
income accrues to the purchaser of a security on a when-issued or delayed
delivery basis prior to delivery. Such securities are recorded as an asset and
are subject to changes in value based on changes in the general level of
interest rates. Purchasing a security on a when-issued or delayed delivery basis
can involve a risk that the market price at the time of delivery may be lower
than the agreed upon purchase price, in which case there could be an unrealized
loss at the time of delivery. The Fund will only make commitments to purchase
securities on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities, but may sell them before the settlement date
if it is deemed advisable. The Fund will restrict liquid securities in an amount
at least equal in value to the Fund's commitments to purchase securities on a
when-issued or delayed delivery basis. If the value of these restricted assets
declines, the Fund will place additional liquid assets in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
PORTFOLIO CONCENTRATION
As a fundamental policy which cannot be changed without a vote of shareholders,
the Fund will not invest more than 25% of its total assets in securities issued
by any single industry or government (other than obligations issued or
guaranteed by the United States Government or any of its agencies or
instrumentalities).
PORTFOLIO DIVERSIFICATION
The Fund will not purchase the securities of any one issuer (other than
obligations issued or guaranteed by the United States Government or any of its
agencies or instrumentalities) if, with respect to 75% of its total assets and
as a result of such purchase, (a) more than 5% of the total assets of the Fund
(taken at current value) would be invested in the securities of such issuer, or
(b) the Fund would hold more than 10% of the outstanding voting securities of
such issuer.
PORTFOLIO TURNOVER
It is the investment objective of the Fund to seek long-term growth of capital.
The Fund will effect portfolio transactions without regard to its holding period
if, in the judgment of the Advisor and Sub-Advisor, such transactions are in the
best interests of the Fund. Increased portfolio turnover may result in higher
costs for brokerage commissions, dealer mark-ups and other transaction costs and
may also result in taxable capital gains.
Page 9
<PAGE>
Certain tax rules may restrict the Fund's ability to engage in short-term
trading if the security has been held for less than three months. See PORTFOLIO
TURNOVER in the Statement of Additional Information.
REPURCHASE AGREEMENTS
The Fund may invest a portion of its assets in repurchase agreements with United
States broker-dealers, banks and other financial institutions, provided the
Fund's custodian always has possession of securities serving as collateral or
has evidence of book entry receipt of such securities.
In a repurchase agreement, the 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 the Fund some loss if the value
of the securities declined prior to liquidation. To minimize the risk of loss,
the Fund will enter into repurchase agreements only with institutions and
dealers which the Board of Trustees considers creditworthy.
FUTURES CONTRACTS AND OPTIONS
For hedging purposes only, the Fund may sell financial futures contracts, sell
call options and purchase put options. Currently there is not a well developed
market for futures contracts and options on equity securities traded in emerging
Europe, and the Sub-Advisor does not expect to make extensive use of such
futures contracts and options until a liquid market develops. However, there are
well developed markets for futures contracts and options on foreign currencies
which the Sub-Advisor expects to use. The Sub-Advisor is not obligated to make
use of either futures contracts or options. See FOREIGN CURRENCY TRANSACTIONS in
the Statement of Additional Information.
FUTURES CONTRACTS
The Fund may sell financial futures contracts to hedge its portfolio against a
decline in the market price of securities which it owns or to defend the
portfolio against currency fluctuations. A financial futures contract is an
agreement between two parties to buy or sell a specified security at a set price
on a set future date. An index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period. A futures contract
on a foreign currency is an agreement to buy or sell a specified amount of a
currency for a set price on a set future date.
When the Fund enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. In addition, when the Fund enters into a futures contract, it will
segregate assets or "cover" its position in accordance with applicable law. See
SEGREGATED ASSETS AND COVERED PORTFOLIOS in the Statement of Additional
Information.
SELLING (OR WRITING) COVERED CALL OPTIONS
The Fund may sell (or write) covered call options on individual portfolio
securities or on futures contracts (described above). A call option gives the
buyer of the option, upon payment of a premium, the right to call upon the
writer to deliver a security on or before a fixed date at a predetermined price,
referred to as the "strike price." If the price of the hedged security or
futures contract should fall or remain below the strike price, the Fund will not
be called upon to deliver the security or make a cash payment and the Fund will
retain the premium received for the option as additional income. This additional
income may offset any decline in the value of the security or
Page 10
<PAGE>
futures contract up to the amount of premium received. If the price of the
hedged security or futures contract rises or remains above the strike price of
the option, the Fund will generally be called upon to deliver the security or
make a cash payment. This will prevent the Fund from benefiting from any gain on
the security or futures contract. See SEGREGATED ASSETS AND COVERED POSITIONS in
the Statement of Additional Information.
BUYING PUT OPTIONS
The Fund may purchase put options on individual portfolio securities or on
futures contracts (described above). A put option gives the buyer of the option,
upon payment of a premium, the right to sell a security or futures contract to
the writer of the option on or before a fixed date at a predetermined price. The
Fund will realize a gain from the exercise of a put option if, during the option
period, the price of the security or futures contract declines by an amount in
excess of the premium paid. The Fund will realize a loss equal to all or a
portion of the premium paid for the option if the price of the security or
futures contract increases or does not decrease by more than the premium.
CLOSING TRANSACTIONS
The Fund may dispose of an option written by the Fund by entering into a
"closing purchase transaction" for an identical option and may dispose of an
option purchased by the Fund by entering into a "closing sale transaction" for
an identical option. In each case, the closing transaction will have the effect
of terminating the rights of the option holder and the obligations of the option
purchaser and will result in a gain or loss to the Fund based on the relative
amount of the premiums paid or received for the original option and the closing
transaction. The Fund may sell (or write) put options solely for the purpose of
entering into closing sale transactions.
