U.S. GLOBAL ACCOLADE FUNDS
BONNEL GROWTH FUND
MEGATRENDS FUND
ADRIAN DAY GLOBAL OPPORTUNITY FUND
REGENT EASTERN EUROPEAN FUND
September 3, 1998, supplement
the prospectuses listed above and dated February 2, 1998
- --------------------------------------------------------------------------------
Insert the following in the section entitled, "MANAGEMENT OF THE FUND":
PRINCIPAL DISTRIBUTOR
U.S. Global Brokerage, Inc., a subsidiary of the adviser, has agreed to
market the fund and distribute shares through selling brokers, financial
planners and other financial representatives beginning September 3, 1998.
Insert the following on the last page:
DISTRIBUTOR
U.S. Global Brokerage, Inc.
7900 Callaghan Road
San Antonio, TX 78229
================================================================================
BONNEL GROWTH FUND STATEMENT OF ADDITIONAL INFORMATION
================================================================================
U.S. GLOBAL ACCOLADE FUNDS
BONNEL GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the prospectus ("Prospectus") dated February 2, 1998, as
amended September 3, 1998, which you may request from U. S. Global Investors,
Inc. ("Adviser"), 7900 Callaghan Road, San Antonio, Texas 78229 or
1-800-US-FUNDS (1-800-873-8637).
The date of this Statement of Additional Information is February 2, 1998, as
amended September 3, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.........................................................3
INVESTMENT OBJECTIVES AND POLICIES..........................................3
RISK FACTORS................................................................5
PUT AND CALL OPTIONS........................................................5
PORTFOLIO TURNOVER..........................................................6
PORTFOLIO TRANSACTIONS......................................................6
MANAGEMENT OF THE FUND......................................................6
PRINCIPAL HOLDERS OF SECURITIES.............................................8
INVESTMENT ADVISORY SERVICES................................................8
TRANSFER AGENCY AND OTHER SERVICES..........................................9
DISTRIBUTION PLAN..........................................................10
CERTAIN PURCHASES OF SHARES OF THE FUND....................................10
ADDITIONAL INFORMATION ON REDEMPTIONS......................................11
CALCULATION OF PERFORMANCE DATA............................................11
TAX STATUS.................................................................12
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR...............................13
INDEPENDENT ACCOUNTANTS ...................................................13
FINANCIAL STATEMENTS.......................................................13
Statement of Additional Information - Bonnel Growth Fund
Page 2
<PAGE>
GENERAL INFORMATION
U.S. Global Accolade Funds ("Trust") is an open-end management investment
company and 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 ("portfolio").
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 the appropriate fund in the Trust. They
constitute the underlying assets of the fund, are required to be segregated on
the books of accounts and are to be charged with the expenses with respect to
such fund. Any general expenses of the Trust not readily identifiable as
belonging to a particular fund will be allocated as directed by the Board of
Trustees in the manner the Board determines to be fair and equitable.
Each share of the fund represents an equal proportionate interest in the fund
with each other share and is entitled to such dividends and distributions, out
of the income belonging to that fund, as are declared by the Board. Upon
liquidation of the Trust, shareholders of each fund are entitled to share pro
rata in the net assets belonging to the fund available for distribution.
As described under THE TRUST in the prospectus, the Trust's Master Trust
Agreement provides that no annual or regular meeting of shareholders is
required. However, the Trust has a staggered Board with terms such that at least
25% of the Trustees expire 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.
INVESTMENT RESTRICTIONS. Neither the investment objective nor the investment
policy of Bonnel Growth Fund is a fundamental policy, and they may be changed by
the Board of Trustees without shareholder approval. The shareholders will be
notified in writing at least 30 days prior to any material change to either the
fund's investment objective or its investment policy.
Under normal market conditions, the fund will have at least 80% of the value of
its total assets in common stocks and securities convertible into common stocks.
The remainder of the portfolio may be invested in money market instruments; for
temporary defensive purposes, the fund may invest up to 100% of its assets in
money market instruments. The fund may invest in common stocks and other equity
securities of foreign issuers but only if they are listed on a domestic or
foreign exchange, quoted on NASDAQ or traded on the domestic or foreign
over-the-counter market. No more than 25% of the value of the fund's total net
assets will be invested in such foreign securities.
Statement of Additional Information - Bonnel Growth Fund
Page 3
<PAGE>
Bonnel Growth 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 331/3% 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 and options
thereon on equity securities indexes in conformance with rules and
regulations issued by the Securities and Exchange Commission.
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 will 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. Make short sales.
9. Invest more than 15% of its total assets in illiquid securities, including
securities that are subject to legal or contractual restrictions on resale.
10. 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.
11. 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 will not apply to obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities, or (b)
acquire more than 10% of the voting securities of any one issuer.
12. Invest more than 10% of its total net assets in open-end investment
companies. To the extent that the fund will invest in open-end investment
companies, the fund's advisor and sub-advisor will waive a proportional
amount of their management fees.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage, resulting from a change in values of
portfolio securities or amount of net assets, will not be considered a violation
of any of the foregoing restrictions.
Statement of Additional Information - Bonnel Growth Fund
Page 4
<PAGE>
RISK FACTORS
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 which 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. Overall, there
is less overall governmental supervision and regulation of foreign securities
markets, broker-dealer, and issuers than in the United States.
The fund may invest up to 5% of its total assets in countries considered by the
Adviser to represent emerging markets. The Adviser decides 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. Currently, the Adviser considers the following countries
to be among the emerging markets: Malaysia, Mexico, Hong Kong, Greece, Portugal,
Turkey, Argentina, Brazil, Indonesia, Philippines, Singapore, Thailand, and
China.
PUT AND CALL OPTIONS
SELLING (OR WRITING) COVERED CALL OPTIONS. The fund may sell (or write) covered
call options on portfolio securities to hedge against adverse movements in the
prices of these securities. A call option gives the buyer of the option, upon
payment of a premium, the right to call upon the writer to deliver a security on
or before a fixed date at a predetermined price, called the strike price. If the
price of the hedged security falls or remains below the strike price, the fund
will not be asked to deliver the security; and the fund will retain the premium
received for the option as additional income, offsetting all or part of any
decline in the value of the security. The hedge provided by writing covered call
options is limited to a price decline in the security of no more than the option
premium received by the fund for writing the option. If the security owned by
the fund appreciates above the options strike price, the fund will generally be
called upon to deliver the security, which will prevent the fund from receiving
the benefit of any price appreciation above the strike price.
BUYING CALL OPTIONS. The fund may establish an anticipatory hedge by purchasing
call options on securities that the fund intends to purchase to take advantage
of anticipated positive movements in the prices of these securities. When
establishing an anticipatory hedge, the fund will deposit cash or cash
equivalents into a segregated account equal to the call option's exercise price.
The fund will realize a gain from the exercise of a call option if, during the
option period, the price of the underlying security to be purchased increases by
more than the amount of the premium paid. A fund will realize a loss equal to
all or a part of the premium paid for the option if the price of the underlying
security decreases or does not increase by more than the premium.
PUT OPTIONS. The fund may purchase put options on portfolio securities to hedge
against adverse movements in the prices of these securities. A put option gives
the buyer of the option, upon payment of a premium, the right to sell a security
to the writer of the option on or before a fixed date at a predetermined price.
The fund will realize a gain from the exercise of a put option if, during the
option period, the price of the security declines by an amount greater than the
premium paid. The fund
Statement of Additional Information - Bonnel Growth Fund
Page 5
<PAGE>
will realize a loss equal to all or a part of the premium paid for the option if
the price of the security increases or does not decrease by more than the
premium.
CLOSING TRANSACTIONS. The fund may dispose of an option written by the fund by
entering into a "closing purchase transaction" for an identical option and may
dispose of an option purchased by the fund by entering into a "closing sale
transaction" for an identical option. In each case, the closing transaction will
terminate the rights of the option holder and the obligations of the option
purchaser and will result in a gain or loss to the fund based upon the relative
amount of the premiums paid or received for the original option and the closing
transaction. The fund may sell (or write) put options solely for the purpose of
entering into closing sale transactions.
INDEX OPTIONS. The fund may purchase and sell call options and purchase put
options on stock indices to manage cash flow, reduce equity exposure, or to
remain fully invested in equity securities. Options on securities indices are
similar to options on a security except that, upon the exercise of an option on
a securities index, settlement is made in cash rather than in specific
securities.
LIMITATIONS. The fund will purchase and sell only options listed on a securities
exchange. The fund will not purchase any option if, immediately afterwards, the
aggregate market value of all outstanding options purchased and written by the
fund would exceed 5% of the fund's total assets. The fund will not write any
call options if, immediately afterwards, the aggregate value of the fund's
securities subject to outstanding call options would exceed 25% of the value of
the fund's total assets.
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 fluctuating interest rates.
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."
High portfolio turnover may cause the fund to pay higher transaction expenses,
including more commissions and markups, and may also result in quicker
recognition of capital gains, resulting in more capital gains 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.
PORTFOLIO TRANSACTIONS
For the fiscal periods shown below, the fund paid brokerage fees as follows:
FISCAL PERIOD BROKERAGE FEES
------------------------------------------ --------------
October 1 through October 31, 1997 $169,743
Year ended September 30, 1997 $778,403
Year ended September 30, 1996 $613,522
October 17, 1994 (initial public offering)
through September 30, 1995 $99,587
For a fuller discussion of the fund's portfolio trading practices see PORTFOLIO
TRANSACTIONS in the prospectus.
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.
Statement of Additional Information - Bonnel Growth Fund
Page 6
<PAGE>
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- -----------------------------------------
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 1985
1250 N.E. Loop 410 to 1991, President, Chief Executive
Suite 900 Officer, and Director of Intelogic Trace,
San Antonio, Texas Inc., a nationwide company which sells,
78209 leases and maintains computers and
telecommunications systems and equipment.
Prior to 1985, President of BHP Petroleum
(Americas), Ltd., an oil and gas
exploration and development company.
Director of Palmer Wireless, Inc., Lone
Star Steakhouse & Saloon, Inc. and
Physician Corporation of America.
Formerly a Director of Datapoint
Corporation. Trustee for Pauze/Swanson
United Services Funds from November 1993
to February 1996.
Frank E. Holmes (1) Trustee, Chairman of the Board of Directors and
President, Chief Executive Officer of the Adviser.
Chief Since October 1989 Mr. Holmes has served
Executive and continues to serve in various
Officer positions with the Adviser, its
subsidiaries and the investment companies
it sponsors. Director of Franc-Or
Resource Corp. from November 1994 to
November 1996. Director of Adventure
Capital Limited from January 1996 to July
1997 and Director of Vedron Gold, Inc.
from August 1996 to March 1997. Director
of 71316 Ontario, Inc. since April 1987
and of F. E. Holmes Organization, Inc.
since July 1978. Director of Marleau,
Lemire Inc. from January 1995 to January
1996. Director of United Services Canada,
Inc. since February 1995 and Chief
Executive Officer from February to August
1995.
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Secretary, Adviser. Since September 1992 Ms. McGee
General has served and continues to serve in
Counsel various positions with the Adviser, its
subsidiaries, and the investment
companies it sponsors. Before September
1992 Ms. McGee was a student at St.
Mary's Law School.
David J. Clark Treasurer Chief Financial Officer, Chief Operating
Officer of the Adviser. Since May 1997
Mr. Clark has served and continues to
serve in various positions with the
Adviser and the investment companies it
sponsors. Foreign Service Officer with
U.S. Agency for International Development
in the U.S. Embassy, Bonn, West Germany
from May 1992 to May 1997. Audit
Supervisor for University of Texas Health
Science Center from April 1991 to April
1992. Auditor-in-Charge for Texaco, Inc.
from August 1987 to June 1990.
- ------------------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
Statement of Additional Information - Bonnel Growth Fund
Page 7
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of January 21, 1998, the officers and Trustees of the Trust, as a group,
owned less than 1% of the outstanding shares of the fund. The fund is aware of
the following person(s) owning of record, or beneficially, more than 5% of the
outstanding shares of the fund as of January 21, 1998.
NAME & ADDRESS OF OWNER % OWNED TYPE OF OWNERSHIP
-------------------------- ------- -----------------
Charles Schwab & Co., Inc. 11.83% Record(1)
101 Montgomery Street
San Francisco, CA 94104
(1) Charles Schwab & Co, Inc., broker-dealer, has
advised that no individual client owns more than 5%
of the Fund.
INVESTMENT ADVISORY SERVICES
The investment adviser to the funds is U.S. Global Investors, Inc., a Texas
corporation, pursuant to an advisory agreement dated September 21, 1994. Frank
E. Holmes, Chief Executive Officer and a Director of the Adviser, and Trustee,
President and Chief Executive Officer of the Trust, beneficially owns more than
25% of the outstanding voting stock of the Adviser and may be deemed to be a
controlling person of the Adviser.
In addition to the services described in the fund's prospectus, the Adviser will
provide the Trust with office space, facilities and simple business equipment,
and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
officers, and Trustees of the Trust, if such persons are employees of the
Adviser or its affiliates, except that the Trust will reimburse the Adviser for
a part of the compensation of the Adviser's employees who perform certain legal
services for the Trust, including state securities law regulatory compliance
work, based upon the time spent on such matters for the Trust.
