U.S. GLOBAL ACCOLADE FUNDS
ADRIAN DAY
GLOBAL OPPORTUNITY FUND
1-800-US-FUNDS (1-800-873-8637)
(INFORMATION, SHAREHOLDER SERVICES AND REQUESTS)
INTERNET: HTTP://WWW.USFUNDS.COM
PROSPECTUS
FEBRUARY 20, 1997
This prospectus presents information that a prospective investor should know
about the Adrian Day Global Opportunity 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. 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 February 20, 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).
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.
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TABLE OF CONTENTS
SUMMARY OF FEES AND EXPENSES......... 2
INVESTMENT OBJECTIVES AND
PRACTICES............................ 3
OTHER INVESTMENT PRACTICES........... 4
RISK FACTORS......................... 7
HOW TO PURCHASE SHARES............... 9
HOW TO EXCHANGE SHARES............... 12
HOW TO REDEEM SHARES................. 14
HOW SHARES ARE VALUED................ 19
DIVIDENDS AND TAXES.................. 20
THE TRUST............................ 21
MANAGEMENT OF THE FUND............... 22
DISTRIBUTION EXPENSE PLAN............ 24
PERFORMANCE INFORMATION.............. 24
SUMMARY OF FEES AND EXPENSES
The following summary is provided to assist you in understanding 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)................. 1.00%
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
and Accounting Services
Fees.......................... 1.00%
Total Fund Operating Expenses... 2.50%
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 which 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.
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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............................... $ 35
3 years.............................. $ 88
The Hypothetical Example is based upon the Fund's estimated expenses which are
expected to decline as the Fund's net assets increase. In conformance with SEC
regulations, the example is based upon 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.
INVESTMENT OBJECTIVES AND PRACTICES
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve this objective by investing throughout the world in a diversified
portfolio consisting primarily (80% of total assets during normal market
conditions) of marketable common stocks and in securities convertible into
common stocks of global (both international and domestic) blue chip corporations
that the Sub-Advisor believes the market has undervalued.
The Fund is committed to flexible value investing, searching for common stocks
that are selling at substantial discounts to the underlying value of their
assets, earning power, or private market value. Taking a global approach, the
Fund searches for value investments around the world. The Fund seeks first to
build and maintain core investments in the common stock of international blue
chip companies that are well capitalized and well managed and enjoy strong
balance sheets and brand-name recognition in their own markets. The Sub-Advisor
believes such companies are poised to grow and prosper with the continued
development of consumer markets around the world. Supplementing these core
investments, the Fund has the flexibility to purchase a wide variety
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(1) Annual Fund Operating Expenses are based on the Funds estimated expenses.
Management Fees, Transfer Agency Fees, and Accounting Services Fees are paid to
U.S. Global Investors, Inc. (the "Advisor") and its wholly-owned subsidiaries.
The Advisor then pays a part of the management fee to Global Strategic
Management, Inc. (the "Sub-Advisor") for serving as sub-advisor. Please refer to
the section entitled MANAGEMENT OF THE FUNDS for further information.
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of investments that appear to the Sub-Advisor to offer value at any particular
time. The Sub-Advisor searches for a variety of unrecognized contrarian
investments, including at any given time, securities issued by smaller, lesser
known companies, new companies, and companies operating in emerging markets. The
Fund may also invest in debt securities (although income is an incidental
consideration) including high yield or junk bonds, convertible securities, and
commodity-linked securities.
Under normal market conditions the Fund will invest primarily (up to 100% of its
assets) in foreign securities, although investments in United States securities
are permitted and will be emphasized when the Sub-Advisor believes that
opportunities in the United States markets appear more attractive. When deemed
appropriate by the Fund's Sub-Advisor for short-term investment or defensive
purposes, the Fund may hold a portion of its assets (up to 100%) in short-term
debt instruments including commercial paper, certificates of deposit, or
repurchase agreements.
The Fund is not intended to be a complete investment program, and there is no
assurance that its investment objective can be achieved. The Fund's investment
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 thirty days prior to any material change in the Fund's
investment objective. Unless otherwise indicated, all investment practices and
limitations of the Fund are nonfundamental policies that may be changed by the
Board of Trustees without shareholder approval.
OTHER INVESTMENT PRACTICES
As a fundamental policy that cannot be changed without a vote of shareholders:
(a) the Fund may not invest more than 25% of its total assets in securities
of companies principally engaged in any one industry (other than
obligations issued or guaranteed by the United States Government or any of
its agencies or instrumentalities);
(b) with respect to 75% of its total assets, the Fund will not: (i) invest
more than 5% of the value of its total assets in the securities of any one
issuer (except such limitation will not apply to obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities); nor (ii) acquire more than 10% of the outstanding
voting securities of any one issuer;
(c) the Fund may lend portfolio securities with an aggregate market value
of not more than one-third of the Fund's total net assets;
(d) the Fund 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
borrowings) when deemed desirable or appropriate to effect redemptions,
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provided, however, that the Fund will not purchase additional securities
while borrowings exceed 5% of the Funds total assets.
PORTFOLIO TURNOVER
It is the policy 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. 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.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions and selecting brokers or dealers, the Fund
seeks the best overall terms available. In assessing the terms of a transaction,
consideration may be given to various factors, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer (for a specified transaction and on
a continuing basis), the reasonableness of the commission, if any, and the
brokerage and research services provided. Under the Advisory and Sub-Advisory
agreements, the Advisor and Sub-Advisor are permitted, in certain circumstances,
to pay a higher commission than might otherwise be obtained in order to acquire
brokerage and research services. The Advisor and Sub-Advisor must determine in
good faith, however, that such commission is reasonable in relation to the value
of the brokerage and research services provided -- viewed in terms of that
particular transaction or in terms of all the accounts over which investment
discretion is exercised. In such case, the Board of Trustees will review the
commissions paid by the Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
obtained. The advisory fee of the Advisor will not be reduced by reason of its
receipt of such brokerage and research services. To the extent that any research
services of value are provided by broker-dealers through or with whom the Fund
places portfolio transactions, the Advisor or Sub-Advisor may be relieved of
expenses which they might otherwise bear.
REPURCHASE AGREEMENTS
The Fund may invest a portion of its assets in repurchase agreements with
domestic 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
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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 consider creditworthy.