HOW TO PURCHASE SHARES
The minimum initial investment for the Fund is $5,000 for regular accounts or
$1,000 for custodial accounts for minors. The minimum subsequent investment is
$50. The minimum initial investment for persons enrolled in the ABC Investment
Plan(R) (Automatically Building Capital) is $1,000, and the minimum subsequent
investment pursuant to such a plan is $100 or more per month per account. No
minimum purchase is required for retirement plan accounts, including IRAs,
administered by the Advisor or its agents and affiliates.
YOU MAY INVEST IN THE FOLLOWING WAYS:
BY MAIL
Send your application and check, made payable to the Regent Eastern European
Fund, to P.O. Box 781234, San Antonio, Texas 78278-1234.
When making subsequent investments, enclose your check with the return
remittance section of the confirmation statement, or write your name, address
and account number on your check or a separate piece of paper and mail to the
address mentioned above. Do not use the remittance part of your confirmation
statement for a different fund because it is pre-coded. This may cause your
investment to be invested into the wrong fund. If you wish to purchase shares in
more than one fund, send a separate check or money order for each fund. Third
party checks will not be accepted, and the Trust reserves the right to refuse to
accept second party checks.
BY TELEPHONE
Once your account is open, you may make investments by telephone by calling
1-800-US-FUNDS (1-800-873- 8637). Investments by telephone are not available in
money market funds or any retirement account administered by the Advisor or its
agents. The maximum telephone purchase is ten times the value of the shares
owned,
Page 11
<PAGE>
calculated at the last available net asset value. Payment for shares purchased
by telephone is due within seven business days after the date of the
transaction. You cannot exchange shares purchased by telephone until after
payment has been received and accepted by the Trust.
BY WIRE
You may make your initial or subsequent investments in the Eastern European Fund
by wiring funds. To do so, call the Fund at 1-800-US-FUNDS (1-800-873-8637) for
a confirmation number and wiring instructions.
BY ABC INVESTMENT PLAN(R)
The ABC Investment Plan(R) (Automatically Building Capital) is offered as a
special service allowing you to build a position in any of the U.S. Global
Investors family of funds over time without trying to outguess the market. Once
your account is open, you may make investments automatically by completing the
ABC Investment Plan(R) form authorizing U.S. Global Accolade Funds to draw on
your money market or bank account for a minimum of $100 a month beginning within
thirty (30) days after the account is opened. These lower minimums are a special
service bringing to small investors the benefits of U.S. Global Accolade Funds
without requiring a $5,000 minimum initial investment.
Your investment dollars will automatically buy more shares when the market is
undervalued and fewer shares when the market is overvalued. By investing an
equal amount at regular, periodic intervals, you avoid the extremes in the
market. Of course, using the ABC Investment Plan(R) does not guarantee a profit.
If you sell at the bottom, no system will give you a gain.
You may call 1-800-873-8637 to open a treasury money market fund or you could
ask your bank whether it will honor debits through the Automated Clearing House
("ACH") or, if necessary, preauthorized checks. You may change the date or
amount of your investment or discontinue the Plan anytime by letter received by
U.S. Global Accolade Funds at least two weeks before the change is to become
effective.
ADDITIONAL INFORMATION ABOUT PURCHASES
All purchases of shares are subject to acceptance by the Trust and are not
binding until accepted. U.S. Global Accolade Funds reserves the right to reject
any application or investment. Orders received by the Fund's transfer agent or a
subagent before 4:00 p.m. Eastern time, Monday through Friday exclusive of
business holidays, and accepted by the Fund will receive the share price next
computed after receipt of the order. If the NYSE and other financial markets
close earlier, as on the eve of a holiday, orders will become effective earlier
in the day at the close of trading on the NYSE.
If your telephone order to purchase shares is canceled due to nonpayment or late
payment (whether or not your check has been processed by the Fund), you will be
responsible for any loss incurred by the Trust because of such cancellation.
If a check is returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20, and you will be responsible for any loss
incurred by the Trust with respect to canceling the purchase.
To recover any such loss or charge, the Trust reserves the right, without
further notice, to redeem shares of any affiliated funds already owned by any
purchaser whose order is canceled, for whatever reason. Such a purchaser may be
prohibited from placing additional orders unless investments are accompanied by
full payment by wire or cashier's check.
U.S. Global Accolade Funds charges no sales commissions or "loads" of any kind.
However, investors may purchase and sell shares through registered
broker-dealers who may charge fees for their services.
Page 12
<PAGE>
CHECKS DRAWN ON FOREIGN BANKS. To be received in good order, an investment must
be made in U.S. dollars payable through a bank in the U.S. As an accommodation,
the Fund's transfer agent may accept checks payable in a foreign currency or
drawn on a foreign bank and will attempt to convert such checks into U.S.
dollars and repatriate such amount to the Fund's account in the U.S. Your
investment in the Fund will not be considered to have been received in good
order until your foreign check has been converted into U.S. dollars and is
available to the Fund through a bank in the U.S. Your investment in the Fund may
be delayed until your foreign check has been converted into U.S. dollars and
cleared the normal collection process. Any amounts charged to the Fund for
collection procedures will be deducted from the amount invested.
If the Trust incurs a charge for locating a shareholder without a current
address, such charge will be passed through to the shareholder.
TAX IDENTIFICATION NUMBEr
The Fund is required by Federal law to withhold and remit to the United States
Treasury a part of the dividends, capital gain distributions and proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who underreports dividend or interest income or
who fails to provide certification of tax identification number. To avoid this
withholding requirement, you must certify on your application, or on a separate
Form W-9 supplied by the transfer agent, that your taxpayer identification
number is correct and that you are not currently subject to backup withholding
or you are exempt from backup withholding. For individuals, your taxpayer
identification number is your social security number.
Instructions to exchange or transfer shares held in established accounts will be
refused until the certification has been provided. In addition, the Fund
assesses a $50 administrative fee if the taxpayer identification number is not
provided by year-end.