The Trust pays all other expenses for its operations and activities. The fund
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 Adviser, expenses of attendance by officers and
Trustees at professional meetings of the Investment Company Institute, the
No-Load Mutual Fund Association or similar organizations, and membership or
organization dues of such organizations, expenses of preparing, 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 Adviser, in connection with the fund, have entered into a
sub-advisory agreement with Bonnel, Inc. ("Sub- Adviser"). In connection with
such services, the Adviser pays the Sub-Adviser a minimum sub-advisory fee of
$150,000 per year. When the fund's assets exceed $30 million, the Adviser and
the Sub-Adviser will share the management fee equally; except that the
Sub-Adviser's fee will be subject to downward adjustments for: 1) the Adviser'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
previously received as a result of the minimum sub-advisory fee set forth above
and paid by the Adviser or the Trust before the Securities and Exchange
Commission declared the fund's registration statement effective; 3) the
unrecovered costs of organizing the fund up to $40,000 (the Adviser will be
responsible for bearing costs of organization of the fund greater than $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 Adviser is
required to pay or absorb any of the excess expenses, by the amount of the
excess expenses paid or absorbed by the Adviser through such downward
adjustments. The fund is not responsible for the Sub-Adviser's fee.
Statement of Additional Information - Bonnel Growth Fund
Page 7
<PAGE>
The Adviser may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers, and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client fund shares. The Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. However, in the Adviser's opinion, such laws should not preclude a
bank from performing shareholder administrative and servicing functions as
contemplated herein.
The 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 ["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.
The Adviser provides investment advice to a variety of clients, including 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 Adviser'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 Adviser employs professional staffs of portfolio
managers who draw upon a variety of resources, for research information for the
clients.
In addition to advising client accounts, the Adviser invests in securities for
its own account. The Adviser has adopted policies and procedures intended to
minimize or avoid potential conflicts with its clients when trading for its own
account. The Adviser'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 Adviser 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
recapitalizations. In general, the Adviser 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 Adviser, through its subsidiary United Shareholder
Services, Inc. ("USSI"), provides transfer agent services pursuant to the
Transfer Agency Agreement as described in the fund's prospectus under MANAGEMENT
OF THE FUND--THE INVESTMENT ADVISER. Also, lockbox and statement printing
services are provided by USSI. For the year ended September 30, 1997, and the
period from October 1 through October 31, 1997, the fund paid USSI a total of
$222,592 and $20,624, respectively, for transfer agency, lockbox, and printing
fees. The Board of Trustees recently approved the Transfer Agency and related
agreements through March 8, 1998.
USSI maintained the books and records of the Trust and of each fund of the Trust
until November 1, 1997, at which time Brown Brothers Harriman and Co. assumed
such responsibility. Daily net asset value is calculated as described in the
fund's prospectus under MANAGEMENT OF THE FUND--THE INVESTMENT ADVISER. For the
year ended September 30, 1997, and the period from October 1 through October 31,
1997, the fund paid USSI a total of $59,632 and $6,011, respectively, for
portfolio accounting services.
Statement of Additional Information - Bonnel Growth Fund
Page 8
<PAGE>
A&B Mailers, Inc., a corporation wholly owned by the Adviser, provides the Trust
with certain mail handling services. The charges for such services have been
negotiated by the Audit Committee and A&B Mailers, Inc. Each service is priced
separately.
DISTRIBUTION PLAN
As described under SERVICE FEE in the prospectus, in September 1994, the fund
adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act
("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, which 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. For the year ended September 30, 1997, and
the period from October 1 through October 31, 1997, the fund paid a total of
$242,710 and $25,913, respectively, in distribution fees. Distribution expenses
paid by the Adviser 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 Distribution 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 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 reasonable
likelihood that the Distribution Plan will benefit the fund and its
shareholders. The Distribution Plan may be terminated anytime by a majority vote
of the Qualified Trustees, or by a majority vote of the outstanding voting
securities of the fund.
The fund is unaware of any Trustee or any interested person of the fund who had
a direct or indirect financial interest in the operations of the Distribution
Plan.
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.
Beginning September 3, 1998, U.S. Global Brokerage, Inc., a subsidiary of the
adviser, has agreed to market the fund and distribute shares through selling
brokers, financial planners and other financial representatives.
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 Adviser, which reserves the
right to reject all or any part of the securities offered in exchange for shares
of the fund. On any such "in kind" purchase, the following conditions will
apply:
1. the securities offered by the investor in exchange for shares of the fund
must not be restricted in any way 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 will not comprise more than 5% of
that fund's net assets at the time of such exchange;
Statement of Additional Information - Bonnel Growth Fund
Page 9
<PAGE>
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 (either in
writing or by telephone) a list 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.
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.
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:
n
P(1+T) = 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 (a) all charges are deducted from the initial
$1,000 payment, (b) all dividends and distributions by the fund are reinvested
at the price stated in the prospectus on the reinvestment dates during the
period and (c) all recurring fees charged to all shareholder accounts are
included.
Statement of Additional Information - Bonnel Growth Fund
Page 10
<PAGE>
The average annual total return for the fund follows:
AVERAGE ANNUAL
FISCAL PERIOD TOTAL RETURN
------------------------------------------ --------------
October 1 through October 31, 1997 (09.97)%
Year ended September 30, 1997 28.67%
Year ended September 30, 1996 21.27%
October 17, 1994 (initial public offering)
through September 30, 1995 48.74% *
-------------
* Not annualized
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.
EFFECT OF FEE WAIVER AND EXPENSE REIMBURSEMENT. From October 17, 1994 (initial
public offering), through September 30, 1995, the fund's expense ratio was
2.48%. If the Adviser had not subsidized the fund's expenses, the expense ratio
subject to the most restrictive state limitation would have been 2.50%. Because
its expenses were subsidized, the fund's investment performance, including
annual compound rate of return, was improved. The Adviser is not obligated to
continue subsidizing the fund's expenses in the future.
TAX STATUS
TAXATION OF THE FUND--IN GENERAL. As stated in its Prospectus, the fund intends
to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended ("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,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies ("90% test"); and (b) satisfy certain diversification requirements at
the close of each quarter of the fund's taxable year.
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
October 31 of the calendar year, and (3) any portion (not taxable to the fund)
of the respective balance from the preceding calendar year. The fund intends to
make such distributions as are necessary to avoid imposition of this excise tax.
TAXATION OF THE FUND'S INVESTMENTS. The fund's ability to make certain
investments may be limited by provisions of the Code that require inclusion of
certain unrealized gains or losses in the fund's income for purposes of the 90%
test 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
Statement of Additional Information - Bonnel Growth Fund
Page 11
<PAGE>
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 shares purchased then includes
the amount of any forthcoming distribution. Investors purchasing the fund's
shares immediately before a distribution may receive a return of investment upon
distribution that will nevertheless be taxable to them.
A shareholder of the fund should be aware that a redemption of shares (including
any exchange into other funds offered, affiliated or administered by U.S. Global
Investors, Inc.) is a taxable event and, accordingly, a capital gain or loss may
be recognized. If a shareholder of the fund receives a distribution taxable as
long-term capital gain with respect to shares of the fund and redeems or
exchanges shares before he has held them for more than six months, any loss on
the redemption or exchange (not otherwise disallowed as attributable to an
exempt-interest dividend) will be treated as long-term capital loss to the
extent of the long-term capital gain recognized.
DISTRIBUTOR
U.S. Global Brokerage, Inc., 7900 Callaghan Road, San Antonio, Texas 78229, is
the exclusive agent for distribution of shares of the funds. The distributor is
obligated to sell the shares of the funds on a best-efforts basis only against
purchase orders for the shares. Shares of the funds are offered on a continuous
basis.
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR
Beginning November 1997 Brown Brothers Harriman & Co. began serving as
custodian, fund accountant and administrator for all funds of the Trust. With
respect to the funds owning foreign securities, Brown Brothers Harriman & Co.
may hold securities outside the United States pursuant to sub-custody
arrangements separately approved by the Trust. Prior to November, Bankers Trust
Company provided custody services and USSI provided fund accounting and
administrative services. Services with respect to retirement accounts will be
provided by Security Trust and Financial Company of San Antonio, Texas, a wholly
owned subsidiary of the Adviser.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 700 North St. Mary's, San Antonio, Texas 78205 is the
independent accountant for the Trust.
FINANCIAL STATEMENTS
The financial statements for the years ended October 31, 1997, and September 30,
1997, are hereby incorporated by reference from the U.S. GLOBAL ACCOLADE FUNDS
1997 ANNUAL REPORT TO SHAREHOLDERS of that date that accompanies this Statement
of Additional Information. If not included, the Trust will promptly provide a
copy, free of charge, upon request to: U.S. Global Investors, Inc., P.O. Box
29467, San Antonio, Texas 78229-0467, 1-800-873-8637 or (210) 308-1234.
Statement of Additional Information - Bonnel Growth Fund
Page 12
<PAGE>
================================================================================
MEGATRENDS FUND STATEMENT OF ADDITIONAL INFORMATION
================================================================================
U.S. GLOBAL ACCOLADE FUNDS
MEGATRENDS FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the prospectus ("Prospectus") dated February 2, 1998, as
amended September 3, 1998, which you may request from U. S. Global Investors,
Inc. ("Adviser"), 7900 Callaghan Road, San Antonio, Texas 78229 or
1-800-US-FUNDS (1-800-873-8637).
The date of this Statement of Additional Information is February 2, 1998, as
amended September 3, 1998.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.........................................................3
INVESTMENT OBJECTIVES AND POLICIES..........................................3
INVESTMENT LIMITATIONS......................................................8
MANAGEMENT OF THE FUND......................................................9
PRINCIPAL HOLDERS OF SECURITIES............................................10
INVESTMENT ADVISORY SERVICES...............................................11
TRANSFER AGENCY AND OTHER SERVICES.........................................12
DISTRIBUTION PLAN..........................................................12
CERTAIN PURCHASES OF SHARES OF THE FUND....................................13
ADDITIONAL INFORMATION ON REDEMPTIONS......................................14
CALCULATION OF PERFORMANCE DATA............................................14
TAX STATUS.................................................................15
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR...............................16
INDEPENDENT ACCOUNTANTS....................................................16
FINANCIAL STATEMENTS.......................................................16
Statement of Additional Information - MegaTrends Fund
Page 2
<PAGE>
GENERAL INFORMATION
U.S. Global Accolade Funds ("Trust") is an open-end management investment
company and is a business trust organized under the laws of the Commonwealth of
Massachusetts. The MegaTrends Fund ("Fund") is a series of the Trust and
represents a separate, diversified portfolio of securities ("Portfolio").
The assets received by the Trust from the issue or sale of shares of the Fund,
and all income, earnings, profits and proceeds thereof, subject to the rights of
creditors only, 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, will be allocated by or under the direction of the Board of
Trustees ("Board" or "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 in THE TRUST section in the Prospectus, the Trust's master trust
agreement provides that no annual or regular meeting of shareholders is
required. The Trust has a staggered Board with terms such that at least 25% of
the Trustees expire 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 which does not
affect their fund but which requires a separate vote of another fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the master trust agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The master trust agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objectives and policies discussed in the Fund's Prospectus.
EQUITY PRICE FLUCTUATION. The Fund invests primarily in equity securities.
Equity securities are subject to price fluctuations depending on a variety of
factors, including market, business, and economic conditions.
FOREIGN INVESTMENTS. Subject to the Fund's investment policies and quality
standards, the Fund may invest in the securities of foreign issuers. 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
Statement of Additional Information - MegaTrends Fund
Page 3
<PAGE>
reporting standards and requirements 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
the assets of the Fund, political or financial instability or diplomatic and
other developments which could affect such investment. Further, economies of
particular countries or areas of the world may differ favorably or unfavorably
from the economy of the United States. It is anticipated that in most cases the
best available market for foreign securities will be on exchanges or in
over-the-counter markets located outside of the United States. Foreign stock
markets, while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some foreign issuer
(particularly those located in developing countries) may be less liquid and more
volatile than securities of comparable United States Companies. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities markets, broker-dealer, and issuers than in the United States.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at a
specified price and are valid for a specific time period. Rights are similar to
warrants, but normally have a short duration and are distributed by the issuer
to its shareholders. The Fund may realize a loss equal to all or a portion of
the price paid for the warrants or rights if the price of the underlying
security decreases or does not increase by more than the amount paid for the
warrants or rights. The Fund may purchase warrants and rights, provided that the
Fund does not invest more than 5% of its net assets at the time of purchase in
warrants and rights other than those that have been acquired in units or
attached to other securities. Of such 5%, no more than 2% of the Fund's assets
at the time of purchase may be invested in warrants which are not listed on
either the New York Stock Exchange or the American Stock Exchange.
QUALITY RATINGS OF CORPORATE BONDS. The ratings of Moody's Investors Service,
Inc. and Standard & Poor's Ratings Group for corporate bonds in which the Fund
may invest are as follows:
MOODY'S INVESTORS SERVICE, INC.. Aaa - Bonds which are rated Aaa are
judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or an exceptionally stable margin, and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what is generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
STANDARD & POOR'S RATINGS GROUP. AAA - Bonds rated AAA have the highest
rating assigned by Standard & Poor's to a debt obligation. Capacity to pay
interest and repay principal is extremely strong.
Statement of Additional Information - MegaTrends Fund
Page 4
<PAGE>
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB and B - Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and B the higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
RISK FACTORS OF LOWER-RATED SECURITIES. Lower-rated debt securities (commonly
called "junk bonds") may be subject to certain risk factors to which other
securities are not subject to the same degree. An economic downturn tends to
disrupt the market for lower-rated bonds and adversely affect their values. Such
an economic downturn may be expected to result in increased price volatility of
lower-rated bonds and of the value of the Fund's shares, and an increase in
issuers' defaults on such bonds.