STRATEGIC TRANSACTIONS
The Fund may, but is not required to, use various other investment strategies as
described below. Such strategies are generally accepted as modern portfolio
management techniques and are regularly used by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, financial
futures contracts and options thereon, and may enter into various currency
transactions such as currency forward contracts, currency futures contracts, or
options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions"). The Fund will not sell put options except in
closing transactions.
The Fund may engage in Strategic Transactions for hedging, risk management, or
portfolio management purposes and not for speculation. Strategic Transactions
may be used to attempt to protect against possible changes in the market value
of securities held in, or to be purchased for, the Fund's portfolio. Such
changes may result from securities markets or currency exchange rate
fluctuations. Strategic Transactions may also be used to attempt to protect the
Fund's unrealized gains or prevent losses in the value of its portfolio
securities, or to establish a position using Strategic Transactions as a
temporary substitute for purchasing or selling particular securities. See
INVESTMENT OBJECTIVES AND POLICIES -- RISK CONSIDERATIONS OF THE FUND in the
Statement of Additional Information. The ability of the Fund to use these
Strategic Transactions successfully will depend upon the Sub-Advisor's ability
to predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when it engages in Strategic
Transactions.
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. The Fund may receive a fee from broker-dealers for lending its
portfolio
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securities. 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.
RISK FACTORS
The Fund is designed for long-term value investors who can accept international
investment risk. The Fund's share price will tend to reflect the movements of
the different securities markets in which it is invested and, unless hedged, the
foreign currencies in which investments are denominated.
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.
MARKET RISK
Investments in equity and debt securities are subject to inherent market risks
and fluctuations in value due to earnings, economic conditions, quality ratings
and other factors beyond the control of the Advisor or Sub-Advisor. As a result,
the return and net asset value of the Fund will fluctuate.
The Fund may purchase common stock of small and medium size companies which may
be unseasoned and which often fluctuate in price more than common stocks of
larger, more mature companies.
Debt securities, including investment grade and high yield bonds, are also
subject to price fluctuations based on changes in the level of interest rates,
which will generally result in these securities changing in price in the
opposite direction. That is, these securities will experience appreciation when
interest rates decline and will depreciate when interest rates rise.
FOREIGN INVESTMENTS
While investment by the Fund on an international basis will permit shareholders
to participate in economic developments abroad, such investments involve certain
risks not ordinarily associated with investing in securities of United
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States issuers. These risks may include political instability of some foreign
governments, fluctuation in foreign exchange rates, the imposition of exchange
control regulations, the possibility of expropriation decrees, more limited
information about foreign issuers, different accounting standards, higher
brokerage costs and foreign withholding taxes. Moreover, foreign securities and
their markets may not be as liquid as U.S. securities and their markets.
To the extent the Fund's investments are denominated in and pay interest or
dividends in foreign currencies, and to the extent that the Fund's currency
exposure is unhedged, the value of their investment by the Fund, as measured in
U.S. dollars, may be affected either favorably or unfavorably by movements in
exchange rates between the dollar and those foreign currencies. For more
detailed information see FOREIGN SECURITIES in the Statement of Additional
Information.
EMERGING MARKETS
The Fund may invest up to 15% of its assets in emerging markets, but not more
than 5% of its assets in any single country considered to be part of the
emerging market. Any company with a market capitalization of $500 million or
more is excluded from the 15% limitation regardless of whether or not it is
incorporated or primarily operates in an emerging market. The risks of investing
in foreign markets are generally intensified for investments in emerging markets
since their economies are generally smaller, less diverse, and less mature, and
their political systems less stable than those in developed countries. A more
complete description of the risks associated with investing in emerging markets
is contained in the Statement of Additional Information.
CURRENCY HEDGING
The Sub-Advisor may engage in Strategic 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 Strategic
Transactions and increased transaction expenses.
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LOWER-RATED AND UNRATED DEBT SECURITIES
The Fund may invest up to 15% of its assets in debt securities without regard to
credit rating and may, therefore, invest in instruments that could experience a
default in the payment of principal and interest. The Fund may also purchase
debt securities on which the issuer has defaulted.
Lower-rated or unrated high yield debt securities are commonly known as junk
bonds and are often considered to be of speculative grade. They involve greater
risk of default due to changes in economic conditions, changes in the issuer's
creditworthiness or other circumstances. The market for these securities is
generally more limited and their prices may experience greater volatility than
in the case of debt securities with higher ratings. See the Statement of
Additional Information for a more complete discussion of the risks of investing
in lower-rated and unrated debt securities.
COMMODITY LINKED SECURITIES
The Fund may invest up to 10% of its net assets in structured notes and/or
preferred stock, the value of which is linked to the price of gold or other
commodities. Such structured securities have different characteristics and risks
than other types of securities in which the Fund may invest. For example, not
only the coupon and/or dividend but also the redemption amount may be increased
or decreased depending on the change in the price of the referenced commodity.
See COMMODITY LINKED SECURITIES in the Statement of Additional Information for
further information.
ILLIQUID SECURITIES
Disposition of illiquid securities often takes more time than 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.
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(R)
Investment Plan (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.
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YOU MAY INVEST IN THE FOLLOWING WAYS:
BY MAIL
Send your application and check, made payable to the Adrian Day Global
Opportunity 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, 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 U.S. Global Accolade
Funds by wiring funds. To do so, call U.S. Global Accolade Funds 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.
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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.
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
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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. 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.
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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.
HIGH REWARD China Region Opportunity Fund
HIGH RISK U.S. Gold Shares Fund
U.S. World Gold Fund
U.S. Global Resources Fund
Adrian Day Global Opportunity Fund
Bonnel Growth Fund
U.S. Real Estate Fund
MODERATE REWARD U.S. All American Equity Fund
MODERATE RISK 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
(1-800-873-8637).
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 upon 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.
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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. 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.
(3) 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.)
(4) Exchanges out of the Adrian Day Global Opportunity Fund of shares held less
than 30 days are subject to a trader's fee. (See TRADER'S FEE PAID TO FUNDS.)
(5) 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.
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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) signature guarantees when required; and
(3) 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
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.
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
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securities association. The guarantee must: (i) include the statement
"Signature(s) Guaranteed"; (ii) be signed in the name of the guarantor by an
authorized person, including the person's printed name and position with the
guarantor; and (iii) 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.