CONFIRMATION STATEMENTS
When you open your account, U.S. Global Accolade Funds will send you a
confirmation statement, which will be your evidence that you have opened an
account with U.S. Global Accolade Funds. The confirmation statement is
nonnegotiable, so if it is lost or destroyed, you will not be required to buy a
lost instrument bond or be subject to other expense or trouble, as you would
with a negotiable stock certificate. The Fund does not issue stock certificates.
HOW TO EXCHANGE SHARES
You have the privilege of exchanging into any of the other funds in the U.S.
Global Investors family of funds which is registered in your state. An exchange
involves the redemption (sale) of shares of one fund and purchase of shares of
another fund at the respective closing net asset value and is a taxable
transaction.
FUNDS IN THE U.S. GLOBAL INVESTORS FAMILY OF FUNDS
Investing involves balancing potential rewards against potential risks. To
achieve higher rewards on your investment, you must be willing to take on higher
risk. If you are most concerned with safety of principal, a lower risk
investment will provide greater stability but with lower potential earnings.
Another strategy for dealing with volatile markets is to use the ABC Investment
Plan(R). The list below is a reward and risk guide to all of the mutual
funds in the U.S. Global Investors family of funds. This guide may help you
decide if a fund is suitable for your investment goals.
Page 13
<PAGE>
HIGH REWARD China Region Opportunity Fund
HIGH RISK Regent Eastern European Fund
U.S. Gold Shares Fund
U.S. World Gold Fund
U.S. Global Resources Fund
Adrian Day Global Opportunity Fund
Bonnel Growth Fund
MODERATE REWARD U.S. Real Estate Fund
MODERATE RISK U.S. All American Equity Fund
MegaTrends Fund
U.S. Income Fund
U.S. Tax Free Fund
United Services Near-Term Tax Free Fund
LOW REWARD U.S. Government Securities Savings Fund
LOW RISK U.S. Treasury Securities Cash Fund
If you have additional questions, one of our professional investor
representatives will personally assist you. Call 1-800-US-FUNDS.
BY TELEPHONE
You will be able to automatically direct U.S. Global Accolade Funds to exchange
your shares by calling toll free 1-800-US-FUNDS (1-800-873-8637). In connection
with such exchanges, neither the Fund nor the transfer agent will be responsible
for acting on any instructions reasonably believed by them to be genuine. The
shareholder, because of this policy, will bear the risk of loss. The Fund and/or
its transfer agent will, however, use reasonable procedures to confirm that
telephone instructions are genuine (including requiring some form of personal
identification, providing written confirmation and tape recording
conversations). If either party does not employ reasonable procedures, it may be
liable for losses due to unauthorized or fraudulent transactions.
BY MAIL
You may direct U.S. Global Accolade Funds in writing to exchange your shares
between identically registered accounts in the U.S. Global Investors family of
funds. The request must be signed exactly as the name appears in the
registration. (Before writing, read ADDITIONAL INFORMATION ABOUT EXCHANGES.)
ADDITIONAL INFORMATION ABOUT EXCHANGES
(1) A $5 charge will be paid to United Shareholder Services, Inc. ("USSI") for
each exchange out of any fund account. Retirement accounts administered by
the Advisor or its agents are charged $5 for each exchange exceeding three
per quarter. Exchange fees cover administrative costs associated with
handling these exchanges.
(2) An exchange involves both the redemption of shares out of the Fund and the
purchase of shares in a "Separate Fund." Like any other purchase, shares of
the Separate Fund cannot be purchased by exchange until all conditions of
purchase are met, including investable proceeds being immediately
available. Like any other redemption, the Fund reserves the right to hold
exchange proceeds for up to seven days. In general, the Fund expects to
exercise this right on exchanges of $50,000 or more. In such event,
purchase of the Separate Fund shares will also be delayed. Separate Fund
shares will be priced at their net asset value at the time of purchase.
Redemption proceeds will not be invested in either fund during this period.
Fund shares will always be redeemed immediately; however, Separate Fund
shares will not be purchased until investable proceeds are available. You
will be notified immediately if the purchase will be delayed.
Page 14
<PAGE>
(3) If a negotiable stock certificate represents the shares you wish to
exchange, you must return the certificate before the exchange can be
effected.
(4) Shares may not be exchanged unless you have furnished U.S. Global Accolade
Funds with your tax identification number, certified as required by the
Internal Revenue Code and Regulations, and the exchange is to an account
with like registration and tax identification number. (See TAX
IDENTIFICATION NUMBER.)
(5) Exchanges out of the Regent Eastern European Fund of shares held less than
30 days are subject to a trader's fee. (See TRADER'S FEE PAID TO FUND.)
(6) The exchange privilege may be canceled anytime. The exchange fee and other
terms of the privilege are subject to change.
HOW TO REDEEM SHARES
You may redeem any or all of your shares at will. Requests received in proper
order by the Trust's transfer agent or a subagent before 4:00 p.m. Eastern time,
Monday through Friday exclusive of business holidays, will receive the share
price next computed after receipt of the request.
BY MAIL
A written request for redemption must be in "proper order," which requires the
delivery of the following to the transfer agent:
(1) written request for redemption signed by each registered owner exactly as
the shares are registered, the account number and the number of shares or
the dollar amount to be redeemed;
(2) negotiable stock certificates for any shares to be redeemed if certificates
were issued;
(3) signature guarantees when required; and
(4) additional documents as are customarily required to evidence the authority
of persons effecting redemptions on behalf of corporations, executors,
trustees, and other fiduciaries. Redemptions will not become effective
until all documents, in the form required, have been received by the
transfer agent. (Before writing, read ADDITIONAL INFORMATION ABOUT
REDEMPTIONS.)
HOW TO EXPEDITE REDEMPTIONS
To redeem your Fund shares by telephone, you may call the Fund and direct an
exchange out of the Fund into an identically registered account in a U.S. Global
Investors' treasury money market fund ($1,000 minimum initial investment). You
may then write a check against your treasury money market fund account. See HOW
TO EXCHANGE SHARES for a description of exchanges, including the $5 exchange
fee. Call 1-800-873-8637 for more information concerning telephone redemptions
and a treasury money market fund prospectus.