Also, many issuers of lower-rated bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, the securities in
which the Fund invests are subordinated to the prior payment of senior
indebtedness, thus potentially limiting the Fund's ability to recover full
principal or to receive payments when senior securities are in default.
The credit rating of a security does not necessarily address its market value
risk. Also, ratings may, from time to time, be changed to reflect developments
in the issuer's financial condition. Lower-rated securities held by the Fund
have speculative characteristics which are apt to increase in number and
significance with each lower rating category.
When the secondary market for lower-rated bonds becomes increasingly illiquid,
or in the absence of readily available market quotations for lower-rated bonds,
the relative lack of reliable, objective data makes the responsibility of the
Trustees to value such securities more difficult, and judgment plays a greater
role in the valuation of portfolio securities. Also, increased illiquidity of
the market for lower-rated bonds may affect the Fund's ability to dispose of
portfolio securities at a desirable price.
In addition, if the Fund experiences unexpected net redemptions, it could be
forced to sell all or a portion of its lower-rated bonds without regard to their
investment merits, thereby decreasing the asset base upon which the Fund's
expenses can be spread and possibly reducing the Fund's rate of return. Also,
prices of lower-rated bonds have been found to be less sensitive to interest
rate changes and more sensitive to adverse economic changes and individual
corporate developments than more highly rated investments. Certain laws or
regulations may have a material effect on the Fund's investments in lower-rated
bonds.
COMMERCIAL PAPER AND OTHER MONEY MARKET INSTRUMENTS. Commercial paper consists
of short-term (usually from one to two hundred-seventy days) unsecured
promissory notes issued by corporations in order to finance their current
operations. The Fund will only invest in commercial paper rated A-1 by Standard
& Poor's Ratings Group or Prime-1 by Moody's Investors Service, Inc. or unrated
paper of issuers who have outstanding unsecured debt rated AA or better by
Standard & Poor's or Aa or better by Moody's. Certain notes may have floating or
variable rates. Variable and floating rate notes with a demand notice period
exceeding seven days will be subject to the Fund's restriction on illiquid
investments (see INVESTMENT LIMITATIONS) unless, in the judgment of the Adviser,
such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. Among the factors considered by Moody's in assigning
ratings are the following: valuation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas;
Statement of Additional Information - MegaTrends Fund
Page 5
<PAGE>
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of earnings
over a period of 10 years; financial strength of the parent company and the
relationships which exist with the issuer; and, recognition by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These factors are all
considered in determining whether the commercial paper is rated Prime-1.
Commercial paper rated A (highest quality) by Standard & Poor's Ratings Group
has the following characteristics: liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed; the issuer has access to at least two
additional channels of borrowing; basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position within the
industry; and, the reliability and quality of management are unquestioned. The
relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1.
The Fund may invest in short-term bank debt instruments such as certificates of
deposit, bankers' acceptances and time deposits issued by national banks and
state banks, trust companies and mutual savings banks, or by banks or
institutions the accounts of which are insured by the Federal Deposit Insurance
Corporation or the Federal Savings and Loan Insurance Corporation. The Fund will
only invest in bankers' acceptances of banks having a short-term rating of A-1
by Standard & Poor's Ratings Group or Prime-1 by Moody's Investors Service, Inc.
The Fund will not invest in time deposits maturing in more than seven days if,
as a result thereof, more than 10% of the value of its net assets would be
invested in such securities and other illiquid securities.
As described more fully in the Prospectus, the Fund may invest a portion of its
assets in repurchase agreements with domestic broker-dealers, banks and other
financial institutions.
WHEN-ISSUED SECURITIES. The Fund will only make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities. In addition, the Fund may purchase securities on a when-issued basis
only if delivery and payment for the securities take place within 120 days after
the date of the transaction. In connection with these investments, the Fund will
direct the custodian to place cash, U.S. Government obligations or high-grade
debt instruments in a segregated account in an amount sufficient to make payment
for the securities to be purchased. When a segregated account is maintained
because the Fund purchases securities on a when-issued basis, the assets
deposited in the segregated account will be valued daily at market for the
purpose of determining the adequacy of the securities in the account. If the
market value of such securities declines, additional cash or securities will be
placed in the account on a daily basis so that the market value of the account
will equal the amount of the Fund's commitments to purchase securities on a
when-issued basis. To the extent funds are in a segregated account, they will
not be available for new investment or to meet redemptions. Securities purchased
on a when-issued basis and the securities held in the Fund's portfolio are
subject to changes in market value based upon changes in the level of interest
rates (which will generally result in all of those securities changing in value
in the same way; I.E., all those securities experiencing appreciation when
interest rates decline and depreciation when interest rates rise). Therefore, if
in order to achieve higher returns, the Fund remains substantially fully
invested at the same time that it has purchased securities on a when-issued
basis, there will be a possibility that the market value of the Fund's assets
will experience greater fluctuation. The purchase of securities on a when-issued
basis may involve a risk of loss if the broker-dealer selling the securities
fails to deliver after the value of the securities has risen.
When the time comes for the Fund to make payment for securities purchased on a
when-issued basis, the Fund will do so by using then available cash flow, by
sale of the securities held in the segregated account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued basis themselves (which may
have a market value greater or less than the Fund's payment obligation).
Although the Fund will only make commitments to purchase securities on a
when-issued basis with the intention of actually acquiring the securities, the
Fund may sell these securities before the settlement date if it is deemed
advisable by the Adviser or Sub-Adviser as a matter of investment strategy.
LOANS OF PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes the Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that the Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash or U.S. Government obligations, with the Fund's custodian in an amount
at least equal to the market value of the loaned securities. It is the Fund's
policy, which may not be changed without
Statement of Additional Information - MegaTrends Fund
Page 6
<PAGE>
the affirmative vote of a majority of its outstanding shares, that such loans
will not be made if as a result the aggregate of all outstanding loans exceeds
25% of the value of the Fund's total assets.
Under applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Fund receives amounts equal to the dividends or interest on loaned securities
and also receives one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower, and that the fees are not used to compensate the Adviser or any
affiliated person of the Fund or an affiliated person of the Adviser or other
affiliated person. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code and permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
PORTFOLIO TURNOVER
The Fund's management buys and sells securities for the Fund to accomplish
investment objectives. The Fund's investment policy may lead to frequent changes
in investments, particularly in periods of rapidly fluctuating interest rates.
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."
For the fiscal periods shown below, the fund's portfolio turnover rate was:
FISCAL PERIOD PORTFOLIO TURNOVER
-------------------------------- ------------------
July 1 through October 31, 1997 13%
Year ended June 30, 1997 62%
Year ended June 30, 1996 115%
A high portfolio turnover rate may cause the Fund to pay higher transaction
expenses, including more commissions and markups, and also result in quicker
recognition of capital gains, resulting in more capital gain distributions which
may be taxable to shareholders. Any short-term gain realized on securities will
be taxed to shareholders as ordinary income. See TAX STATUS section.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund and the placing of the Fund's
securities transactions and negotiation of commission rates, where applicable,
are made by Money Growth Institute, Inc. ("Sub-Adviser") and are subject to
review by the Fund's Adviser and Board of Trustees of the Fund. In the purchase
and sale of portfolio securities, the Sub-Adviser seeks best execution for the
Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), the execution capability, financial
responsibility and responsiveness of the broker or dealer and the brokerage and
research services provided by the broker or dealer. The Sub-Adviser generally
seeks favorable prices and commission rates that are reasonable in relation to
the benefits received.
For the fiscal periods shown below, the fund paid brokerage fees as follows:
FISCAL PERIOD PORTFOLIO TURNOVER
-------------------------------- ------------------
July 1 through October 31, 1997 $18,872
Year ended June 30, 1997 $97,945
Year ended June 30, 1996 $120,408
Year ended June 30, 1995 $94,361
Statement of Additional Information - MegaTrends Fund
Page 7
<PAGE>
The Fund has no obligation to deal with any broker or dealer in the execution of
securities transactions. Affiliates of the Fund or of the Sub-Adviser may effect
securities transactions which are executed on a national securities exchange or
transactions in the over-the-counter market conducted on an agency basis. The
Sub-Adviser owns a limited partnership interest in Brimberg & Co., L.P.
("Brimberg"), a registered broker-dealer.
During the fiscal periods shown below, the Fund paid Brimberg Brokerage
commissions as follows:
FISCAL PERIOD BROKERAGE FEES PERCENTAGE
-------------------------------- -------------- ----------
July 1 through October 31, 1997 $16,152 86%
Year ended June 30, 1997 $97,945 100%
Year ended June 30, 1996 $120,408 100%
Year ended June 30, 1995 $94,361 100%
Because commissions received from the Fund are excluded when calculating the
Sub-Adviser's profits as a Brimberg limited partner, the Sub-Adviser does not
receive material benefits from Brimberg's brokerage services to the Fund. The
Fund will not effect any brokerage transactions in its portfolio securities with
an affiliated broker if such transactions would be unfair or unreasonable to its
shareholders.
Generally, the Fund attempts to deal directly with the dealers who make a market
in the securities involved unless better prices and execution are available
elsewhere. Such dealers usually act as principals for their own account. On
occasion, portfolio securities for the Fund may be purchased directly from the
issuer.
The Adviser and Sub-Adviser are specifically authorized to select brokers who
also provide brokerage and research services to the Fund and/or other accounts
over which the Adviser or Sub-Adviser exercises investment discretion and to pay
such brokers a commission in excess of the commission another broker would
charge if the Adviser or Sub-Adviser determines in good faith that the
commission is reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of a particular
transaction or the Adviser's or Sub-Adviser's overall responsibilities with
respect to the Fund and to accounts over which they exercise investment
discretion.
Research services include securities and economic analyses, reports on issuers'
financial conditions and future business prospects, newsletters and opinions
relating to interest trends, general advice on the relative merits of possible
investment securities for the Fund and statistical services and information with
respect to the availability of securities or purchasers or sellers of
securities. Although this information is useful to the Fund and the Adviser or
Sub-Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Adviser or Sub-Adviser in servicing all of its accounts and not
all such services may be used by the Adviser or Sub-Adviser in connection with
the Fund.
INVESTMENT LIMITATIONS
The MegaTrends Fund will not change any of the following investment restrictions
without the affirmative vote of a majority of the outstanding voting securities
of the Fund, which, as used herein, means the lesser of (1) 67% of the Fund's
outstanding shares present at a meeting at which more than 50% of the
outstanding shares of the Fund are represented either in person or by proxy, or
(2) more than 50% of the Fund's outstanding shares.
THE FUND MAY NOT:
1. Invest in securities of any one issuer if immediately after and as a result
of such investment more than 5% of the total assets of the Fund, at market
value, would be invested in the securities of such issuer. This restriction
does not apply to investments in securities of the United States
Government, its agencies or instrumentalities.
2. Purchase more than 10% of the outstanding voting securities, or any class
of securities, of any one issuer. This restriction does not apply to
investments in securities of the United States Government, its agencies or
instrumentalities.
3. Invest more than 25% of its total assets in the securities of issuers in
any particular industry. This restriction does not apply to investments in
securities of the United States Government, its agencies or
instrumentalities.
Statement of Additional Information - MegaTrends Fund
Page 8
<PAGE>
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
5. Purchase or sell commodities or real estate. However, the Fund may invest
in publicly traded securities secured by real estate or issued by companies
which invest in real estate or real estate interests.
6. Purchase securities on margin, make short sales of securities or maintain a
short position, except that the Fund may obtain such short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities. This restriction on short sales does not apply to short sales
"against the box" (I.E., when the Fund owns or is long on the securities
sold short).
7. Lend money, except by engaging in repurchase agreements or by purchasing
publicly distributed or privately placed debt obligations in which the Fund
may invest consistent with its investment objectives and policies. The Fund
may make loans of its portfolio securities in an aggregate amount not
exceeding 25% of its total assets, provided that such loans are
collateralized by cash or cash equivalents or U.S. Government obligations
in an amount equal to the market value of the securities loaned, marked to
market on a daily basis.
8. Borrow money, except for (i) temporary bank borrowings not in excess of 5%
of the value of the Fund's total assets for emergency or extraordinary
purposes, or (ii) short-term credits not in excess of 5% of the value of
the Fund's total assets as may be necessary for the clearance of securities
transactions.
9. Issue senior securities as defined in the Investment Company Act of 1940,
as amended, or mortgage, pledge, hypothecate or in any way transfer as
security for indebtedness any securities owned or held by the Fund except
as may be necessary in connection with borrowings described in (8) above,
and then not exceeding 10% of the Fund's total assets, taken at the lesser
of cost or market value.
10. Underwrite securities of other issuers except to the extent the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, in
selling portfolio securities.
11. Invest more than 10% of its net assets in securities which are illiquid.
12. Invest in oil, gas or other mineral leases.
13. Invest more than 5% of its net assets in warrants and will not invest more
than 2% of its net assets in warrants which are not listed on the New York
or American Stock Exchange. This restriction does not apply to investment
in warrants acquired in units or attached to securities.
The following investment restrictions may be changed by the Board of Trustees
without a shareholder vote.
THE FUND MAY NOT:
1. Pledge, mortgage or hypothecate the assets of the Fund.
2. Engage in short sales of securities except for "against the box" as
described in investment limitation 6.
3. Loan its portfolio securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage, resulting from a change in values of
portfolio securities or amount of net assets, will not be considered a violation
of any of the foregoing restrictions.
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.