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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.
TRADER'S FEE PAID TO FUND
A trader's fee of 1.00% 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 upon 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
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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;
(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.
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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 (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 (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 of 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.
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
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any discount or premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument.
DIVIDENDS AND 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 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.
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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.
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.
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. Under the terms of the Master
Trust Agreement, the Trust has a staggered Board with terms of at least 25% of
the Trustees expiring every three years. The Trustees serve in that capacity for
six-year terms. Therefore, 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.
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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 December 18, 1996, the Advisor and the Trust contracted with Global
Strategic Management, Inc. (the "Sub-Advisor"), 900 Bestgate Road, Suite 405,
Annapolis, Maryland 21401, to serve as Sub-Advisor for the Fund. Mr. Adrian Day,
president of the Sub-Advisor and its controlling shareholder, is the Funds
portfolio manager.
Adrian Day has been managing money since the spring of 1991. He is the editor of
the widely acclaimed investment newsletter, ADRIAN DAY'S INVESTMENT ANALYST, and
has been featured in or has written for many prestigious publications and has
been a featured speaker at investment conferences around the world.
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
experience managing a mutual fund portfolio, it has experience managing, and
continues to manage, separate accounts for institutions and wealthy 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 account according to a Code of Ethics that establishes procedures for
personal investing and restricts certain transactions.
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,
except that the Sub-Advisor's fee will be subject to downward adjustments as
described in the Statement of Additional Information. The Fund is not
responsible for paying any portion of the Sub-Advisor's fees.
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
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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. The Advisor 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 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.
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The transfer agent performs bookkeeping and accounting services and determines
the daily net asset value for the Fund for an asset-based fee of 0.03% of the
first 250 million average net assets, 0.02% of the next 250 million average net
assets and 0.01% of average net assets in excess of 500 million -- subject to an
annual minimum fee of $24,000.
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
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
24
<PAGE>
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
upon 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.
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U.S. GLOBAL ACCOLADE FUNDS
SHARES OF THE FUND ARE SOLD
AT NET ASSET VALUE WITHOUT SALES COMMISSIONS OR
REDEMPTION FEES
Adrian Day Global Opportunity Fund
INVESTMENT ADVISOR
U.S. Global Investors, Inc.
7900 Callaghan Road
Mailing Address: P.O. Box 29467
San Antonio, Texas 78229-0467
INVESTMENT SUB-ADVISOR
Global Strategic Management, Inc.
900 Bestgate Road, Suite 405
Annapolis, Maryland 21401
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, Suite 900
San Antonio, Texas 78205
100% No Load
Be Sure to Retain This Prospectus.
It Contains Valuable Information.
================================================================================
U.S. GLOBAL ACCOLADE FUNDS
ADRIAN DAY
GLOBAL OPPORTUNITY FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the prospectus (the "Prospectus") dated February 20, 1997,
which you may request from U.S. Global Investors, Inc. (the "Advisor"), P.O. Box
29467, San Antonio, Texas 78229-0467 or 1-800-US-FUNDS (1-800-873-8637).
This date of this Statement of Additional Information is February 20, 1997.
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
PAGE
GENERAL INFORMATION...........................................................3
INVESTMENT OBJECTIVES AND POLICIES............................................3
RISK FACTORS..................................................................5
PORTFOLIO TURNOVER...........................................................13
MANAGEMENT OF THE FUND.......................................................13
INVESTMENT ADVISORY SERVICES.................................................15
TRANSFER AGENCY AND OTHER SERVICES...........................................17
DISTRIBUTION PLAN............................................................17
CERTAIN PURCHASES OF SHARES OF THE FUND......................................18
ADDITIONAL INFORMATION ON REDEMPTIONS........................................19
CALCULATION OF PERFORMANCE DATA..............................................19
TAX STATUS...................................................................20
INDEPENDENT ACCOUNTANTS .....................................................21
FINANCIAL STATEMENTS.........................................................21
Page 2
<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 several series within the Trust, each of which
represents a separate diversified portfolio of securities (a "Portfolio"). This
Statement of Additional Information ("SAI") presents important information
concerning the Adrian Day Global Opportunity Fund (the "Fund") and should be
read in conjunction with the prospectus.
The assets received by the Trust from the issue or sale of shares of the Fund
and all income, earnings, profits and proceeds, subject only to the rights of
creditors, are separately allocated to such fund. They constitute the underlying
assets of each fund, are required to be segregated on the books of accounts, and
are to be charged with the expenses with respect to such fund. Any general
expenses of the Trust not readily identifiable as belonging to a particular
fund, shall be allocated by or under the direction of the Board of Trustees in
such manner as the Board determines to be fair and equitable.
Each share of 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. In addition, the Amended and Restated Master Trust Agreement provides
for overlapping terms of office for Trustees with at least 25% of the terms
expiring every three years. The Trustees serve in that capacity for six-year
terms. Thus, there will ordinarily be no shareholder meetings unless otherwise
required by the Investment Company Act of 1940.
On any matter submitted to shareholders, the holder of each share is entitled to
one vote per share with proportionate voting for fractional shares. On matters
affecting any individual fund, a separate vote of that fund would be required.
Shareholders of any fund are not entitled to vote on any matter that does not
affect their fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss because 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 3
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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 not borrow more than 5% of its total
assets from banks as a temporary measure for extraordinary purposes, and
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 complied by Standard & Poor's Compustat Services, Inc. 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
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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 open-end 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 fees.
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, expropriation or confiscatory taxation, limitation
of the removal of funds or other assets of the Fund, political or financial
instability or diplomatic and other developments that could affect such
investment. In addition, economies of particular countries or areas of the world
may differ favorably or unfavorably from the economy of the United States. It is
anticipated that in most cases the best available market for foreign securities
will be on exchanges or in over-the-counter markets located outside the United
States. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States, and securities of some
foreign issuers (particularly those in developing countries) may be less liquid
and more volatile than securities of comparable United States companies. In
addition, foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities markets, broker-dealers, and issuers than in the United States.