SPECIAL REDEMPTION ARRANGEMENTS
Institutional investors, brokers, advisers, banks or similar institutions
(whether acting for themselves or on behalf of a client) may make special
arrangements to have redemption proceeds transferred by wire to pre-established
accounts upon telephone instructions. For additional information, call the Trust
at 1-800-873-8637. Telephone redemptions are available for Chairman's Circle
accounts.
Page 15
<PAGE>
SIGNATURE GUARANTEE
Redemptions of more than $15,000 require a signature guarantee. A signature
guarantee is required for all redemptions, regardless of the amount involved,
if: (a) proceeds are to be paid to someone other than the registered owner of
the shares; or (b) proceeds are to be mailed to an address other than the
registered address of record. When a signature guarantee is required, each
signature must be guaranteed by: (a) a federally insured bank or thrift
institution; (b) a broker or dealer (general securities, municipal, or
government) or clearing agency registered with the U.S. Securities and Exchange
Commission that maintains net capital of at least $100,000; or (c) a national
securities exchange or national securities association. The guarantee must: (a)
include the statement "Signature(s) Guaranteed"; (b) be signed in
the name of the guarantor by an authorized person, including the person's
printed name and position with the guarantor; and (c) include a recital that the
guarantor is federally insured, maintains the requisite net capital or is a
national securities exchange or association. Shareholders living abroad may
acknowledge their signatures before a U.S. consular officer. Military personnel
may acknowledge their signatures before officers authorized to take
acknowledgments (e.g., legal officers and adjutants).
REDEMPTION PROCEEDS MAY BE SENT TO YOU:
BY MAIL
If your redemption check is mailed, it is usually mailed within 48 hours;
however, the Fund reserves the right to hold redemption proceeds for up to seven
days. If the shares to be redeemed were purchased by check, the redemption
proceeds will not be mailed until the purchase check has cleared, which may take
up to seven days. You may avoid this requirement by investing by bank wire
(Federal funds). Redemption checks may be delayed if you have changed your
address in the last 30 days. Please notify the Fund promptly in writing, or by
telephone, of any change of address.
BY WIRE
You may authorize the Fund to transmit redemption proceeds by wire, provided you
send written wiring instructions with a signature guarantee at the time of
redemption. Proceeds from your redemption will usually be transmitted on the
first business day following the redemption. However, the Trust reserves the
right to hold redemptions for up to seven days. If the shares to be redeemed
were purchased by check, the redemption proceeds will not be mailed or wired
until the purchase check has cleared, which may take up to seven days. A $10.00
charge will be deducted from redemption proceeds to cover the wire.
International wire charges will be higher.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
The redemption price may be more or less than your cost, depending on the net
asset value of the Fund's portfolio next determined after your request is
received.
A request to redeem shares in an IRA or similar retirement account must be
accompanied by IRS Form W4-P and a reason for withdrawal as required by the IRS.
Proceeds from the redemption of shares from a retirement account may be subject
to withholding tax.
The Trust has the authority to redeem existing accounts and to refuse a
potential account the privilege of having an account in the Trust if the Trust
reasonably determines that the failure to redeem or prohibit would have a
material adverse consequence for the Trust and its shareholders. No account
closing fee or redemption fee will be charged to investors whose accounts are
closed under this provision.
Page 16
<PAGE>
TRADER'S FEE PAID TO FUND
A trader's fee of 25 basis points or 0.25% of the value of shares redeemed or
exchanged will be assessed to shareholders who redeem or exchange shares of the
Fund held less than thirty (30) calendar days. The trader's fee will be paid to
the Fund to benefit remaining shareholders by protecting them against expenses
due to excessive trading. Excessive short-term trading has an adverse impact on
effective portfolio management as well as on Fund expenses. The Fund has
reserved the right to refuse investments from shareholders who engage in
short-term trading that may be disruptive to the Fund.
ACCOUNT CLOSING FEE
To reduce Fund expenses, an account closing fee of $10 will be assessed to
shareholders who redeem all shares in their Fund account and direct that
redemption proceeds be delivered to them by mail or wire. The charge is payable
directly to the Fund's transfer agent; the transfer agent will reduce its
charges to the Fund by an equal amount. The purpose of the charge is to allocate
to redeeming shareholders a more equitable portion of the transfer agent's fee,
including the cost of tax reporting, which is based on the number of shareholder
accounts. Account closing fees do not apply to exchanges between the funds in
the U.S. Global Investors family of funds nor do they apply to any account which
is involuntarily redeemed.
SMALL ACCOUNTS
Fund accounts which fall, for any reason other than market fluctuations, below
$5,000 anytime during the month will be subject to a monthly small account
charge of $1 which will be payable quarterly. The charge is payable directly to
the Fund's transfer agent which, in turn, will reduce its charges to the Fund by
an equal amount. The purpose of the charge is to allocate the costs of
maintaining shareholder accounts more equally among shareholders.
As a special service for small investors, active ABC Investment Plan(R)
accounts, custodial accounts for minors and retirement plan accounts
administered by the Advisor or its agents and affiliates will not be subject to
the small account charge.
To reduce Fund expenses, the Trust may redeem all shares in any shareholder
account, other than active ABC Investment Plan(R) accounts, custodial
accounts for minors and retirement plan accounts, if, for a period of more than
three months, the account has a net asset value of $2,500 or less and the
reduction in value is not due to market fluctuations. If the Fund elects to
close such accounts, it will notify shareholders whose accounts are below the
minimum of its intention to do so, and will give those shareholders an
opportunity to increase their accounts by investing enough assets to bring their
accounts up to the minimum amount within ninety (90) days of the notice. No
account closing fee will be charged to investors whose accounts are closed under
this redemption provision.