Statement of Additional Information - MegaTrends Fund
Page 9
<PAGE>
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- -----------------------------------------
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 1985
1250 N.E. Loop 410 to 1991, President, Chief Executive
Suite 900 Officer, and Director of Intelogic Trace,
San Antonio, Texas Inc., a nationwide company which sells,
78209 leases and maintains computers and
telecommunications systems and equipment.
Prior to 1985, President of BHP Petroleum
(Americas), Ltd., an oil and gas
exploration and development company.
Director of Palmer Wireless, Inc., Lone
Star Steakhouse & Saloon, Inc. and
Physician Corporation of America.
Formerly a Director of Datapoint
Corporation. Trustee for Pauze/Swanson
United Services Funds from November 1993
to February 1996.
Frank E. Holmes (1) Trustee, Chairman of the Board of Directors and
President, Chief Executive Officer of the Adviser.
Chief Since October 1989 Mr. Holmes has served
Executive and continues to serve in various
Officer positions with the Adviser, its
subsidiaries and the investment companies
it sponsors. Director of Franc-Or
Resource Corp. from November 1994 to
November 1996. Director of Adventure
Capital Limited from January 1996 to July
1997 and Director of Vedron Gold, Inc.
from August 1996 to March 1997. Director
of 71316 Ontario, Inc. since April 1987
and of F. E. Holmes Organization, Inc.
since July 1978. Director of Marleau,
Lemire Inc. from January 1995 to January
1996. Director of United Services Canada,
Inc. since February 1995 and Chief
Executive Officer from February to August
1995.
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Secretary, Adviser. Since September 1992 Ms. McGee
General has served and continues to serve in
Counsel various positions with the Adviser, its
subsidiaries, and the investment
companies it sponsors. Before September
1992 Ms. McGee was a student at St.
Mary's Law School.
David J. Clark Treasurer Chief Financial Officer, Chief Operating
Officer of the Adviser. Since May 1997
Mr. Clark has served and continues to
serve in various positions with the
Adviser and the investment companies it
sponsors. Foreign Service Officer with
U.S. Agency for International Development
in the U.S. Embassy, Bonn, West Germany
from May 1992 to May 1997. Audit
Supervisor for University of Texas Health
Science Center from April 1991 to April
1992. Auditor-in-Charge for Texaco, Inc.
from August 1987 to June 1990.
- ------------------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
PRINCIPAL HOLDERS OF SECURITIES
As of January 21, 1998, the officers and Trustees of the Trust, as a group,
owned less than 1% of the outstanding shares of the fund. The Sub-Advisor owned
approximately 1.64% of the outstanding shares of the Fund. The fund is aware of
no person(s) owning of record, or beneficially, more than 5% of the outstanding
shares of the fund as of January 21, 1998.
Statement of Additional Information - MegaTrends Fund
Page 10
<PAGE>
INVESTMENT ADVISORY SERVICES
The investment Adviser to U.S. Global Accolade Funds is U.S. Global Investors,
Inc., a Texas corporation, pursuant to an advisory agreement dated September 21,
1994, and amended November 15, 1996. Frank E. Holmes, Chief Executive Officer
and a Director of the Adviser, as well as Trustee, President and Chief Executive
Officer of the Trust, beneficially owns more than 25% of the outstanding voting
stock of the Adviser and may be deemed to be a controlling person of the
Adviser.
In addition to the services described in the Fund's Prospectus, the Adviser will
provide the Trust with office space, facilities and simple business equipment,
and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
Officers, and Trustees of the Trust, if such persons are employees of the
Adviser or its affiliates, except that the Trust will reimburse the Adviser for
a portion of the compensation of the Adviser's employees who perform certain
legal services for the Trust, including state securities law regulatory
compliance work, based upon the time spent on such matters for the Trust.
The 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 Adviser,
expenses of attendance by Officers and Trustees at professional meetings of the
Investment Company Institute, the No-Load Mutual Fund Association or similar
organizations, and membership or organization dues of such organizations,
expenses of preparing and setting in type prospectuses and periodic reports and
expenses of mailing them to current shareholders, cost of fidelity bond
premiums, cost of maintaining the books, and records of the Trust, and any other
charges and fees not specifically enumerated.
The Trust and the Adviser, in connection with the Fund, have entered into a
sub-advisory agreement with another firm as discussed in the Prospectus. The
Sub-Adviser's compensation is set forth in the Prospectus and is paid by the
Adviser. The Fund is not responsible for the Sub-Adviser's fee.
The Adviser may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers, and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for Fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client Fund shares. The Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. However, in the Adviser's opinion, such laws should not preclude a
bank from performing shareholder administrative and servicing functions as
contemplated herein.
The 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 was approved by shareholders of the Fund on November 15, 1996. The advisory
agreement provides that it will continue initially for two years, and from year
to year thereafter, with respect to each fund, as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of such fund [as defined in the Investment Company Act of 1940
("Act")] or by the Board of Trustees of the Trust, and (ii) by a vote of a
majority of the Trustees who are not parties to the advisory agreement or
"interested persons" of any party thereto cast in person at a meeting called for
the purpose of voting on such approval. The advisory agreement may be terminated
on 60 days' written notice by either party and will terminate automatically if
it is assigned.
The Adviser and the Sub-Adviser provide investment advice to a variety of
clients, including other mutual funds. Investment decisions for each client are
made with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Adviser's or Sub-Adviser's opinion is equitable to each
and in accordance with the amount being purchased or sold by each. There may be
circumstances
Statement of Additional Information - MegaTrends Fund
Page 11
<PAGE>
when purchases or sales of portfolio securities for one or more clients will
have an adverse effect on other clients. The Adviser employs a professional
staff of portfolio managers who draw upon a variety of resources for research
information for the clients.
In addition to advising client accounts, the Adviser invests in securities for
its own account. The Adviser has adopted policies and procedures intended to
minimize or avoid potential conflicts with its clients when trading for its own
account. The Adviser's investment objective and strategies are not the same as
its clients, emphasizing venture capital investing, private placement arbitrage,
and speculative short-term trading. The Adviser utilizes a diversified approach
to venture capital investing. Investments typically involve early-stage
businesses seeking initial financing as well as more mature businesses needing
capital for expansion, acquisitions, management buyouts, or recapitalizations.
In general, the Adviser invests in start-up companies in the natural resources
or technology fields.
The Fund pays the adviser a management fee based on varying percentages of
average net assets. For the fiscal periods shown below, the Fund paid the
Adviser the following advisory fees (net of expenses paid by the adviser or
voluntary fee waivers):
FISCAL PERIOD MANAGEMENT FEE FEES WAIVED
-------------------------------- -------------- -----------
July 1 through October 31, 1997 $88,031 0
Year ended June 30, 1997 * $232,398 ($20,988)
Year ended June 30, 1996 * $127,519 ($177,359)
Year ended June 30, 1995 * $204,936 ($190,271)
* Prior to November 18, 1996, the fund was advised by another investment
adviser. The prior adviser waived fees as noted in the table. The current
adviser has not waived management fees.
TRANSFER AGENCY AND OTHER SERVICES
In addition to the services performed for the Fund and the Trust under the
advisory agreement, the Adviser, through its subsidiary, United Shareholder
Services, Inc. ("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 ADVISER. Also, lockbox
and statement printing services are provided by USSI. For the year ended June
30, 1997, and the period from July 1 through October 31, 1997, the fund paid
USSI a total of $49,994 and $18,074, respectively, for transfer agency, lockbox,
and printing fees. The Board of Trustees recently approved the transfer agency
agreement and related agreements through March 8, 1998.
Effective November 1, 1997, Brown Brothers Harriman & Co. 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.
A & B Mailers, Inc., a corporation wholly owned by the Adviser, provides the
Trust with certain mail handling services. The charges for such services have
been negotiated by the Audit Committee and A & B Mailers, Inc. Each service is
priced separately.
DISTRIBUTION PLAN
As described in the SERVICE FEE section in the Prospectus, on May 22, 1996, the
Fund adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act
("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, which includes the costs of printing
and distribution of prospectuses and promotional materials, making slides and
charts for presentations, assisting shareholders and prospective investors in
understanding and dealing with the Fund, and travel and out-of-pocket expenses
(E.G., copy and long distance telephone charges) related thereto.
The total amount expended pursuant to the Distribution Plan may not exceed 0.25%
of the Fund's net assets on an annual basis. For the year ended June 30, 1997,
and the period from July 1 through October 31, 1997, the fund paid USSI a total
Statement of Additional Information - MegaTrends Fund
Page 12
<PAGE>
of $38,207 and $22,610, respectively, in distribution fees. Distribution
expenses paid by the Adviser or other third parties in prior periods that
exceeded 0.25% of net assets may be paid by the Fund with distribution expenses
accrued pursuant to the 12b-1 plan in the current or future periods, so long as
the 0.25% limitation is never exceeded.
Expenses which the Fund incurs pursuant to the Distribution Plan are reviewed
quarterly by the Board of Trustees. On an annual basis the Distribution Plan is
reviewed by the Board of Trustees as a whole, and 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 in light of their fiduciary duties under state
law and under Section 36(a) and (b) of the 1940 Act, there is reasonable
likelihood that the Distribution Plan will benefit the Fund and its
shareholders. The Distribution Plan may be terminated at any time by vote of a
majority of the Qualified Trustees, or by vote of a majority of the outstanding
voting securities of the Fund.
The Fund is unaware of any Trustee or any interested person of the Fund who had
a direct or indirect financial interest in the operations of the Distribution
Plan.
The Fund expects that the Distribution Plan will be used primarily to pay a
"service fee" to persons who provide personal services to prospective and
existing Fund shareholders. Shareholders of the Fund will benefit from these
personal services and the Fund expects to benefit from economies of scale as
more shareholders are attracted to the Fund.
Beginning September 3, 1998, U.S. Global Brokerage, Inc., a subsidiary of the
adviser, has agreed to market the fund and distribute shares through selling
brokers, financial planners and other financial representatives.
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, as long as the securities
delivered to the Trust meet the investment objectives and concentration policies
of the Fund, and are otherwise acceptable to the Adviser, which reserves the
right to reject all or any part of the securities offered in exchange for shares
of the Fund. On any such "in kind" purchase, the following conditions will
apply:
1. the securities offered by the investor in exchange for shares of the Fund
must not be in any way restricted as to resale or otherwise be illiquid;
2. securities of the same issuer must already exist in the Fund's portfolio;
3. the securities must have a value which is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
American Stock Exchange ("AMEX"), the New York Stock Exchange ("NYSE"), or
National Association of Securities Dealers Automated Quotation System
("NASDAQ");
4. any securities so acquired by the fund will not comprise more than 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 (either in
writing or by telephone) to the Trust a list with a full and exact description
of all of the securities which he or she proposes to deliver. The Trust will
advise him or her as to those securities which it is prepared to accept and will
provide the investor with the necessary forms to be completed and signed by the
investor. The investor should then send the securities, in proper form for
transfer, with the necessary forms to the Trust and certify that there are no
legal or contractual restrictions on the free transfer and sale of the
securities. The securities will be valued as of the close of business on the day
of receipt by the Trust in the same manner as portfolio securities of the Fund
are valued. See the section entitled HOW SHARES ARE VALUED in the Prospectus.
The number of shares
Statement of Additional Information - MegaTrends Fund
Page 13
<PAGE>
of the Fund, having a net asset value as of the close of business on the day of
receipt equal to the value of the securities delivered by the investor, will be
issued to the investor, less applicable stock transfer taxes, if any.
The exchange of securities by the investor pursuant to this offer will
constitute a taxable transaction and may result in a gain or loss for Federal
income tax purposes. Each investor should consult his or her tax adviser to
determine the tax consequences under Federal and state law of making such an "in
kind" purchase.
ADDITIONAL INFORMATION ON REDEMPTIONS
SUSPENSION OF REDEMPTION PRIVILEGES. The Trust may suspend redemption privileges
or postpone the date of payment for up to seven days, but cannot do so for more
than seven days after the redemption order is received except during any period
(1) when the NYSE is closed, other than customary weekend and holiday closings,
or trading on the Exchange is restricted as determined by the Securities and
Exchange Commission ("SEC"); (2) when an emergency exists, as defined by the
SEC, which makes it not reasonably practicable for the Trust to dispose of
securities owned by it or to fairly determine the value of its assets; or, (3)
as the SEC may otherwise permit.
CALCULATION OF PERFORMANCE DATA
The performance quotations described below are based on historical earnings and
are not intended to indicate future performance.
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:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the 1-, 5- or 10-year
periods at the end of the year or
period.
The calculation assumes all charges are deducted from the initial $1,000 payment
and assumes all dividends and distributions by the Fund are reinvested at the
price stated in the Prospectus on the reinvestment dates during the period, and
includes all recurring fees that are charged to all shareholder accounts.
The average annual Total Return for the Fund for the periods ended October 31,
1997, are as follows:
1 year..........................................19.1%
5 years.........................................12.4%
Since Inception (October 21, 1991)..............10.5%
NONSTANDARDIZED TOTAL RETURN. The Fund may provide the above described standard
total return results for a period which ends as of not earlier than the most
recent calendar quarter end and which begins either twelve months before or at
the time of commencement of the Fund's operations. In addition, the Fund may
provide nonstandardized total return results for differing periods, such as for
the most recent six months. Such nonstandardized total return is computed as
otherwise described in the TOTAL RETURN section except that no annualization is
made.