EMERGING MARKETS. The Fund may invest up to 15% of its total assets in countries
considered by the Sub- Advisor to represent emerging markets. However, the Fund
may not invest more than 5% of its total assets in any single emerging market
country. The Sub-Advisor determines which countries are emerging market
countries by considering various factors, including development of securities
laws and market regulation, total number of issuers, total market
capitalization, and perceptions of the investment community. Generally, emerging
markets are those other than North America, Western Europe, and Japan. For
example, the Sub-Advisor currently considers the following countries to be among
the emerging markets in which it might invest: Argentina, Brazil, China,
Columbia, Czech Republic, Indonesia, Peru, Philippines, Thailand, Turkey, and
Zimbabwe.
Investing in emerging markets involves risks and special considerations not
typically associated with investing in other more established economies or
securities markets. Investors should carefully consider their ability to assume
the below listed risks before making an investment in the Fund. Investing in
emerging markets is considered speculative and involves the risk of total loss.
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Risks of investing in emerging markets include:
(1) the risk that the Fund's assets may be exposed to nationalization,
expropriation, or confiscatory taxation;
(2) the fact that emerging market securities markets are substantially smaller,
less liquid and more volatile than the securities markets of more developed
nations. The relatively small market capitalization and trading volume of
emerging market securities may cause the Fund's investments to be
comparatively less liquid and subject to greater price volatility than
investments in the securities markets of developed nations. Many emerging
markets are in their infancy and have yet to be exposed to a major
correction. In the event of such an occurrence, the absence of various
market mechanisms that are inherent in the markets of more developed
nations may lead to turmoil in the market place and the inability of the
Fund to liquidate its investments;
(3) greater social, economic and political uncertainty (including the risk of
war);
(4) greater price volatility, substantially less liquidity and significantly
smaller market capitalization of securities markets;
(5) currency exchange rate fluctuations and the lack of available currency
hedging instruments;
(6) higher rates of inflation;
(7) controls on foreign investment and limitations on repatriation of invested
capital and on the Fund's ability to exchange local currencies for U.S.
dollars;
(8) greater governmental involvement in and control over the economy;
(9) the fact that emerging market companies may be smaller, less seasoned and
newly organized;
(10) the difference in, or lack of, auditing and financial reporting standards
that may result in unavailability of material information about issuers;
(11) the fact that the securities of many companies may trade at prices
substantially above book value, at high price/earnings ratios, or at prices
that do not reflect traditional measures of value;
(12) the fact that statistical information regarding the economy of many
emerging market countries may be inaccurate or not comparable to
statistical information regarding the United States or other economies;
(13) less extensive regulation of the securities markets;
(14) certain considerations regarding the maintenance of Fund portfolio
securities and cash with foreign subcustodians and securities depositories;
(15) the risk that it may be more difficult, or impossible, to obtain and/or
enforce a judgment than in other countries;
(16) the risk that the Fund may be subject to income or withholding taxes
imposed by emerging market counties or other foreign governments. The Fund
intends to elect, when eligible, to "pass through" to the Fund's
shareholders the amount of foreign income tax and similar taxes paid by the
Fund. The foreign taxes passed through to a shareholder would be included
in the shareholder's income and may be claimed
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as a deduction or credit. Other taxes, such as transfer taxes, may be
imposed on the Fund, but would not give rise to a credit or be eligible to
be passed through to the shareholders;
(17) the fact that the Fund also is permitted to engage in foreign currency
hedging transactions and to enter into stock options on stock index futures
transactions, each of which may involve special risks, although these
strategies cannot at the present time be used to a significant extent by
the Fund in the markets in which the Fund will principally invest;
(18) enterprises in which the Fund invests may be or become subject to unduly
burdensome and restrictive regulation affecting the commercial freedom of
the invested company and thereby diminishing the value of the Fund's
investment in it. Restrictive or over regulation may therefore be a form of
indirect nationalization;
(19) businesses in emerging markets only have a very recent history of operating
within a market-oriented economy. Overall, relative to companies operating
in western economies, companies in emerging markets are characterized by a
lack of (i) experienced management, (ii) modern technology and (iii) a
sufficient capital base with which to develop and expand their operations.
It is unclear what will be the effect on companies in emerging markets, if
any, of attempts to move towards a more market-oriented economy;
(20) investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings
and other factors beyond the control of the Advisor or Sub-Advisor. As a
result, the return and net asset value of the Fund will fluctuate;
(21) 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 15% 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), Diff. &
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 15% limitation, a debt security will be considered
investment grade if any one of the above listed credit rating agencies rates the
security as investment grade.
Overall, the market for lower-rated or unrated bonds may be thinner and less
active, such bonds may be less liquid and their market prices may fluctuate more
than those of higher-rated bonds, particularly in times of economic
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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 that 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, additionally, 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.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities that pay
no cash income and are sold at substantial discounts from their value at
maturity. When held from issuance to maturity, their entire income, consisting
of accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities that make current cash distributions of interest.
RESTRICTED SECURITIES. The Fund may, from time to time, purchase securities that
are subject to restrictions on resale. While such purchases may be made at an
advantageous price and offer attractive opportunities for investment not
otherwise available on the open market, the Fund may not have the same freedom
to dispose of such securities as in the case of the purchase of securities in
the open market or in a public distribution. These securities may often be
resold in a liquid dealer or institutional trading market, but the Fund may
experience delays in its attempts to dispose of such securities. If adverse
market conditions develop, the Fund may not be able to obtain as favorable a
price as that prevailing at the time the decision is made to sell. In any case,
where a thin market exists for a particular security, public knowledge of a
proposed sale of a large block may depress the market price of such securities.
COMMODITY LINKED SECURITIES. The Fund may invest in structured notes and/or
preferred stock, the value of which is linked to the price of a referenced
commodity. Structured notes and/or preferred stock differ from other types of
securities in which the Fund may invest in several respects. For example, not
only the coupon but also the redemption amount at maturity may be increased or
decreased depending on the change in the price of the referenced commodity.
Investment in commodity linked securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price
changes in response to changes in interest rates, the redemption amount may
decrease as a result of changes in the price of the referenced commodity. In
addition, in certain cases the coupon and/or dividend may be reduced to zero,
and any further decline in the value of the security may then reduce the
redemption amount payable on maturity. Finally, commodity linked securities may
be more volatile than the price of the referenced commodity.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities that are
convertible into or exchangeable for another security, usually common stock.