CONFIRMATION STATEMENTS
Shareholders will normally receive a confirmation statement after each
transaction (purchase, redemption, dividend, etc.) showing activity in the
account. If you have no transactions, you will receive an annual statement only.
OTHER SERVICES
The Trust offers a number of plans and services to meet the special needs of
certain investors. Plans include:
(1) payroll deduction plans, including military allotments;
Page 17
<PAGE>
(2) custodial accounts for minors;
(3) flexible, systematic withdrawal plans; and
(4) various retirement plans such as IRA, SEP/IRA, 403(b)(7), 401(k) and
employer-adopted defined contribution plans.
There is an annual charge for each retirement plan fund account for which
Security Trust & Financial Company ("STFC"), a wholly-owned subsidiary of the
Advisor, acts as custodian. If the administrative charge is not paid separately
before the last business day of a calendar year or before a total redemption, it
will be deducted from the shareholder's account. Application forms and brochures
describing these plans and services can be obtained from the transfer agent by
calling 1-800-US-FUNDS (1-800-873-8637).
SHAREHOLDER SERVICES
United Shareholder Services, Inc., a wholly-owned subsidiary of the Advisor,
acts as transfer and dividend paying agent for all fund accounts. Simply write
or call 1-800-US-FUNDS for prompt service on any questions about your account.
24-HOUR ACCOUNT INFORMATION
Shareholders can access current information 24 hours a day on yields, share
prices, latest dividends, account balances, deposits and redemptions. Just call
1-800-US-FUNDS and press the appropriate codes into your touch-tone phone.
HOW SHARES ARE VALUED
Shares of the Fund are purchased or redeemed, on a continuing basis without a
sales charge, at their next determined net asset value per share. United
Shareholder Services, Inc. calculates the net asset value per share of the Fund.
Net asset value per share is determined, and orders become effective, as of 4:00
p.m. Eastern time, Monday through Friday exclusive of business holidays when the
NYSE is closed, by dividing the aggregate net assets of the Fund by the total
number of outstanding shares of the Fund. If the NYSE and other financial
markets close earlier, as on the eve of a holiday, the net asset value per share
will be determined earlier in the day at the close of trading on the NYSE.
Valuation will be calculated in U.S. dollars. Securities quoted in other
currencies will be converted to U.S. dollars using the exchange rate then in
effect in the principal market in which the relevant securities are traded. A
portfolio security listed or traded on an international market (a market other
than those in the United States or Canada), either on an exchange or
over-the-counter, is valued at the last reported sales price before the time
when assets are valued. A portfolio security listed or traded in the domestic
market (a market in the United States or Canada), either on an exchange or
over-the-counter, is valued at the latest reported sale price before the time
when assets are valued. Lacking any sales on that day, the security is valued at
the mean between the last reported bid and ask prices.
When market quotations are not readily available, or when restricted securities
or other assets are being valued, such assets are valued at fair value as
determined in good faith by or under procedures established by the Board of
Trustees. These procedures provide, in part, that the Advisor shall produce a
written "Fair Value Memorandum" stating its methodology and rationale for
determining fair value for such assets. A copy of the Fair Value Memorandum
shall be delivered to the Chairman of the Audit Committee (or any Independent
Trustee if the Chairman of the Audit Committee is unavailable). The Chairman of
the Audit Committee (or Independent Trustee) shall, after full deliberation,
have authority to determine fair value in conformance with the Fair Value
Memorandum, or shall call for an immediate meeting of the Audit Committee to
determine fair value.
Page 18
<PAGE>
Portfolio 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.
If the price of a portfolio security is determined to be materially different
from its current market value, then such security will be valued at fair value
as determined by management and approved in good faith by the Board of Trustees.
Debt securities with maturities of 60 days or less at the time of purchase are
valued based on the amortized cost. This involves valuing an instrument at its
cost initially and, thereafter, assuming a constant amortization to maturity of
any discount or premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument.
DIVIDENDS AND TAXES
UNITED STATES TAXES
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). By complying with
the applicable provisions of the Code, the Fund will not be subject to Federal
income tax on its net investment income and capital gain net income distributed
to shareholders.
All income dividends and capital gain distributions are normally reinvested,
without charge, in additional full and fractional shares of the Fund.
Alternatively, investors may choose (1) automatic reinvestment of capital gain
distributions in Fund shares and payment of income dividends in cash, (2)
payment of capital gain distributions in cash and automatic reinvestment of
dividends in Fund shares, or (3) all capital gain distributions and income
dividends paid in cash. The share price of the reinvestment will be the net
asset value of the Fund shares computed at the close of business on the date the
dividend or distribution is paid. Undeliverable dividend checks returned to the
Fund and dividend checks not cashed after 180 days will automatically be
reinvested at the price of the Fund on the day returned (on or about the 181st
day), and the distribution option will be changed to "reinvest."
At the time of purchase, the share price of the Fund may reflect undistributed
income, capital gains or unrealized appreciation of securities. Any dividend or
capital gain distribution paid to a shareholder shortly after a purchase of
shares will reduce the per share net asset value by the amount of the
distribution. Although in effect a return of capital to the shareholder, these
distributions are fully taxable.
The Fund generally pays dividends quarterly and distributes capital gains, if
any, annually.
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 Fund intends to make such distributions
as may be necessary to avoid this excise tax.
Dividends from taxable net investment income and distributions of net short-term
capital gains paid by the Fund are taxable to shareholders as ordinary income,
whether received in cash or reinvested in additional shares of the Fund. Part of
these dividends may qualify for the 70 % dividends received deduction available
to corporations.
Distributions of net capital gains will be taxable to shareholders as long-term
capital gains, whether paid in cash or reinvested in additional shares,
regardless of the length of time the investor has held the shares.
Each January shareholders will receive a report of their Federal tax status of
dividends and distributions paid or declared by the Fund during the preceding
calendar year. This statement will also show whether and to what extent
distributions qualify for the 70% dividends received deduction available to
corporations.