SECURITIES AND EXCHANGE COMMISSION THIRTY-DAY YIELD. From time to time, the Fund
may advertise its yield. A yield quotation is based on a 30-day (or one month)
period and is computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula:
Statement of Additional Information - MegaTrends Fund
Page 14
<PAGE>
A-B 6
YIELD = 2[(---}+1) -1]
CD
Where: A = dividends and interest earned during the period
B = expenses accrued for the period (net of
reimbursement)
C = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
D = the maximum offering price per share on the
last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/365 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business day prior to the start of the
30-day (or one-month) period for which yield is being calculated, or with
respect to obligations purchased during the month, the purchase price (plus
actual accrued interest). The yield of the Fund for October 1997 was ( 0.18)%.
TAX STATUS
TAXATION OF THE FUND--IN GENERAL. As stated in its Prospectus, the Fund intends
to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended ("Code"). Accordingly, the Fund will
not be liable for Federal income taxes on its taxable net investment income and
capital gain net income that are distributed to shareholders, provided that the
Fund distributes at least 90% of its net investment income and net short-term
capital gain for the taxable year.
To qualify as a regulated investment company, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies ("90% test"); and (b) satisfy certain diversification requirements at
the close of each quarter of the Fund's taxable year.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute, during each calendar year, an amount equal to
the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at
least 98% of its capital gain net income for the twelve-month period ending on
October 31 of the calendar year and (3) any portion (not taxable to the Fund) of
the respective balance from the preceding calendar year. The Fund intends to
make such distributions as are necessary to avoid imposition of this excise tax.
TAXATION OF THE FUND'S INVESTMENTS. The Fund's ability to make certain
investments may be limited by provisions of the Code that require inclusion of
certain unrealized gains or losses in the Fund's income for purposes of the 90%
test and the distribution requirements of the Code, and by provisions of the
Code that characterize certain income or loss as ordinary income or loss rather
than capital gain or loss. Such recognition, characterization and timing rules
generally apply to investments in certain forward currency contracts, foreign
currencies and debt securities denominated in foreign currencies.
TAXATION OF THE SHAREHOLDER. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November, or December and made payable
to shareholders of record in such a month, will be deemed to have been received
on December 31, if a Fund pays the dividends during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
purchased at that time includes the amount of any forthcoming distribution.
Those
Statement of Additional Information - MegaTrends Fund
Page 15
<PAGE>
investors purchasing the Fund's shares immediately prior to a distribution may
receive a return of investment upon distribution which will nevertheless be
taxable to them.
A shareholder of the Fund should be aware that a redemption of shares (including
any exchange into other funds offered, affiliated or administered by U.S. Global
Investors, Inc.) is a taxable event and, accordingly, a capital gain or loss may
be recognized. If a shareholder of the Fund receives a distribution taxable as
mid-term or long-term capital gain, as applicable, with respect to shares of the
Fund and redeems or exchanges shares before he has held them for more than six
months, any loss on the redemption or exchange (not otherwise disallowed as
attributable to an exempt-interest dividend) will be treated as mid-term or
long-term capital loss to the extent of the mid-term or long-term capital gain,
as applicable, recognized.
DISTRIBUTOR
U.S. Global Brokerage, Inc., 7900 Callaghan Road, San Antonio, Texas 78229, is
the exclusive agent for distribution of shares of the funds. The distributor is
obligated to sell the shares of the funds on a best-efforts basis only against
purchase orders for the shares. Shares of the funds are offered on a continuous
basis.
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR
Beginning November 1997 Brown Brothers Harriman & Co. began serving as
custodian, fund accountant and administrator for all Funds of the Trust. With
respect to the Funds owning foreign securities, Brown Brothers Harriman & Co.
may hold securities outside the United States pursuant to sub-custody
arrangements separately approved by the Trust. Prior to November, Bankers Trust
Company provided custody services and USSI provided fund accounting and
administrative services. Services with respect to the retirement accounts will
be provided by Security Trust and Financial Company of San Antonio, Texas, a
wholly owned subsidiary of the Adviser.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 700 North St. Mary's, Suite 900, San Antonio, Texas 78205,
are the independent accountants for the Trust.
FINANCIAL STATEMENTS
The financial statements for the fiscal years ended October 31, 1997, and June
30, 1997, have been audited by Price Waterhouse LLP and are incorporated by
reference from the U.S. GLOBAL ACCOLADE FUNDS 1997 ANNUAL REPORT TO
SHAREHOLDERS, which has been delivered with the Statement of Additional
Information unless previously provided, in which event the Trust will promptly
provide another copy free of charge, upon request to: U.S. Global Investors,
Inc., 7900 Callaghan Road, San Antonio, Texas 78229, 1-800-873-8637 or (210)
308-1234. The financial highlights for the fiscal periods ended June 30, 1992
through 1996, have been audited by Arthur Andersen LLP. The related financial
statements and report of independent accountants for 1996 and prior periods are
included in the Fund's 1996 ANNUAL REPORT TO SHAREHOLDERS and are incorporated
by reference into the Statement of Additional Information.
Statement of Additional Information - MegaTrends Fund
Page 16
<PAGE>
================================================================================
ADRIAN DAY GLOBAL OPPORTUNITY FUND STATEMENT OF ADDITIONAL 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 ("Prospectus") dated February 2, 1998, as
amended September 3, 1998, which you may request from U. S. Global Investors,
Inc. ("Adviser"), 7900 Callaghan Road, San Antonio, Texas 78229 or
1-800-US-FUNDS (1-800-873-8637).
The date of this Statement of Additional Information is February 2, 1998, as
amended September 3, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.........................................................3
INVESTMENT OBJECTIVES AND POLICIES..........................................3
RISK FACTORS................................................................4
STRATEGIC TRANSACTIONS......................................................8
PORTFOLIO TURNOVER.........................................................11
MANAGEMENT OF THE FUND.....................................................11
PRINCIPAL HOLDERS OF SECURITIES............................................12
INVESTMENT ADVISORY SERVICES...............................................13
TRANSFER AGENCY AND OTHER SERVICES.........................................14
DISTRIBUTION PLAN..........................................................15
CERTAIN PURCHASES OF SHARES OF THE FUND....................................15
ADDITIONAL INFORMATION ON REDEMPTIONS......................................16
CALCULATION OF PERFORMANCE DATA............................................16
TAX STATUS.................................................................17
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR...............................18
INDEPENDENT ACCOUNTANTS ...................................................18
FINANCIAL STATEMENTS.......................................................18
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 2
<PAGE>
GENERAL INFORMATION
U.S. Global Accolade Funds ("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 ("Portfolio"). This
Statement of Additional Information ("SAI") presents important information
concerning the Adrian Day Global Opportunity Fund ("Fund") and should be read in
conjunction with the prospectus.
The assets received by the Trust from the issue or sale of shares of the Fund,
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are separately allocated to such Fund. They constitute the
underlying assets of 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. Thus, there will ordinarily be no shareholder meetings unless
otherwise required by the Investment Company Act of 1940. The Trustees serve for
six-year terms.
On any matter submitted to shareholders, the holder of each share is entitled to
one vote per share with proportionate voting for fractional shares. On matters
affecting any individual fund, a separate vote of that fund would be required.
Shareholders of any fund are not entitled to vote on any matter that does not
affect their fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the master trust agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The master trust agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objectives and policies discussed in the Fund's prospectus.
INVESTMENT RESTRICTIONS. If a percentage investment restriction is adhered to at
the time of investment, a later increase or decrease in percentage, resulting
from a change in values of portfolio securities or amount of net assets, will
not be considered a violation of any of the foregoing restrictions.
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.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 3
<PAGE>
The Fund may not:
(1) Issue senior securities.
(2) Borrow money, except that the Fund may borrow not in excess of 5% of its
total assets from banks as a temporary measure for extraordinary purposes,
may borrow up to 331/3% 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 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 Adviser and Sub-Adviser shall waive a proportional
amount of their management fee.
RISK FACTORS
The following information supplements the discussion of the Fund's risk factors
discussed in the Fund's prospectus. The following are among the most significant
risks associated with an investment in the Fund.
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
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 4
<PAGE>
confiscatory taxation, limitation of the removal of funds or other assets of the
Fund, political or financial instability or diplomatic and other developments
that could affect such investment. In addition, economies of particular
countries or areas of the world may differ favorably or unfavorably from the
economy of the United States. It is anticipated that in most cases the best
available market for foreign securities will be on exchanges or in
over-the-counter markets located outside of the United States. Foreign stock
markets, while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some foreign issuers
(particularly those in developing countries) may be less liquid and more
volatile than securities of comparable United States companies. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may 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 20% of its total assets in countries
considered by the Sub-Adviser 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-Adviser determines which countries are emerging market
countries by considering various factors, including development of securities
laws and market regulation, total number of issuers, total market
capitalization, and perceptions of the investment community. Generally, emerging
markets are those other than North America, Western Europe, and Japan. For
example, the Sub-Adviser 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.
Risks of investing in emerging markets include:
(1) the risk that the Fund's assets may be exposed to nationalization,
expropriation, or confiscatory taxation;
(2) the fact that emerging market securities markets are substantially
smaller, less liquid and more volatile than the securities markets of more
developed nations. The relatively small market capitalization and trading
volume of emerging market securities may cause the Fund's investments to
be comparatively less liquid and subject to greater price volatility than
investments in the securities markets of developed nations. Many emerging
markets are in their infancy and have yet to be exposed to a major
correction. In the event of such an occurrence, the absence of various
market mechanisms that are inherent in the markets of more developed
nations may lead to turmoil in the market place, as well as the inability
of the Fund to liquidate its investments;
(3) greater social, economic and political uncertainty (including the risk of
war);
(4) greater price volatility, substantially less liquidity and significantly
smaller market capitalization of securities markets;
(5) currency exchange rate fluctuations and the lack of available currency
hedging instruments;
(6) higher rates of inflation;
(7) controls on foreign investment and limitations on repatriation of invested
capital and on the Fund's ability to exchange local currencies for U.S.
dollars;
(8) greater governmental involvement in and control over the economy;
(9) the fact that emerging market companies may be smaller, less seasoned and
newly organized;
(10) the difference in, or lack of, auditing and financial reporting standards
which may result in unavailability of material information about issuers;
(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;
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 5
<PAGE>
(12) the fact that statistical information regarding the economy of many
emerging market countries may be inaccurate or not comparable to
statistical information regarding the United States or other economies;
(13) less extensive regulation of the securities markets;
(14) certain considerations regarding the maintenance of Fund portfolio
securities and cash with foreign sub-custodians and securities
depositories;
(15) the risk that it may be more difficult, or impossible, to obtain and/or
enforce a judgment than in other countries;
(16) the risk that the Fund may be subject to income or withholding taxes
imposed by emerging market counties or other foreign governments. The Fund
intends to elect, when eligible, to "pass through" to the Fund's
shareholders the amount of foreign income tax and similar taxes paid by
the Fund. The foreign taxes passed through to a shareholder would be
included in the shareholder's income and may be claimed as a deduction or
credit. Other taxes, such as transfer taxes, may be imposed on the Fund,
but would not give rise to a credit or be eligible to be passed through to
the shareholders;
(17) the fact that the Fund also is permitted to engage in foreign currency
hedging transactions and to enter into stock options on stock index
futures transactions, each of which may involve special risks, although
these strategies cannot at the present time be used to a significant
extent by the Fund in the markets in which the Fund will principally
invest;
(18) enterprises in which the Fund invests may be or become subject to unduly
burdensome and restrictive regulation affecting the commercial freedom of
the invested company and thereby diminishing the value of the Fund's
investment in it. Restrictive or over-regulation may, therefore, be a form
of indirect nationalization;
(19) businesses in emerging markets only have a very recent history of
operating within a market-oriented economy. Overall, relative to companies
operating in western economies, companies in emerging markets are
characterized by a lack of (i) experienced management, (ii) modern
technology and (iii) a sufficient capital base with which to develop and
expand their operations. It is unclear what will be the effect on
companies in emerging markets, if any, of attempts to move towards a more
market-oriented economy;
(20) investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality
ratings and other factors beyond the control of the Adviser or
Sub-Adviser. As a result, the return and net asset value of the Fund will
fluctuate;
(21) the Sub-Adviser may engage in hedging transactions in an attempt to hedge
the Fund's foreign securities investments back to the U.S. dollar when, in
its judgment, currency movements affecting particular investments are
likely to harm the performance of the Fund. Possible losses from changes
in currency exchange rates are primarily a risk of unhedged investing in
foreign securities. While a security may perform well in a foreign market,
if the local currency declines against the U.S. dollar, gains from the
investment can disappear or become losses. Typically, currency
fluctuations are more extreme than stock market fluctuations. Accordingly,
the strength or weakness of the U.S. dollar against foreign currencies may
account for part of the Fund's performance even when the Sub-Adviser
attempts to minimize currency risk through hedging activities. While
currency hedging may reduce portfolio volatility, there are costs
associated with such hedging, including the loss of potential profits,
losses on hedging transactions, and increased transaction expenses; and
(22) disposition of illiquid securities often takes more time than for more
liquid securities, may result in higher selling expenses and may not be
able to be made at desirable prices or at the prices at which such
securities have been valued by the Fund. As a non-fundamental policy 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), Duff &
Phelps (Chicago), Fitch Investors Service (New York), Thomson Bankwatch (New
York), Canadian Bond Rating Service (Montreal), Dominion Bond Rating Service
(Toronto), IBCA (London), The Japan Bond Research Institute (Tokyo), Japan
Credit Rating Agency (Tokyo), Nippon Investors Service (Tokyo), or S&P-ADEF
(Paris). In calculating the 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.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 6
<PAGE>
Overall, the market for lower-rated or unrated bonds may be thinner and less
active, such bonds may be less liquid and their market prices may fluctuate more
than those of higher-rated bonds, particularly in times of economic change and
market stress. In addition, because the market for lower-rated or unrated
corporate debt securities has in recent years experienced a dramatic increase in
the large-scale use of such securities to fund highly leveraged corporate
acquisitions and restructuring, past experience may not provide an accurate
indication of the future performance of that market or of the frequency of
default, especially during periods of economic recession. Reliable objective
pricing data for lower-rated or unrated bonds may tend to be more limited; in
that event, valuation of such securities in the Fund's portfolio may be more
difficult and will require greater reliance on judgment.