Convertible debt securities and convertible preferred stocks, until converted,
have general characteristics similar to both debt and equity securities.
Although to a lesser extent than with debt securities generally, the market
value
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of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion or exchange feature, the market value of convertible securities
typically increases or declines as the market value of the underlying common
stock increases or declines, although usually not to the same extent.
Convertible securities generally offer lower yields than non-convertible fixed
income securities of similar quality because of their conversion or exchange
features. Convertible bonds and convertible preferred stock typically have lower
credit ratings than similar non-convertible securities because they are
generally subordinated to other similar but non-convertible fixed income
securities of the same issuer.
OTHER RIGHTS TO ACQUIRE SECURITIES. The Fund may also invest in other rights to
acquire securities, such as options and warrants. These securities represent the
right to acquire a fixed or variable amount of a particular issue of securities
at a fixed or formula price either during specified periods or only immediately
before termination. These securities are generally exercisable at premiums above
the value of the underlying securities at the time the right is issued. These
rights are more volatile than the underling stock and will result in a total
loss of the Fund's investment if they expire without being exercised because the
value of the underlying security does not exceed the exercise price of the
right.
STRATEGIC TRANSACTIONS
The Fund may purchase and sell exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
and enter into various currency transactions such as currency forward contracts,
currency futures contracts, options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). The Fund may
engage in Strategic Transactions for hedging, risk management, or portfolio
management purposes but not for speculation, and it will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.
Strategic Transactions may be used to attempt (1) to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, (2) to protect the Fund's unrealized gains in the value of its
portfolio securities, (3) to facilitate the sale of such securities for
investment purposes, (4) to manage the effective maturity or duration of the
Fund's portfolio, or (5) to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. The Fund's
ability to successfully use these Strategic Transactions will depend upon the
Sub-Advisor's ability to predict pertinent market movements and cannot be
assured. Engaging in Strategic Transactions will increase transaction expenses
and may result in a loss that exceeds the principal invested in the
transactions.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Sub-Advisor's view as to certain market movements is incorrect, the risk
that the use of such Strategic Transactions could result in losses greater than
if they had not been used. Use of put and call options may result in losses to
the Fund. For example, selling call options may force the sale of portfolio
securities at inopportune times or for lower prices than current market values.
Selling call options may also limit the amount of appreciation the Fund can
realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and option markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction, and substantial losses might be incurred. However, the use
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of futures and options transactions for hedging should tend to minimize the risk
of loss due to a decline in the value of a hedged position. At the same time
they tend to limit any potential gain that might result from an increase in
value of such position. Finally, the daily variation margin requirement for
futures contracts would create a greater on going potential financial risk than
would purchases of options, where the exposure is limited to the cost of the
initial premium. Losses resulting from the use of Strategic Transactions would
reduce net asset value, and possibly income, and such losses can be greater than
if the Strategic Transactions had not been used.
The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company.
PUT AND CALL OPTIONS. The Fund may purchase and sell (issue) both put and call
options. The Fund may also enter into transactions to close out its investment
in any put or call option.
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the issuer of the obligation the right to buy the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the issuer the obligation to sell, the underling
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index currency or other instrument might be intended
to protect the Fund against an increase in the price of the underlying
instrument it intends to purchase in the future by fixing the price at which it
may purchase such instrument. An "American style" put or call option may be
exercised at any time during the option period while a "European style" put or
call option may be exercised only upon expiration or during a fixed period prior
thereto.
The Fund is authorized to purchase and sell both exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ["Counterparty(ies)"] through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options that
generally have standardized terms and performance mechanics, all the terms of an
OTC option are set by negotiation of the parties. Unless the parties provide for
it, there is no central clearing or guaranty function in an OTC option.
The Fund's ability to close out its position as a purchaser or seller of a put
or call option is dependent, in part, upon the liquidity of the market for that
particular option. Exchange listed options, because they are standardized and
not subject to Counterparty credit risk, are generally more liquid than OTC
options. There can be no guarantee that the Fund will be able to close out an
option position, whether in exchange listed options or OTC options, when
desired. An inability to close out its options positions may reduce the Fund's
anticipated profits or increase its losses.
If the Counterparty to an OTC option fails to make or take delivery of the
security, currency or other instrument underlying an OTC option it has entered
into with the Fund, or fails to make a cash settlement payment due in accordance
with the terms of that option, the Fund may lose any premium it paid for the
option as well as any anticipated benefit of the transaction. Accordingly, the
Sub-Advisor must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC option will be satisfied.
The Fund will realize a loss equal to all or a part of the premium paid for an
option if the price of the underlying security, commodity, index, currency or
other instrument security decreases or does not increase by more than
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the premium (in the case of a call option), or if the price of the underlying
security, commodity, index, currency or other instrument increases or does not
decrease by more than the premium (in the case of a put option). The Fund will
not purchase any option if, immediately afterwards, the aggregate market value
of all outstanding options purchased by the Fund would exceed 5% of the Fund's
total assets.
If the Fund sells (i.e., issues) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio, or may increase the Fund's income. If the Fund sells (i.e. issues) a
put option, the premium that it receives may serve to reduce the cost of
purchasing the underlying security, to the extent of the option premium, or may
increase the Fund's income. All options sold by the Fund must be "covered"
(i.e., the Fund must either be long (when selling a call option) or short (when
selling a put option). The securities or futures contracts subject to the calls
or puts must meet the asset segregation requirements described below as long as
the option is outstanding. Even though the Fund will receive the option premium
to help protect it against loss or reduce its cost basis, an option sold by the
Fund exposes the Fund during the term of the option to possible loss. When
selling a call, the Fund is exposed to the loss of opportunity to realize
appreciation in the market price of the underlying security or instrument, and
the transaction may require the Fund to hold a security or instrument that it
might otherwise have sold. When selling a put, the Fund is exposed to
possibility of being required to pay greater than current market value to
purchase the underlying security, and the transaction may require the Fund to
maintain a short position in a security or instrument that it might otherwise
not have maintained. The Fund will not write any call or put options if,
immediately afterwards, the aggregate value of the Fund's securities subject to
outstanding call or put options would exceed 25% of the value of the Fund's
total assets.