Page 19
<PAGE>
There is a possibility that exchange control regulations imposed by Regent
emerging European countries may restrict or limit the ability of the Fund to
distribute net investment income or the proceeds from the sale of its
investments to its shareholders. Any such restrictions or limitations could
impact the Fund's ability to meet the distribution requirements described above.
If the Fund owns shares in a foreign corporation that constitutes a "passive
foreign investment company" for U.S. Federal income tax purposes and the Fund
does not elect to treat the foreign corporation as a "qualified electing fund"
within the meaning of the Code, the Fund may be subject to U.S. Federal income
tax on a portion of any "excess distribution" it receives from the foreign
corporation or any gain it derives from the disposition of such shares, even if
such income is distributed as a taxable dividend by the Fund to its U.S.
shareholders. The Fund may also be subject to additional tax in the nature of an
interest charge with respect to deferred taxes arising from such distributions
or gains. Any tax paid by the Fund as a result of its ownership of shares in a
"passive foreign investment company" will not give rise 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 in its income each year a portion of the ordinary income and
net capital gains of the foreign corporation, 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.
This discussion relates only to generally applicable Federal income tax
provisions in effect as of the date of this prospectus. Shareholders should
consult their tax advisers about the status of distributions from the Fund in
their own states and localities.
FOREIGN TAXES
Income received by the Fund from sources within Regent Eastern European Fund
countries and any other countries in which the issuers of securities purchased
by the Fund are located may be subject to withholding and other taxes imposed by
such countries.
If the 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 advisers.
Page 20
<PAGE>
THE TRUST
U.S. Global Accolade Funds (the "Trust") is an open-end management investment
company consisting of several separate, diversified portfolios.
The Trust was formed April 16, 1993, as a business trust under the laws of the
Commonwealth of Massachusetts. It is a series company authorized to issue shares
without par value in separate series. Shares of the series have been authorized;
each share represents an interest in a separate portfolio. The Board of Trustees
of the Trust has the power to create additional portfolios anytime without a
vote of shareholders of the Trust.
Under the Trust's First Amended and Restated Master Trust Agreement, no annual
or regular meeting of shareholders is required, although the Trustees may
authorize special meetings from time to time. The Trustees serve for six-year
terms. No shareholder meeting will ordinarily be held unless otherwise required
by the Investment Company Act of 1940 (the "1940 Act"). The Trust will call a
meeting of shareholders for purposes of voting on the question of removal of one
or more Trustees when requested in writing to do so by record holders of not
less than 10% of the Trust's outstanding shares, and in connection with such
meeting to comply with the provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
On any matter submitted to shareholders, shares of each portfolio entitle their
holder to one vote per share, regardless of the relative net asset value of each
portfolio's shares. On matters affecting an individual portfolio, a separate
vote of shareholders is required. Each portfolio's shares are fully paid and
non-assessable by the Trust, have no preemptive or subscription rights and are
fully transferable with no conversion rights.
MANAGEMENT OF THE FUND
TRUSTEES
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 SUB-ADVISOR
Effective February 28, 1997, the Advisor and the Trust contracted with Regent
Fund Management Limited ("Sub- Advisor"), International Trading Centre, Warrens,
St. Michael, Barbados to serve as Sub-Advisor for the Fund, managing the Fund's
investments subject to the overall supervision of the Advisor and the Trustees
of the Fund and in accordance with the terms of the Sub-Advisory Agreement.
The Sub-Advisor was incorporated in British Virgin Islands on June 30, 1988, and
its domicile was changed to Barbados on April 5, 1994. The Sub-Advisor is
wholly-owned by Regent Pacific Group Limited ("Regent Pacific") which was
established in 1990 and is a holding company of a financial services group with
operations in Hong Kong, London and Toronto and with associations with financial
investment companies in certain other countries. Regent Pacific manages and
advises in respect of assets in excess of $2.2 billion on behalf of clients, of
which $160 million is attributable to the Sub-Advisor.
The Sub-Advisor utilizes a team approach to manage the assets of the Fund. The
team meets regularly to review portfolio holdings and to discuss purchase and
sale activity. Dominic Bokor-Ingram has been appointed team leader for the Fund.
Mr. Bokor-Ingram started his career in 1989 as a stockbroker at Olliff &
Partners where he was involved with investment trust and closed-end fund
research and sales. He then joined Buchanan Partners, an investment management
company, in 1992 as a founding member of Buchanan Securities where he
specialized
Page 21
<PAGE>
in closed-end funds and emerging markets securities, again in a fund research
and sales capacity. From 1993 to 1995 he was a member of the emerging markets
team, where he specialized in the emerging markets of Eastern and Southern
Europe. In 1995 he left Buchanan to establish, with a number of ex-Buchanan
colleagues, Regent Kingpin Capital Management where he was a director and
shareholder and was responsible for fund management in emerging markets in
Europe, Russia and the former Soviet Republics. Since early 1997, Regent Kingpin
Capital Management is wholly-owned by Regent Pacific, and Mr. Bokor-Ingram is
now employed by Regent Fund Management (UK) Ltd. He is also a director of the
Czech Value Fund. Mr. Bokor-Ingram received his BA (Hons) in Economics and
Statistics from Exeter University.
The Sub-Advisor manages the composition of the portfolio and furnishes the Fund
advice and recommendations with respect to its investments and its investment
program and strategy, subject to the general supervision and control of the
Advisor and the Trust's Board of Trustees. While the Sub-Advisor does not have
previous experience managing a mutual fund's portfolio, it has experience, and
continues to manage offshore funds, private investment companies, and separate
accounts for institutions and high net worth individuals. Investment decisions
for the Fund are made independently of investment decisions made for other
clients.
Advisor and Sub-Advisor investment personnel may invest in securities for their
own accounts according to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
In consideration for such services, the Advisor shares the management fee (net
of all expense reimbursements and waivers) with the Sub-Advisor. The Fund is not
responsible for paying any portion of the Sub-Advisor's fees.