Since the risk of default is generally higher among lower-rated or unrated
bonds, the Sub-Adviser's research and analysis are especially important in the
selection of such bonds, which are often described as "high yield bonds" because
of their generally higher yields and referred to figuratively as "junk bonds"
because of their greater risks.
In selecting lower-rated bonds for investment by the Fund, the Sub-Adviser 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. Further, in
certain cases the coupon and/or dividend may be reduced to zero, and any
additional 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 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.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 7
<PAGE>
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 underlying stock and will result in a total
loss of the Fund's investment if they expire without being exercised because the
value of the underlying security does not exceed the exercise price of the
right.
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-Adviser's ability to predict pertinent market movements, and cannot be
assured. Engaging in Strategic Transactions will increase transaction expenses
and may result in a loss that exceeds the principal invested in the
transactions.
Strategic Transactions have risk associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Sub-Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to 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 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 options.
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the issuer of the option the obligation to buy the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, 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
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 8
<PAGE>
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 that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An "American style" put or call option may be exercised at any time
during the option period while a "European style" put or call option may be
exercised only upon expiration or during a fixed period prior thereto.
The 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, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option are set by negotiation of the parties. Unless the parties provide for
it, there is no central clearing or guaranty function in an OTC option.
The 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-Adviser must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC option will be satisfied.
The 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 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 thereafter, 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 capital gains. 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 contract subject to
the calls or 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 the
possibility of being required to pay greater than current market value to
purchase the underlying security, and the transaction may require the Fund to
maintain a short position in a security or instrument it might otherwise not
have maintained. The 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 of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 9
<PAGE>
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) that
initially is typically 1% to 10% of the face amount of the contract (but may be
higher in some circumstances). Additional cash or assets (variation margin) may
be required to be deposited thereafter on a daily basis as the marked-to-market
value of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of the purchaser. If 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% 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
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 10
<PAGE>
would appreciate to a lesser extent than the comparable portfolio of a fund that
did not sell those foreign currencies forward. If, in anticipation of a
devaluation of a foreign currency, 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
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 ("Code"). Foreign
currency transactions would involve a cost to the Fund, which 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-Adviser.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate with its
custodian cash or liquid securities (regardless of type) having an aggregate
value, measured on a daily basis, at least equal to the amount of the
obligations requiring segregation to the extent that the obligations are not
otherwise covered through ownership of the underlying security, financial
instrument or currency. In general, the full amount of any obligation of the
Fund to pay or deliver securities or assets must be covered at all times by (1)
the securities, instruments or currency required to be delivered, or (2) subject
to any regulatory restrictions, an amount of cash or liquid securities at least
equal to the current amount of the obligation must either be identified as
restricted in the Fund's accounting records or be 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 determining the adequacy of the
liquid securities that have been restricted, the securities will be valued at
market or fair value. If the market or fair value of such securities declines,
additional cash or liquid securities will be restricted on a daily basis so that
the value of the restricted cash or liquid securities, when added to the amount
deposited with the broker as margin, equals the amount of such commitments by
the Fund.
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."
From February 20, 1997, commencement of operations, through October 31, 1997,
the Fund's portfolio turnover was 13%. 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.
Purchases and sales of securities on behalf of the Fund are executed by
broker-dealers selected by the Sub-Adviser. Broker- dealers are selected on the
basis of their ability to obtain the best price and execution for the Fund's
transactions, recognizing brokerage, research and other services provided to the
Fund and to the Sub-Adviser. The Sub-Adviser may also consider sales of shares
of the Fund as a factor in the selection of broker-dealers. The Fund paid a
total of $17,110 in brokerage fees for the period from February 20, 1997,
commencement of operations, through October 31, 1997.
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.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 11
<PAGE>
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- -----------------------------------------
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 1985
1250 N.E. Loop 410 to 1991, President, Chief Executive
Suite 900 Officer, and Director of Intelogic Trace,
San Antonio, Texas Inc., a nationwide company which sells,
78209 leases and maintains computers and
telecommunications systems and equipment.
Prior to 1985, President of BHP Petroleum
(Americas), Ltd., an oil and gas
exploration and development company.
Director of Palmer Wireless, Inc., Lone
Star Steakhouse & Saloon, Inc. and
Physician Corporation of America.
Formerly a Director of Datapoint
Corporation. Trustee for Pauze/Swanson
United Services Funds from November 1993
to February 1996.
Frank E. Holmes (1) Trustee, Chairman of the Board of Directors and
President, Chief Executive Officer of the Adviser.
Chief Since October 1989 Mr. Holmes has served
Executive and continues to serve in various
Officer positions with the Adviser, its
subsidiaries and the investment companies
it sponsors. Director of Franc-Or
Resource Corp. from November 1994 to
November 1996. Director of Adventure
Capital Limited from January 1996 to July
1997 and Director of Vedron Gold, Inc.
from August 1996 to March 1997. Director
of 71316 Ontario, Inc. since April 1987
and of F. E. Holmes Organization, Inc.
since July 1978. Director of Marleau,
Lemire Inc. from January 1995 to January
1996. Director of United Services Canada,
Inc. since February 1995 and Chief
Executive Officer from February to August
1995.
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Secretary, Adviser. Since September 1992 Ms. McGee
General has served and continues to serve in
Counsel various positions with the Adviser, its
subsidiaries, and the investment
companies it sponsors. Before September
1992 Ms. McGee was a student at St.
Mary's Law School.
David J. Clark Treasurer Chief Financial Officer, Chief Operating
Officer of the Adviser. Since May 1997
Mr. Clark has served and continues to
serve in various positions with the
Adviser and the investment companies it
sponsors. Foreign Service Officer with
U.S. Agency for International Development
in the U.S. Embassy, Bonn, West Germany
from May 1992 to May 1997. Audit
Supervisor for University of Texas Health
Science Center from April 1991 to April
1992. Auditor-in-Charge for Texaco, Inc.
from August 1987 to June 1990.
- ------------------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
PRINCIPAL HOLDERS OF SECURITIES
As of January 21, 1998, the officers and Trustees of the Fund, as a group, owned
less than 1% of the outstanding shares of the Fund. The Fund is aware of the
following persons who owned of record, or beneficially, more than 5% of the
outstanding shares of the Fund at January 21, 1998:
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 12
<PAGE>
NAME AND ADDRESS OF OWNER % OWNED TYPE OF OWNERSHIP
--------------------------------- ------- -----------------
Global Strategic Management, Inc. 13.92% Beneficial
Annapolis, Maryland (the Sub-
Advisor)
Security Trust & Financial Co. 12.81% Record (1)
San Antonio, Texas
(1) Security Trust & Financial Co. has advised that no individual
client owns more than 5% of the Fund.
INVESTMENT ADVISORY SERVICES
U. S. Global Investors, Inc., a Texas corporation, serves as investment adviser
to the Fund pursuant to an advisory agreement dated September 21, 1994. Frank E.
Holmes, President and a Director of the Adviser, as well as a Trustee, President
and Chief Executive Officer of the Trust, beneficially owns more than 25% of the
outstanding voting stock of the Adviser and may be deemed to be a controlling
person of the Adviser.
In addition to the services described in the Fund's prospectus, the Adviser
provides the Trust with office space, facilities and simple business equipment,
and provides the services of executive and clerical personnel for administering
the affairs of the Trust. It compensates all personnel, officers and trustees of
the Trust, if such persons are employees of the Adviser or its affiliates,
except that the Trust reimburses the Adviser for part of the compensation of the
Adviser's employees who perform certain legal services for the Trust. The Trust
also pays for state securities law regulatory compliance. The Trust paid the
Adviser $0.00 for the period from February 27, 1997 through October 31, 1997.
This amount reflects fee waivers which reduced advisory fees by $23,137.
The Trust and the Adviser, in connection with the Fund, have entered into a
sub-advisory agreement with another firm as discussed in the Prospectus. The
Adviser pays the Sub-Adviser a sub-advisory fee equal to one-half of the
management fee. The Fund will not be responsible for the Sub-Adviser's fee.
In consideration for such services, the Adviser pays the Sub-Adviser a
sub-advisory fee. The Adviser and the Sub-Adviser share the management fee
equally, except that the Sub-Adviser's fee will be subject to downward
adjustments for: (1) the Adviser'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) any monies advanced by the Adviser on behalf of the Sub-Adviser;
(3) the unrecovered costs of organizing the Fund up to $40,000 (the Adviser 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
Adviser is required to pay or absorb any of the excess expenses, by the amount
of the excess expenses paid or absorbed by the Adviser through such downward
adjustments. To the extent that the Sub-Adviser has advanced monies to the
Adviser 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-Adviser's fees.
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 Adviser,
expenses of attendance by officers and trustees at professional meetings of the
Investment Company Institute, the No-Load Mutual Fund Association or similar
organizations, and membership or organization dues of such organizations,
expenses of preparing, typesetting and mailing prospectuses and periodic reports
to current shareholders, fidelity bond premiums, cost of maintaining the books
and records of the Trust, and any other charges and fees not specifically
enumerated.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 13
<PAGE>
The Trust and the Adviser, in connection with the Fund, have entered into a
sub-advisory agreement with another firm as discussed in the prospectus. The
Sub-Adviser's compensation is discussed in the prospectus and is paid by the
Adviser. The Fund will not be responsible for the Sub-Adviser's fee.
The Adviser may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers, and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for Fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client Fund shares. The Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. However, in the Adviser's opinion, such laws should not preclude a
bank from performing shareholder administrative and servicing functions as
contemplated herein.
The 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 ("Act")] or 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 Adviser and Sub-Adviser provide investment advise to a variety of
clients (the Adviser also provides investment advice to other mutual funds).
Investment decisions for each client are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, as far as possible, averaged
as to price and allocated between such clients in a manner which, in the
Adviser's or Sub-Adviser'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 Adviser and Sub-Adviser employ professional
staffs of portfolio managers who draw upon a variety of resources for research
information for the clients.
In addition to advising client accounts, the Adviser invests in securities for
its own account. The Adviser has adopted policies and procedures intended to
minimize or avoid potential conflicts with its clients when trading for its own
account. The Adviser'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 Adviser uses a diversified
approach to venture capital investing. Investments typically involve early-stage
businesses seeking initial financing as well as more mature businesses in need
of capital for expansion, acquisitions, management buyouts, or recapitalization.
Overall, the Adviser 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 Adviser, through its subsidiary USSI, provides transfer
agent services pursuant to the advisory agreement as described in the Fund's
prospectus under MANAGEMENT OF THE FUND--THE INVESTMENT ADVISER. In addition,
lockbox and statement printing services are provided by USSI. From February 20,
1997, commencement of operations, through October 31, 1997, the fund paid USSI a
total of $0 for transfer agency, lockbox, and printing fees. The Board of
Trustees recently approved the Transfer Agency and related agreements through
March 8, 1998.
USSI maintained the books and records of the Trust and of each fund of the Trust
until November 1, 1997, at which time Brown Brothers Harriman and Co. assumed
such responsibility. Daily net asset value is calculated as described in the
fund's prospectus under MANAGEMENT OF THE FUND--THE INVESTMENT ADVISER. From
February 20, 1997, commencement of operations, through October 31, 1997, the
fund paid USSI a total of $0 for portfolio accounting services net of fee
waivers.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 14
<PAGE>
A & B Mailers, Inc., a corporation wholly owned by the Adviser, provides the
Trust with certain mail handling services. The charges for such services have
been negotiated by the Audit Committee of the Trust and A & B Mailers, Inc. Each
service is priced separately.
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 ("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. For the period from February 20, 1997,
commencement of operations, through October 31, 1997, the Fund incurred a total
of $4,614 in distribution fees. The majority of these fees were used to pay for
printing and mailing of prospectuses. Distribution expenses paid by the Adviser
or other third parties in prior periods that exceeded 0.25% of net assets may be
paid by the Fund with distribution expenses accrued pursuant to the 12b-1 plan
in the current or future periods, so long as the 0.25% limitation is never
exceeded.
Expenses the Fund incurs pursuant to the distribution plan are reviewed
quarterly by the Board of Trustees. The distribution plan is reviewed annually
by the Board of Trustees as a whole, and the Trustees who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the distribution plan
("Qualified Trustees"). In their review of the distribution plan, the Board as a
whole and the Qualified Trustees separately determine whether, in their
reasonable business judgment and considering their fiduciary duties under state
law and Section 36(a) and (b) of the 1940 Act, there is a reasonable likelihood
that the distribution plan will benefit the Fund and its shareholders. The
distribution plan may be terminated at any time by vote of a majority of the
Qualified Trustees or by vote of a majority of the outstanding voting securities
of the Fund.
The Fund is unaware of any Trustee or any interested person of the Fund who had
a direct or indirect financial interest in the operations of the distribution
plan.