FUTURES CONTRACTS. The Fund may enter into financial futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchange where they are listed with payment of an
initial variation margin as described below. The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type for financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the CFTC and will be entered into only for bonafide hedging,
risk management (including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option thereon
requires the Fund to deposit with a financial intermediary as security for its
obligations an amount of cash or other specified assets (initial margin) which
initially is typically 1% to 10% of the face amount of the contract (but may be
higher in some circumstances). Additional cash or assets (variation margin) may
be required to be deposited thereafter on a daily basis as the mark-to-market
value of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of the purchaser. If the Fund exercises an option on a futures
contract, it will be obligated to post initial margin (and potentially
subsequent variation margin) for the resulting futures position just as it would
for any futures position. Futures contracts and options thereon are generally
settled by entering into an offsetting transaction, but there can be no
assurance that the position can be offset before settlement at an advantageous
price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately afterwards, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value). However, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5%
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limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
FOREIGN CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in an attempt to hedge an investment in an issuer incorporated or
operating in a foreign country or in a security denominated in the currency of a
foreign country against a devaluation of that country's currency. Currency
transactions include forward currency contracts, exchange listed currency
futures, and exchange listed and OTC options on currencies. The Fund's dealing
in forward currency contracts and other currency transactions such as futures,
options, and options on futures generally will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of the Fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
The 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.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings or portfolio securities, the Fund may engage in proxy
hedging. Proxy hedging may be used when the currency to which the Fund's
portfolio is exposed is difficult to hedge. Proxy hedging entails entering into
a forward contract to sell a currency whose changes in value are generally
considered to be linked to a currency in which some or all of the Fund's
portfolio securities are, or are expected to be denominated, and to buy U.S.
dollars.
To hedge against a devaluation of a foreign currency, the Fund may enter into a
forward market contract to sell to banks a set amount of such currency at a
fixed price and at a fixed time in the future. If, in foreign currency
transactions, the foreign currency sold forward by the Fund is devalued below
the price of the forward market contract and more than any devaluation of the
U.S. dollar during the period of the contract, the Fund will realize a gain as a
result of the currency transaction. In this way, the Fund might reduce the
impact of any decline in the market value of its foreign investments
attributable to devaluation of foreign currencies.
The Fund may sell foreign currency forward only as a means of protecting its
foreign investments or to hedge in connection with the purchase and sale of
foreign securities, and may not otherwise trade in the currencies of foreign
countries. Accordingly, the Fund may not sell forward the currency of a
particular country to an extent greater than the aggregate market value (at the
time of making such sale) of the securities held in its portfolio denominated in
that particular foreign currency (or issued by companies incorporated or
operating in that particular foreign country) plus an amount equal to the value
of securities it anticipates purchasing less the value of securities it
anticipates selling, denominated in that particular currency.
As a result of hedging through selling foreign currencies forward, in the event
of a devaluation, it is possible that the value of the Fund's portfolio would
not depreciate as much as the portfolio of a fund holding similar investments
that did not sell foreign currencies forward. Even so, the forward market
contract is not a perfect hedge against devaluation because the value of the
Fund's portfolio securities may decrease more than the amount realized by reason
of the foreign currency transaction. To the extent that the Fund sells forward
currencies that are thereafter revalued upward, the value of the Fund's
portfolio would appreciate to a lesser extent than the comparable portfolio of a
fund which did not sell those foreign currencies forward. If, in anticipation of
a devaluation of a foreign currency, the Fund sells the currency forward at a
price lower than the price of that currency on the expiration date of the
contract, the Fund will suffer a loss on the contract if the currency is not
devalued, during the contract period, below the contract price. Moreover, it
will not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
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in the future at a price above the devaluation level it anticipates. It is
possible that, under certain circumstances, the Fund may have to limit its
currency transactions to permit the Fund to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
Foreign currency transactions would involve a cost to the Fund that would vary
with such factors as the currency involved, the length of the contact period and
the market conditions then prevailing.
The Fund will not attempt to hedge all its foreign investments by selling
foreign currencies forward and will do so only to the extent deemed appropriate
by the Sub-Advisor.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid high
grade assets with its custodian to the extent that the Fund's obligations are
not otherwise "covered" through ownership of the underlying security, financial
instrument or currency. Overall, either the full amount of any obligation of the
Fund to pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or subject to any
regulatory restrictions, an amount of cash or liquid high grade debt securities
at least equal to the current amount of the obligation must either be identified
as being restricted in the Fund's accounting records or physically segregated in
a separate account at the Fund's custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For the purpose of determining
the adequacy of the liquid securities 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.
PORTFOLIO TURNOVER
The Fund's management buys and sell 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.
A change in the securities held by the Fund is known as "portfolio turnover." A
high portfolio turnover rate may cause the Fund to pay higher transaction
expenses, including more commissions and markups, and also result in quicker
recognition of capital gains, resulting in more capital gain distributions that
may be taxable to shareholders. Any short term gain realized on securities will
be taxed to shareholders as ordinary income. See "Tax Status."
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.
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NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
Frank E. Holmes(1) Trustee, Chairman of the Board of Directors and
Chief Executive Chief Executive Officer of the Advisor.
Officer, President Since October 1989 Mr. Holmes has served
and continues to serve in various
positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors. Director of
Franc-Or Resource Corp. from November
1994 to November 1996. Director of
Marleau, Lemire Inc. from January 1995
to December 1995.
(1) This Trustee may be deemed an
"interested person" of the Trust as
defined in the Investment Company Act of
1940.
Richard E. Hughs Trustee Professor at the School of Business of
11 Dennin Drive the State University of New York at
Menands, NY 12204 Albany from 1990 to present; Dean,
School of Business 1990-1994; Director
of the Institute for the Advancement of
Health Care Management, 1994-present.
Corporate Vice President, Sierra Pacific
Resources, Reno, NV, 1985- 1990. Dean
and Professor, College of Business
Administration, University of Nevada,
Reno, 1977- 1985. Associate Dean, Stern
School of Business, New York University,
New York City, 1970-1977.
Clark R. Mandigo Trustee Business consultant since 1991. From
1250 N.E. Loop 410 1985 to 1991, President, Chief Executive
Suite 900 Officer, and Director of Intelogic
San Antonio, Texas Trace, Inc., a nationwide company that
78209 sells, leases and maintains computers
and telecommunications systems and
equipment. Before 1985, President BHP
Petroleum (Americas), Ltd., an oil and
gas exploration and development company.