The Sub-Advisor may retain its broker-dealer affiliate to execute a portion of
the Fund's portfolio transactions, provided the Fund receives brokerage services
and commission rates comparable to those of other broker-dealers.
THE INVESTMENT ADVISOR
U.S. Global Investors, Inc., 7900 Callaghan Road, San Antonio, Texas 78229,
under an investment advisory agreement with the Trust dated September 21, 1994,
furnishes investment advice and is responsible for overall management of the
Trust's business affairs. Frank E. Holmes is Chairman of the Board of Directors
and Chief Executive Officer of the Advisor, and President and Trustee of the
Trust. Since October 1989, Mr. Holmes has owned more than 25% of the voting
stock of the Advisor and is its controlling person. The Advisor was organized in
1968 and serves as investment advisor to U.S. Global Investors Funds (formerly
United Services Funds), a family of mutual funds with approximately $1.5 billion
in assets.
The Advisor provides management and investment advisory services to the Trust
and to the Funds in the Trust. It furnishes an investment program for the Fund;
determines, subject to the overall supervision and review of the Board of
Trustees, what investments should be purchased, sold and held; and makes changes
on behalf of the Trust in the investments of the Fund.
Investment decisions for the Fund are made independently from those of other
investment companies advised by U.S. Global Investors, Inc.
The Advisor also provides the Trust with office space, facilities and business
equipment and provides the services of executive and clerical personnel for
administering the affairs of the Trust. It pays the expenses of printing and
mailing prospectuses and sales materials used for promotional purposes.
The Advisory Agreement with the Trust provides for the Fund to pay the Advisor a
flat management fee of 1% of the Fund's average net assets.
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
Page 22
<PAGE>
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 transfer agency agreement with the Trust provides for the Fund to pay the
transfer agent an annual fee of $23.00 per account (1/12 of $23.00 monthly). In
connection with obtaining/providing administrative services to the beneficial
owners of Fund shares through broker-dealers, banks, trust companies and similar
institutions that provide such services and maintain an omnibus account with the
transfer agent, the Fund will 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 fund held in accounts at the institutions, which payment will not exceed
$1.92 multiplied by the average daily number of accounts holding Fund shares at
the institution. These fees cover the usual transfer agency functions. In
addition, the Fund bears certain other transfer agent expenses such as the costs
of records retention, postage, telephone and line charges (including the
toll-free service) used by shareholders to contact the transfer agent. Transfer
agent fees and expenses, including reimbursed expenses, are reduced by the
amount of small account charges and account closing fees paid to the transfer
agent.
The transfer agent performs bookkeeping and accounting services and determines
the daily net asset value for a fee based on assets and subject to an annual
minimum fee of $35,000.
Additionally, the Advisor is reimbursed certain costs for in-house legal
services pertaining to the Fund.
The Fund pays all other expenses for its operations and activities. The expenses
borne by the Fund include, among others, the charges and expenses of any
shareholder servicing agents; custodian fees; legal and auditor expenses;
brokerage commissions for portfolio transactions; the advisory fee;
extraordinary expenses; expenses of shareholders and trustee meetings; expenses
for preparing, printing, and mailing proxy statements, reports and other
communications to shareholders; and expenses of registering and qualifying
shares for sale.
DISTRIBUTION EXPENSE PLAN
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund has
adopted a distribution expense plan (the "Plan") under which Fund assets may be
used 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, which
include 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. Fund assets may be used to pay for or reimburse such
expenditures provided the total amount expended pursuant to this Plan does not
exceed 0.25% of net assets annually.
Under the terms of the Plan the Fund may pay a servicing fee of up to 0.25% of
the Fund's average net assets (1/12 of 0.25% monthly) to persons or institutions
for performing certain servicing functions for Fund shareholders. These fees
will be paid periodically and will generally be based on a percentage of the
value of Fund shares held by the institution's clients. The 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. See DISTRIBUTION PLAN in
the Statement of Additional Information.
PERFORMANCE INFORMATION
Page 23
<PAGE>
From time to time, in advertisements or in reports to shareholders or
prospective shareholders, the Fund may compare its performance, either in terms
of its yield, total return, or its yield AND total return, to that of other
mutual funds with similar investment objectives and to stock or other indices.
Performance comparisons will not be considered as representative of the future
performance of the Fund.
The Fund's average annual total return is computed by determining the average
annual compounded rate of return for a specified period that, if applied to a
hypothetical $1,000 initial investment, would produce the redeemable value of
that investment at the end of the period, assuming reinvestment of all dividends
and distributions and with recognition of all recurring charges. The Fund may
also use a total return for differing periods computed in the same manner but
without annualizing the total return.
The Fund's "yield" refers to the income generated by an investment in the Fund
over a 30-day or one-month period (the period will be stated in the
advertisement). Yield is computed by dividing the net investment income per
share earned during the most recent calendar month by the maximum offering price
per share on the last day of that month. This income is then "annualized." That
is, the income generated by the investment during the 30-day period is assumed
to be generated each month over a 12-month period and is shown as a percentage
of the investment.
For purposes of the yield calculation, interest income is computed based on the
yield to maturity of each debt obligation. Dividend income is computed based on
the stated dividend rate of each security in the Fund's portfolio, and all
recurring charges are recognized.
The standard total return and yield results do not take into account recurring
and nonrecurring charges for optional services elected by certain shareholders;
e.g., nominal fees like the $5 exchange fee. These fees reduce the actual return
realized by shareholders.
Page 24
<PAGE>
U.S. GLOBAL ACCOLADE FUNDS
SHARES OF THE FUND ARE SOLD
AT NET ASSET VALUE WITHOUT SALES COMMISSIONS OR
REDEMPTION FEES
Regent Eastern European Fund
INVESTMENT ADVISOR
U.S. Global Investors, Inc.