The Fund expects that the distribution plan will be used primarily to pay a
"service fee" to persons who provide personal services to prospective and
existing Fund shareholders. Shareholders of the Fund will benefit from these
personal services, and the Fund expects to benefit from economies of scale as it
attracts more shareholders.
Beginning September 3, 1998, U.S. Global Brokerage, Inc., a subsidiary of the
adviser, has agreed to market the fund and distribute shares through selling
brokers, financial planners and other financial representatives.
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 Adviser, which reserves the
right to reject all or any part of the securities offered in exchange for shares
of the Fund. On any such "in kind" purchase, the following conditions will
apply:
(1) the securities offered by the investor in exchange for shares of the Fund
must not be in any way restricted as to resale or otherwise be illiquid;
(2) securities of the same issuer must already exist in the Fund's portfolio;
(3) the securities must have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on
the 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;
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 15
<PAGE>
(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.
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 redemptions in kind will be made in marketable
securities of the Fund.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN. The Fund may advertise performance in terms of average annual
total return for 1-, 5- and 10-year periods, or for such lesser periods as the
Fund has been in existence. Average annual total return is computed by finding
the average annual compounded rates of return over the periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1+T) = 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.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 16
<PAGE>
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.
The average annual total return for the Fund for the period from February 20,
1997 (commencement of operations), through October 31, 1997, was (10.40)%. This
number has not been annualized.
NONSTANDARDIZED TOTAL RETURN. The Fund may provide the above described standard
total return results for a period that ends not earlier than the most recent
calendar quarter end and begins either twelve months before or at the time of
commencement of the Fund's operations. In addition, the Fund may provide
nonstandardized total return results for differing periods, such as for the most
recent six months. Such nonstandardized total return is computed as otherwise
described under TOTAL RETURN except that no annualization is made.
TAX STATUS
TAXATION OF THE FUND--IN GENERAL. As stated in its Prospectus, the Fund intends
to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended ("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,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies ("90% test"); and (b) satisfy certain diversification requirements at
the close of each quarter of the Fund's taxable year.
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 and the distribution requirements of the Code, and by provisions of the
Code that characterize certain income or loss as ordinary income or loss rather
than capital gain or loss. Such recognition, characterization and timing rules
generally apply to investments in certain forward currency contracts, foreign
currencies and debt securities denominated in foreign currencies.
TAXATION OF THE SHAREHOLDER. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November or December and paid to
shareholders of record in such a month, will be deemed to have been received on
December 31 if a Fund pays the dividends during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
purchased then includes the amount of any forthcoming distribution. Those
investors purchasing the Fund's shares immediately before a distribution may
receive a return of investment upon distribution, which will nevertheless be
taxable to them.
A shareholder of the Fund should be aware that a redemption of shares (including
any exchange into other funds offered, affiliated or administered by U. S.
Global Investors, Inc.) is a taxable event and, accordingly, a capital 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
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 17
<PAGE>
or exchange (not otherwise disallowed as attributable to an exempt-interest
dividend) will be treated as long-term capital loss to the extent of the
long-term capital gain recognized.
DISTRIBUTOR
U.S. Global Brokerage, Inc., 7900 Callaghan Road, San Antonio, Texas 78229, is
the exclusive agent for distribution of shares of the funds. The distributor is
obligated to sell the shares of the funds on a best-efforts basis only against
purchase orders for the shares. Shares of the funds are offered on a continuous
basis.
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR
Beginning November 1997 Brown Brothers Harriman & Co. began serving as
custodian, fund accountant and administrator for all Funds of the Trust. With
respect to the Funds owning foreign securities, Brown Brothers Harriman & Co.
may hold securities outside the United States pursuant to sub-custody
arrangements separately approved by the Trust. Prior to November, Bankers Trust
Company provided custody services and USSI provided fund accounting and
administrative services. Services with respect to the retirement accounts will
be provided by Security Trust and Financial Company of San Antonio, Texas, a
wholly owned subsidiary of the Adviser.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 700 North St. Mary's, San Antonio, Texas 78205, is the
independent accountant for the Trust.
FINANCIAL STATEMENTS
The financial statements for the year ended October 31, 1997, are hereby
incorporated by reference from the U.S. GLOBAL ACCOLADE FUNDS 1997 ANNUAL REPORT
TO SHAREHOLDERS of that date that accompanies this Statement of Additional
Information. If not included, the Trust will promptly provide a copy, free of
charge, upon request to: U.S. Global Investors, Inc., P.O. Box 29467, San
Antonio, Texas 78229-0467, 1-800-873-8637 or (210) 308-1234.
Statement of Additional Information - Adrian Day Global Opportunity Fund
Page 18
<PAGE>
================================================================================
REGENT EASTERN EUROPEAN FUND STATEMENT OF ADDITIONAL INFORMATION
================================================================================
U.S. GLOBAL ACCOLADE FUNDS
REGENT EASTERN EUROPEAN FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. You should read it
in conjunction with the prospectus ("Prospectus") dated February 2, 1998, as
amended September 3, 1998, which you may request from U. S. Global Investors,
Inc. ("Adviser"), 7900 Callaghan Road, San Antonio, Texas 78229 or
1-800-US-FUNDS (1-800-873-8637).
The date of this Statement of Additional Information is February 2, 1998, as
amended September 3, 1998.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.........................................................3
INVESTMENT OBJECTIVES AND POLICIES..........................................3
RISK FACTORS................................................................4
PORTFOLIO TRANSACTIONS.....................................................12
MANAGEMENT OF THE FUND.....................................................12
PRINCIPAL HOLDERS OF SECURITIES............................................13
INVESTMENT ADVISORY SERVICES...............................................14
TRANSFER AGENCY AND OTHER SERVICES.........................................15
DISTRIBUTION PLAN..........................................................15
CERTAIN PURCHASES OF SHARES OF THE FUND....................................16
ADDITIONAL INFORMATION ON REDEMPTIONS......................................17
CALCULATION OF PERFORMANCE DATA............................................17
TAX STATUS.................................................................18
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR...............................18
INDEPENDENT ACCOUNTANTS ...................................................19
FINANCIAL STATEMENTS.......................................................19
Statement of Additional Information - Regent Eastern European Fund
Page 2
<PAGE>
GENERAL INFORMATION
U.S. Global Accolade Funds ("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 ("Portfolio"). This
Statement of Additional Information ("SAI") presents important information
concerning the Regent Eastern European Fund ("Fund") and should be read in
conjunction with the Prospectus.
The assets received by the Trust from the issue or sale of shares of the Fund
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are separately allocated to such Fund. They constitute the
underlying assets of the Fund, are required to be segregated on the books of
accounts, and are to be charged with the expenses with respect to such fund. Any
general expenses of the Trust, not readily identifiable as belonging to a
particular fund, will be allocated by or under the direction of the Board of
Trustees in such manner as the Board determines to be fair and equitable.
Each share of the Fund represents an equal proportionate interest in the Fund
with each other share and is entitled to such dividends and distributions, out
of the income belonging to that Fund, as are declared by the Board. Upon
liquidation of the Trust, shareholders of each fund are entitled to share pro
rata in the net assets belonging to the Fund available for distribution.
As described under THE TRUST in the Prospectus, the Trust's Master Trust
Agreement provides that no annual or regular meeting of shareholders is
required. The Trustees serve for six-year terms. Thus, there will ordinarily be
no shareholder meetings unless otherwise required by the Investment Company Act
of 1940.
On any matter submitted to shareholders, the holder of each share is entitled to
one vote per share, with proportionate voting for fractional shares. On matters
affecting any individual fund, a separate vote of that fund would be required.
Shareholders of any fund are not entitled to vote on any matter that does not
affect their fund.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect Trustees, holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trust's Trustees, and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Master Trust Agreement provides for indemnification out of
the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objectives and policies discussed in the Fund's Prospectus.
INVESTMENT RESTRICTIONS. If a percentage investment restriction is adhered to at
the time of investment, a later increase or decrease in percentage, resulting
from a change in values of portfolio securities or amount of net assets, will
not be considered a violation of any of the foregoing restrictions.
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.
Statement of Additional Information - Regent Eastern European Fund
Page 3
<PAGE>
The Fund may not:
(1) Issue senior securities.
(2) Borrow money, except that the Fund may borrow not in excess of 5% of its
total assets from banks as a temporary measure for extraordinary purposes,
may borrow up to 331/3% of the amount of its total assets (reduced by the
amount of all liabilities and indebtedness other than such borrowing) when
deemed desirable or appropriate to effect redemptions provided, however,
that the Fund will not purchase additional securities while borrowings
exceed 5% of the total assets of the Fund.
(3) Underwrite the securities of other issuers.
(4) Invest in real estate.
(5) Engage in the purchase or sale of commodities or commodity futures
contracts, except that the Fund may invest in futures contracts, forward
contracts, options, and other derivative investments in conformance with
policies disclosed in the Fund's then current Prospectus and/or Statement
of Additional Information.
(6) Lend its assets, except that the Fund may purchase money market debt
obligations and repurchase agreements secured by money market obligations,
and except for the purchase or acquisition of bonds, debentures or other
debt securities of a type customarily purchased by institutional investors
and except that any Fund may lend portfolio securities with an aggregate
market value of not more than one-third of such Fund's total net assets.
(Accounts receivable for shares purchased by telephone shall not be deemed
loans.)
(7) Purchase any security on margin, except that it may obtain such short-term
credits as are necessary for clearance of securities transactions.
(8) Sell short more than 5% of its total assets.
(9) Invest more than 25% of its total assets in securities of companies
principally engaged in any one industry. For the purposes of determining
industry concentration, the Fund relies on the Standard Industrial
Classification as compiled by Bloomberg as in effect from time to time.
(10) With respect to 75% of its total assets, the Fund will not: (a) invest more
than 5% of the value of its total assets in securities of any one issuer,
except such limitation shall not apply to obligations issued or guaranteed
by the United States ("U.S.") Government, its agencies or
instrumentalities; or (b) acquire more than 10% of the voting securities of
any one issuer.
(11) Invest more than 10% of its total net assets in investment companies. To
the extent that the Fund shall invest in open-end investment companies, the
Fund's Adviser and Sub-Adviser shall waive a proportional amount of their
management fee.
RISK FACTORS
The following information supplements the discussion of the Fund's risk factors
discussed in the Fund's Prospectus. The following are among the most significant
risks associated with an investment in the Fund.
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
Statement of Additional Information - Regent Eastern European Fund
Page 4
<PAGE>
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, foreign exchange rates, expropriation or
confiscatory taxation, limitation of the removal of funds or other assets of the
Fund, political or financial instability or diplomatic and other developments
that could affect such investment. In addition, economies of particular
countries or areas of the world may differ favorably or unfavorably from the
economy of the United States. It is anticipated that in most cases the best
available market for foreign securities will be on exchanges or in
over-the-counter markets located outside of the United States. Foreign stock
markets, while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some foreign issuers
(particularly those located in developing countries) may be less liquid and more
volatile than securities of comparable United States companies. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities markets, broker-dealers, and issuers than in the United States.
EMERGING MARKETS. Investing in emerging markets involves risks and special
considerations not typically associated with investing in other more established
economies or securities markets. Investors should carefully consider their
ability to assume the risks listed below before making an investment in the
Fund. Investing in emerging markets is considered speculative and involves the
risk of total loss. Because the Fund's investments will be subject to the market
fluctuations and risks inherent in all investments, there can be no assurance
that the Fund's stated objective will be realized. The Fund's Adviser and
Sub-Adviser will seek to minimize these risks through professional management
and investment diversification. As with any long-term investment, the value of
shares when sold may be higher or lower than when purchased.
Risks of investing in emerging markets include:
(1) the risk that the Fund's assets may be exposed to nationalization,
expropriation, or confiscatory taxation;
(2) the fact that emerging market securities markets are substantially smaller,
less liquid and more volatile than the securities markets of more developed
nations The relatively small market capitalization and trading volume of
emerging market securities may cause the Fund's investments to be
comparatively less liquid and subject to greater price volatility than
investments in the securities markets of developed nations. Many emerging
markets are in their infancy and have yet to be exposed to a major
correction. In the event of such an occurrence, the absence of various
market mechanisms, which are inherent in the markets of more developed
nations, may lead to turmoil in the market place, as well as the inability
of the Fund to liquidate its investments;
(3) greater social, economic and political uncertainty (including the risk of
war);
(4) greater price volatility, substantially less liquidity and significantly
smaller market capitalization of securities markets;
(5) currency exchange rate fluctuations and the lack of available currency
hedging instruments;
(6) higher rates of inflation;
(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;
Statement of Additional Information - Regent Eastern European Fund
Page 5
<PAGE>
(13) less extensive regulation of the securities markets;
(14) certain considerations regarding the maintenance of Fund portfolio
securities and cash with foreign sub-custodians and securities
depositories;
(15) the risk that it may be more difficult, or impossible, to obtain and/or
enforce a judgment than in other countries;
(16) the risk that the Fund may be subject to income, capital gains or
withholding taxes imposed by emerging market countries or other foreign
governments. The Fund intends to elect, when eligible, to "pass through" to
the Fund's shareholders the amount of foreign income tax and similar taxes
paid by the Fund. The foreign taxes passed through to a shareholder would
be included in the shareholder's income and may be claimed as a deduction
or credit. Other taxes, such as transfer taxes, may be imposed on the Fund,
but would not give rise to a credit or be eligible to be passed through to
the shareholders;
(17) the fact that the Fund also is permitted to engage in foreign currency
hedging transactions and to enter into stock options on stock index futures
transactions, each of which may involve special risks;
(18) the risk that enterprises in which the Fund invests may be or become
subject to unduly burdensome and restrictive regulation affecting the
commercial freedom of the invested company and thereby diminishing the
value of the Fund's investment in it. Restrictive or over regulation may
therefore be a form of indirect nationalization;
(19) the risk that businesses in emerging markets have only a very recent
history of operating within a market-oriented economy. In general, relative
to companies operating in western economies, companies in emerging markets
are characterized by a lack of (i) experienced management, (ii) modern
technology and (iii) sufficient capital base with which to develop and
expand their operations. It is unclear what will be the effect on companies
in emerging markets, if any, of attempts to move towards a more
market-oriented economy;
(20) the fact that investments in equity securities are subject to inherent
market risks and fluctuations in value due to earnings, economic
conditions, quality ratings and other factors beyond the control of the
Adviser or Sub-Adviser. As a result, the return and net asset value of the
Fund will fluctuate;
(21) the fact that the Sub-Adviser may engage in hedging transactions in an
attempt to hedge the Fund's foreign securities investments back to the U.S.
dollar when, in its judgment, currency movements affecting particular
investments are likely to harm the performance of the Fund. Possible losses
from changes in currency exchange rates are primarily a risk of unhedged
investing in foreign securities. While a security may perform well in a
foreign market, if the local currency declines against the U.S. dollar,
gains from the investment can disappear or become losses. Typically,
currency fluctuations are more extreme than stock market fluctuations.