Director Lone Star Steakhouse & Saloon,
Inc., Physician Corporation of America
and Palmer Wireless, Inc.
Bobby D. Duncan Executive Vice President, Chief Financial Officer, and
President, Chief Operating Officer of the Advisor.
Chief Operating Since January 1985 Mr. Duncan has served
Officer, Chief and continues to serve in various
Financial Officer positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors.
Thomas D. Tays Vice President, Vice President and Securities Specialist
Secretary of the Advisor. Since September 1993 Mr.
Tays has served and continues to serve
in various positions with the Advisor,
its subsidiaries, and the investment
companies it sponsors. Before September
1993 Mr. Tays was an attorney in private
practice.
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NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
Susan B. McGee Vice President, Vice President and Secretary of the
Assistant Advisor. Since September 1992 Ms. McGee
Secretary has served and continues to serve in
various positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors. Before September
1992 Ms. McGee was a student at St.
Mary's Law School.
Kevin C. White Chief Accounting Chief Accounting Officer of the Advisor.
Officer Since November 1995 Mr. White has served
and continues to serve in various
positions with the Advisor, its
subsidiaries, and the investment
companies it sponsors. Closing Manager
for World Savings and Loan from January
1995 to November 1995. Controller of
Swearingen Aircraft from December 1991
to January 1995. Financial Analyst for
Fox Photo from February 1991 to December
1991.
PRINCIPAL HOLDERS OF SECURITIES
As of February 20, 1997, shares of the Fund had not been offered to the public
and the Sub-Advisor owned 100% of the Fund's outstanding shares.
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, President and a Director of the Advisor,
and a Trustee, President and Chief Executive Officer of the Trust, beneficially
owns more than 25% of the outstanding voting stock of the Advisor and may be
deemed to be a controlling person of the Advisor.
In addition to the services described in the Fund's prospectus, the Advisor will
provide the Trust with office space, facilities and simple business equipment,
and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
officers, and trustees of the Trust, if such persons are employees of the
Advisor or its affiliates, except that the Trust will reimburse the Advisor for
part of the compensation of the Advisor's employees who perform certain legal
services for the Trust, including state securities law regulatory compliance
work, based upon the time spent on such matters for the Trust.
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, except that the Sub-Advisor's fee will be subject to downward
adjustments for: (1) the Advisor's incurred costs and expenses of marketing the
Fund that exceed the 0.25% 12b- 1 fee charged to the Fund for such marketing
purposes; (2) for any monies advanced by the Advisor on behalf of the
Sub-Advisor; (3) the unrecovered costs of organizing the Fund up to $40,000 (the
Advisor will be responsible for bearing costs of organization of the Fund in
excess of $40,000); and (4) if a decision is made with respect to placing a cap
on expenses, to the extent that actual expenses of the Fund exceed the cap, and
the Advisor is required to pay or absorb any of the excess expenses, by the
amount of the excess expenses paid or absorbed by the Advisor through such
downward adjustments. To the extent that the Sub-Advisor has advanced monies to
the Advisor to pay for Fund distribution or organizational expenses, such
advances shall serve to offset the reductions enumerated above. The Fund is not
responsible for paying any part of the Sub-Advisor's fees.
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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,
expenses of preparing, printing and mailing proxy statements, reports and other
communications to shareholders, expenses of registering and qualifying shares
for sale, fees of Trustees who are not "interested persons" of the Advisor,
expenses of attendance by officers and trustees at professional meetings of the
Investment Company Institute, the No-Load Mutual Fund Association or similar
organizations, and membership or organization dues of such organizations,
expenses of preparing, typesetting and mailing prospectuses and periodic reports
to current shareholders, fidelity bond premiums, cost of maintaining the books
and records of the Trust, and any other charges and fees not specified.
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 discussed above 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 prohibits banks
from 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 by (i) 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) a vote of a majority of the Trustees who are not parties to the Advisory
Agreement or "interested persons" of any party thereto cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated on 60-day written notice by either party and will
terminate automatically if it is assigned.
Both the Advisor and Sub-Advisor provide investment advise to a variety of
clients (the Advisor also provides investment advise to other mutual funds).
Investment decisions for each client are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, as far as possible, averaged
as to price and allocated between such clients in a way that, in the Advisor's
or Sub- Advisor's opinion, is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients. The Advisor and Sub-Advisor employ professional
staffs of portfolio managers who draw upon a variety of resources for research
information for the clients.
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In addition to advising client accounts, the Advisor 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 different from
those of 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." Also, lockbox and statement printing services are
provided by USSI.
USSI also maintains the books and records of the Trust and of each fund of the
Trust and calculates their daily net asset value as described in the Fund's
prospectus under "Management of the Funds -- The Investment Advisor."
A & B Mailers, Inc., a corporation wholly owned by the Advisor, provides the
Trust with certain mail handling services. The charges for such services have
been negotiated by the Audit Committee of the Trust and A & B Mailers, Inc. Each
service is priced separately.
DISTRIBUTION PLAN
As described under "Service Fee" in the prospectus, the Fund has adopted a
distribution plan pursuant to Rule 12b-1 of the 1940 Act (the "Distribution
plan"). The distribution plan allows the Fund to pay for or reimburse
expenditures in connection with sales and promotional services related to the
distribution of Fund shares, including personal services provided to prospective
and existing Fund shareholders, and includes the costs of: printing and
distribution of prospectuses and promotional materials, making slides and charts
for presentations, assisting shareholders and prospective investors in
understanding and dealing with the Fund, and travel and out-of-pocket expenses
(e.g., copy and long distance telephone charges) related thereto.
The total amount expended pursuant to the distribution plan may not exceed 0.25%
of the Fund's net assets annually. 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 if the 0.25% limitation is never exceeded.
Expenses that the Fund incurs pursuant to the distribution plan are reviewed
quarterly by the Board of Trustees. The distribution plan is reviewed annually
by the Board of Trustees as a whole, and by the Trustees who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the distribution plan
("Qualified Trustees"). In their review of the distribution plan the Board of
Trustees, as a whole, and the Qualified Trustees determine whether, in their
reasonable business judgment and considering their fiduciary duties under state
law and under Section 36(a) and (b) of the 1940 Act, there is a reasonable
likelihood that the distribution plan will benefit the Fund and its
shareholders. The distribution plan may be terminated anytime by majority vote
of the Qualified Trustees, or by majority vote of the outstanding voting
securities of the Fund.