7900 Callaghan Road
Mailing Address: P.O. Box 781234
San Antonio, Texas 78278-1234
SUB-ADVISOR
Regent Fund Management Limited
International Trading Centre
Warrens, St. Michael
Barbados
TRANSFER AGENT
United Shareholder Services, Inc.
P.O. Box 781234
San Antonio, Texas 78278-1234
CUSTODIAN
Bankers Trust Company
16 Wall Street
New York, New York 10005
INDEPENDENT ACCOUNTANT
Price Waterhouse LLP
One Riverwalk Place, Ste. 900
San Antonio, Texas 78205
No Load
Be Sure to Retain This Prospectus; It Contains Valuable Information.
Page 25
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
U.S. GLOBAL ACCOLADE FUNDS
REGENT EASTERN EUROPEAN FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus; it should be read
in conjunction with the Fund's prospectus dated March 11, 1997, (the
"Prospectus"), which may be obtained from U. S. Global Investors, Inc. (the
"Advisor"), P.O. Box 781234, San Antonio, Texas 78278-1234.
The date of this Statement of Additional Information is March 11, 1997.
<PAGE>
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
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
INDEPENDENT ACCOUNTANTS .....................................................20
FINANCIAL STATEMENTS.........................................................20
Page 3
<PAGE>
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 numerous 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 ("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. However, the Trust has a staggered Board with terms such that the
tenure of at least 25% of the Trustees expires every three years. 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 but that requires a separate vote of another fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objectives and policies discussed in the Fund's Prospectus.
Page 4
<PAGE>
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.
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.
Page 5
<PAGE>
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.
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
which could affect such investment. Further, 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;
Page 6
<PAGE>
(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;
(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
which 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;
Page 7
<PAGE>
(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 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.
In general, 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
which 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
Page 8
<PAGE>
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.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which 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
prior to 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 emerging Europe region. ADRs are depository
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. 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 which 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 which 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
Page 9
<PAGE>
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 prior to 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 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 which
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 a further 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 which 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 which 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.
Page 10
<PAGE>
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, which 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 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 which 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 which 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 which 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 which 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 which 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.
Page 11
<PAGE>
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 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 which 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 a portion of the benefits which might otherwise
have been obtained from favorable movements on exchange rates. All options
Page 12
<PAGE>
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 which is a note
denominated in one currency, generally U.S. dollars, and (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
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.
Page 13
<PAGE>
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 which
may be taxable to shareholders. Any short term gain realized on securities will
be taxed to shareholders as ordinary income. See "Tax Status."
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.
TRUST
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
- ------------------- ---------- ----------------------------------------
Frank E. Holmes (1) Trustee Chairman of the Board of Directors and
President, Chief Executive Officer of the Advisor.
Chief Since October 1989 Mr. Holmes has served
Executive and continues to serve in various
Officer positions with the Advisor, its
subsidiaries, and the investment
companies which 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.
- ------------------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
Page 14
<PAGE>
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, TX Trace, Inc., a nationwide company which
78209 sells, leases and maintains computers
and telecommunications systems and
equipment. Prior to 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'anson
United Services Funds from November 1993
to February 1996.
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 which 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 which it sponsors. Prior to
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 which it sponsors. Prior to
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 which 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.
Page 15
<PAGE>
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
a portion 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.
In consideration for such services, the Advisor pays the Sub-Advisor a
sub-advisory fee. The Advisor and the Sub-Advisor share the management fee
equally.
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 and setting in type prospectuses and periodic reports and
expenses of mailing them to current shareholders, fidelity bond premiums, cost
of maintaining the books, and records of the Trust, and any other charges and
fees not specifically enumerated.
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
Sub-Advisor's compensation is set forth in the Prospectus and is paid by the
Advisor. The Fund will not be responsible for the Sub-Advisor's fee.
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
Page 16
<PAGE>
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, insofar 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.
In addition to advising client accounts, the Advisor invests in securities for
its own account. The Advisor has adopted policies and procedures intended to
minimize or avoid potential conflicts with its clients when trading for its own
account. The Advisor's investment objective and strategies are not the same as
its 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. In
general, 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 "34> 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.
Page 17
<PAGE>
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 which the Fund incurs pursuant to the Distribution Plan are reviewed
quarterly by the Board of Trustees. On an annual basis the Distribution Plan is
reviewed 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 in light of their fiduciary duties under state
law and under Section 36(a) and (b) of the 1940 Act that 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 vote of a majority 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.
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
more shareholders are attracted to the Fund.
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 which 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.
Page 18
<PAGE>
An investor who wishes to make an "in kind" purchase should furnish (either in
writing or by telephone) to the Trust a list with a full and exact description
of all of the securities which he or she proposes to deliver. The Trust will
advise him or her as to those securities which it is prepared to accept and will
provide the investor with the necessary forms to be completed and signed by the
investor. The investor should then send the securities, in proper form for
transfer, with the necessary forms to the Trust and certify that there are no
legal or contractual restrictions on the free transfer and sale of the
securities. The securities will be valued as of the close of business on the day
of receipt by the Trust in the same manner as portfolio securities of the 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
taxes, if any.
The exchange of securities by the investor pursuant to this offer will
constitute a taxable transaction and may result in a gain or loss for Federal
income tax purposes. Each investor should consult his or her tax adviser to
determine the tax consequences under Federal and state law of making such an "in
kind" purchase.
ADDITIONAL INFORMATION ON REDEMPTIONS
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.
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 redemption in kind will be make 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 all charges are deducted from the initial $1,000 payment
and assumes all dividends and distributions by the 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.
Page 19
<PAGE>
NONSTANDARDIZED TOTAL RETURN. The 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 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 that are distributed to shareholders, provided that
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.
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 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.
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 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's shares immediately prior to a distribution
may receive a return of investment upon distribution which 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
Page 20
<PAGE>
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 February 28, 1997,
and as of yet does not have any operating history. Shareholders will be provided
with annual and semi-annual reports as they become available.
Page 21