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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 it
attracts more shareholders.
CERTAIN PURCHASES OF SHARES OF THE FUND
Shares of the Fund are continuously offered by the Trust at their net asset
value next determined after an order is accepted. The methods available for
purchasing shares of the Fund are described in the Prospectus. In addition,
shares of the Fund may be purchased using stock, so long as the securities
delivered to the Trust meet the investment objectives and concentration policies
of the Fund and are otherwise acceptable to the Advisor, which reserves the
right to reject all or any part of the securities offered in exchange for shares
of the Fund. On any such "in kind" purchase, the following conditions will
apply:
(1) the securities offered by the investor in exchange for shares of the Fund
must not be in any way restricted as to resale or be otherwise illiquid;
(2) securities of the same issuer must already exist in the Fund's portfolio;
(3) the securities must have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
AMEX, the NYSE, or NASDAQ;
(4) any securities so acquired by any fund shall not comprise over 5% of that
fund's net assets at the time of such exchange;
(5) no over-the-counter securities will be accepted unless the principal
over-the-counter market is in the United States; and
(6) the securities are acquired for investment and not for resale.
The Trust believes that this ability to purchase shares of the Fund using
securities provides a means by which holders of certain securities may obtain
diversification and continuous professional management of their investments
without the expense of selling those securities in the public market.
An investor who wishes to make an "in kind" purchase should furnish a list
(either in writing or by telephone) to the Trust with a full and exact
description of all of the securities he or she proposes to deliver. The Trust
will advise him or her as to those securities it is prepared to accept and will
provide the investor with the necessary forms to be completed and signed by the
investor. The investor should then send the securities, in proper form for
transfer, with the necessary forms to the Trust and certify that there are no
legal or contractual restrictions on the free transfer and sale of the
securities. The securities will be valued as of the close of business on the day
of receipt by the Trust in the same manner as portfolio securities of the Fund
are valued. See the section entitled "How Shares Are Valued" in the prospectus.
The number of shares of the Fund, having a net asset value as of the close of
business on the day of receipt equal to the value of the securities delivered by
the investor, will be issued to the investor, less applicable stock transfer
taxes, if any.
The exchange of securities by the investor pursuant to this offer is a taxable
transaction and may result in a gain or loss for Federal income tax purposes.
Each investor should consult his or her tax adviser to determine the tax
consequences under Federal and state law of making such an "in kind" purchase.
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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 practicable for the Trust to dispose of securities owned
by it or to determine fairly the value of its assets; or (3) as the SEC may
otherwise permit.
REDEMPTION IN KIND. The Trust reserves the right to redeem shares of the Fund in
cash or in kind. However, the Trust has elected to be governed by Rule 18f-1
under the Investment Company Act of 1940, pursuant to which the Trust is
obligated to redeem shares of the Fund solely in cash up to the lesser of
$250,000 or one percent of the net asset value of the Fund during any 90-day
period for any one shareholder. Any shareholder of the Fund receiving a
redemption in kind would then have to pay brokerage fees 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 that (1) all charges are deducted from the initial
$1,000 payment, (2) all dividends and distributions by the Fund are reinvested
at the price stated in the prospectus on the reinvestment dates during the
period and (3) all recurring fees charged to all shareholder accounts are
included.
NONSTANDARDIZED TOTAL RETURN
The Fund may provide the above described standard total return results for a
period that ends not earlier than the most recent calendar quarter end and
begins either twelve months before or at the time of commencement of the Fund's
operations. In addition, the Fund may provide nonstandardized total return
results for differing periods, such as for the most recent six months. Such
nonstandardized total return is computed as otherwise described under "Total
Return" except that no annualization is made.
TAX STATUS
TAXATION OF THE FUND -- IN GENERAL
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As stated in its Prospectus, the Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Fund will not be liable for Federal
income taxes on its taxable net investment income and capital gain net income
distributed to shareholders if the Fund distributes at least 90% of its net
investment income and net short-term capital gain for the taxable year.
To qualify as a regulated investment company, the Fund must, among other things,
(1) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies (the "90% test"); (2) derive in each taxable year less than 30% of
its gross income from the sale or other disposition of stock or securities held
less than three months (the "30% test"); and (3) satisfy certain diversification
requirements at the close of each quarter of the Fund's taxable year.
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 part (not taxable to the Fund) of
the respective balance from the preceding calendar year. The Fund intends to
make such distributions as are necessary to avoid imposition of this excise tax.
TAXATION OF THE FUND'S INVESTMENTS
The Fund's ability to make certain investments may be limited by provisions of
the Code that require inclusion of certain unrealized gains or losses in the
Fund's income for purposes of the 90% test, the 30% test, and the distribution
requirements of the Code, and by provisions of the Code that characterize
certain income or loss as ordinary income or loss rather than capital gain or
loss. Such recognition, characterization and timing rules generally apply to
investments in certain forward currency contracts, foreign currencies and debt
securities denominated in foreign currencies.
TAXATION OF THE SHAREHOLDER
Taxable distributions generally are included in a shareholder's gross income for
the taxable year in which they are received. However, dividends declared in
October, November or December and paid to shareholders of record in such a
month, will be deemed to have been received December 31 if a Fund pays the
dividends during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just before a distribution. The price of such shares
purchased then includes the amount of any forthcoming distribution. Investors
purchasing the Fund's shares immediately before a distribution may receive a
return of investment upon distribution that will nevertheless be taxable to
them.
A shareholder of the Fund should be aware that a redemption of shares (including
any exchange into other funds offered, affiliated or administered by U. S.
Global Investors, Inc.) is a taxable event and, accordingly, a capital gain or
loss may be recognized. If a shareholder of the Fund receives a distribution
taxable as long-term capital gain with respect to shares of the Fund and redeems
or exchanges shares before he has held them for more than six months, any loss
on the redemption or exchange (not otherwise disallowed as attributable to an
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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 November 21, 1996,
and does not yet have an operating history. The Advisor will send shareholders
annual and semi-annual reports as they become available.
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