Accordingly, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's performance even when the
Sub-Adviser attempts to minimize currency risk through hedging activities.
While currency hedging may reduce portfolio volatility, there are costs
associated with such hedging, including the loss of potential profits,
losses on hedging transactions, and increased transaction expenses; and
(22) disposition of illiquid securities often takes more time than for more
liquid securities, may result in higher selling expenses and may not be
able to be made at desirable prices or at the prices at which such
securities have been valued by the Fund. As a non-fundamental policy the
Fund will not invest more than 15% of its net assets in illiquid
securities.
LOWER-RATED AND UNRATED DEBT SECURITIES. The Fund may invest up to 5% of its
total assets in debt rated less than investment grade (or unrated) by Standard &
Poor's Corporation (Chicago), Moody's Investors Service (New York), Duff &
Phelps (Chicago), Fitch Investors Service (New York), Thomson Bankwatch (New
York), Canadian Bond Rating Service (Montreal), Dominion Bond Rating Service
(Toronto), IBCA (London), The Japan Bond Research Institute (Tokyo), Japan
Credit Rating Agency (Tokyo), Nippon Investors Service (Tokyo), or S&P-ADEF
(Paris). In calculating the 5% limitation, a debt security will be considered
investment grade if any one of the above listed credit rating agencies rates the
security as investment grade.
Overall, the market for lower-rated or unrated bonds may be thinner and less
active, such bonds may be less liquid and their market prices may fluctuate more
than those of higher-rated bonds, particularly in times of economic change and
market
Statement of Additional Information - Regent Eastern European Fund
Page 6
<PAGE>
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-Adviser's research and analysis are especially important in the
selection of such bonds, which are often described as "high yield bonds" because
of their generally higher yields and referred to figuratively as "junk bonds"
because of their greater risks.
In selecting lower-rated bonds for investment by the Fund, the Sub-Adviser does
not rely exclusively on ratings, which in any event evaluate only the safety of
principal and interest, not market value risk, and which furthermore, may not
accurately reflect an issuer's current financial condition. The Fund does not
have any minimum rating criteria for its investments in bonds. Through portfolio
diversification, good credit analysis and attention to current developments and
trends in interest rates and economic conditions, investment risk can be
reduced, although there is no assurance that losses will not occur.
RESTRICTED SECURITIES. The Fund may, from time to time, purchase securities that
are subject to restrictions on resale. While such purchases may be made at an
advantageous price and offer attractive opportunities for investment not
otherwise available on the open market, the Fund may not have the same freedom
to dispose of such securities as in the case of the purchase of securities in
the open market or in a public distribution. These securities may often be
resold in a liquid dealer or institutional trading market, but the Fund may
experience delays in its attempts to dispose of such securities. If adverse
market conditions develop, the Fund may not be able to obtain as favorable a
price as that prevailing at the time the decision is made to sell. In any case,
where a thin market exists for a particular security, public knowledge of a
proposed sale of a large block may have the effect of depressing the market
price of such securities.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities that are
convertible into or exchangeable for another security, usually common stock.
Convertible debt securities and convertible preferred stocks, until converted,
have general characteristics similar to both debt and equity securities.
Although to a lesser extent than with debt securities generally, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion or exchange feature, the market value of convertible securities
typically increases or declines as the market value of the underlying common
stock increases or declines, although usually not to the same extent.
Convertible securities generally offer lower yields than non-convertible fixed
income securities of similar quality because of their conversion or exchange
features. Convertible bonds and convertible preferred stock typically have lower
credit ratings than similar non-convertible securities because they are
generally subordinated to other similar but non-convertible fixed income
securities of the same issuer.
OTHER RIGHTS TO ACQUIRE SECURITIES. The Fund may also invest in other rights to
acquire securities, such as options and warrants. These securities represent the
right to acquire a fixed or variable amount of a particular issue of securities
at a fixed or formula price either during specified periods or only immediately
before termination. These securities are generally exercisable at premiums above
the value of the underlying securities at the time the right is issued. These
rights are more volatile than the underling stock and will result in a total
loss of the Fund's investment if they expire without being exercised because the
value of the underlying security does not exceed the exercise price of the
right.
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.
Statement of Additional Information - Regent Eastern European Fund
Page 7
<PAGE>
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-Adviser's ability to predict pertinent market movements, and cannot be
assured. Engaging in Strategic Transactions will increase transaction expenses
and may result in a loss that exceeds the principal invested in the
transactions.
Strategic Transactions have risk associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Sub-Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to 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 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.
ADRS AND GDRS. The Fund may invest in sponsored or unsponsored American
Depository Receipts ("ADRs") or Global Depository Receipts ("GDRs") representing
shares of companies located in the Eastern Europe region. ADRs are depository
receipts typically issued by a U.S. bank or trust company that evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation. Generally,
depository receipts in registered form are designed for use in the U.S.
securities market, and depository receipts in bearer form are designed for use
in securities markets outside the United States. Depository receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the securities
underlying unsponsored depository receipts are not obligated to disclose
material information in the United States; and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depository receipts. For
purposes of the Fund's investment policies, the Fund's investments in depository
receipts will be deemed to be investments in the underlying securities.
FUTURES CONTRACTS. The Fund may sell futures contracts to hedge against a
decline in the market price of securities it owns or to defend the portfolio
against currency fluctuations. When the Fund establishes a short position by
selling a futures contract, the Fund will be required to deposit with the broker
an amount of cash or U.S. Treasury bills equal to approximately 5% of the
contract amount ("initial margin"). The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract is returned to the Fund
upon termination of the futures contract assuming all the Fund's contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker will be made on a daily basis as the price of the
underlying currency or stock index fluctuates making a short position in the
futures contract more or less valuable, a process known as "marking-to-market."
For example, when the Fund has sold a currency futures contract and the prices
of the stocks included in the underlying currency has fallen, that position will
have increased in value and the Fund will
Statement of Additional Information - Regent Eastern European Fund
Page 8
<PAGE>
receive from the broker a variation margin payment equal to that increase in
value. Conversely, when the Fund has sold a currency futures contract and the
prices of the underlying currency has risen, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time before expiration of the futures contract, the Fund may elect to
close the position by taking an opposite position, which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund, and it realizes a loss or a gain.
There is a risk that futures contract price movements will not correlate
perfectly with movements in the value of the underlying stock index. For a
number of reasons the price of the stock index future may move more than or less
than the price of the securities that make up the index. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions that could
distort the normal relationship between the index and futures markets. Secondly,
from the point of view of speculators, the deposit requirements in the futures
market are less onerous than margin requirements in the stock market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions.
There is an additional risk that a liquid secondary trading market may not exist
at all times for these futures contracts, in which event the Fund might be
unable to terminate a futures position at a desired time. Positions in stock
index futures may be closed out only on an exchange or board of trade that
provides a secondary market for such futures. Although the Fund intends to
purchase futures only on exchanges or boards of trade where there appears to be
an active secondary market, there is no assurance that a liquid secondary market
on an exchange or board of trade will exist for any particular contract or at
any particular time. If there is not a liquid secondary market at a particular
time, it may not be possible to close a futures position at such time, and in
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments of variation margin.
OPTIONS. The Fund may sell call options or purchase put options on futures
contracts to hedge against a decline in the market price of securities that it
owns or to defend the portfolio against currency fluctuations. Options on
futures contracts differ from options on individual securities in that the
exercise of an option on a futures contract does not involve delivery of an
actual underlying security. Options on futures contracts are settled in cash
only. The purchaser of an option receives a cash settlement amount and the
writer of an option is required, in return for the premium received, to make
delivery of a certain amount if the option is exercised. A position in an option
on a futures contract may be offset by either the purchaser or writer by
entering into a closing transaction, or the purchaser may terminate the option
by exercising it or allowing it to expire.
The risks associated with the purchase and sale of options on futures contracts
are generally the same as those relating to options on individual securities.
However, the value of an option on a futures contract depends primarily on
movements in the value of the currency or the stock index underlying the futures
contract rather than in the price of a single security. Accordingly, the Fund
will realize a gain or loss from purchasing or writing an option on a futures
contract as a result of movements in the related currency or in the stock market
generally rather than changes in the price for a particular security. Therefore,
successful use of options on futures contracts by the Fund will depend on the
Adviser's ability to predict movements in the direction of the currency or stock
market underlying the futures contract. The ability to predict these movements
requires different skills and techniques than predicting changes in the value of
individual securities.
Because index options are settled in cash, the Fund cannot be assured of
covering its potential settlement obligations under call options it writes on
futures contracts by acquiring and holding the underlying securities. Unless the
Fund has cash on hand that is sufficient to cover the cash settlement amount, it
would be required to sell securities owned in order to satisfy the exercise of
the option.
As a non-fundamental policy the Fund will not invest more than 5% of its total
net assets in options.
SEGREGATED ASSETS AND COVERED POSITIONS. When purchasing a stock index futures
contract, selling an uncovered call option, or purchasing securities on a
when-issued or delayed delivery basis, the Fund will restrict cash that may be
invested in repurchase obligations or liquid securities. When purchasing a stock
index futures contract, the amount of restricted cash or liquid securities, when
added to the amount deposited with the broker as margin, will be at least equal
to the market value of the futures contract and not less than the market price
at which the futures contract was established. When selling an uncovered call
option, the amount of restricted cash or liquid securities, when added to the
amount deposited with the broker as margin, will be at least equal to the value
of securities underlying the call option and not less than the strike price of
the
Statement of Additional Information - Regent Eastern European Fund
Page 9
<PAGE>
call option. When purchasing securities on a when-issued or delayed delivery
basis, the amount of restricted cash or liquid securities will be at least equal
to the Fund's when-issued or delayed delivery commitments.
The restricted cash or liquid securities will either be identified as being
restricted in the Fund's accounting records or physically segregated in a
separate account at Brown Brothers Harriman & Co., the Fund's custodian. For the
purpose of determining the adequacy of the liquid securities that have been
restricted, the securities will be valued at market or fair value. If the market
or fair value of such securities declines, additional cash or liquid securities
will be restricted on a daily basis so that the value of the restricted cash or
liquid securities, when added to the amount deposited with the broker as margin,
equals the amount of such commitments by the Fund.
Many strategic transactions, such as futures contracts and options, in addition
to other requirements, require that the Fund segregate with its custodian cash
or liquid securities (regardless of type) having an aggregate value, measured on
a daily basis, at least equal to the amount of the obligations requiring
segregation to the extent that the obligations are not otherwise covered through
ownership of the underlying security, financial instrument or currency. In
general, the full amount of any obligation of the Fund to pay or deliver
securities or assets must be covered at all times by (1) the securities,
instruments or currency required to be delivered, or (2) subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must either be identified as restricted
in the Fund's accounting records or be 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 determining the adequacy of the liquid
securities that have been restricted, the securities will be valued at market or
fair value. If the market or fair value of such securities declines, additional
cash or liquid securities will be restricted on a daily basis so that the value
of the restricted cash or liquid securities, when added to the amount deposited
with the broker as margin, equals the amount of such commitments by the Fund.
The Fund could cover a call option that it has sold by holding the same currency
or security (or, in the case of a stock index, a portfolio of stock
substantially replicating the movement of the index) underlying the call option.
The Fund may also cover by holding a separate call option of the same security
or stock index with a strike price no higher than the strike price of the call
option sold by the Fund. The Fund could cover a call option that it has sold on
a futures contract by entering into a long position in the same futures contract
at a price no higher than the strike price of the call option or by owning the
securities or currency underlying the futures contract. The Fund could also
cover a call option that it has sold by holding a separate call option
permitting it to purchase the same futures contract at a price no higher than
the strike price of the call option sold by the Fund.
FOREIGN CURRENCY TRANSACTIONS. Investments in foreign companies usually involve
use of currencies of foreign countries. The Fund also may hold cash and
cash-equivalent investments in foreign currencies. The value of the Fund's
assets as measured in U.S. dollars will be affected by changes in currency
exchange rates and exchange control regulations. The Fund may, as appropriate
markets are developed, but is not required to, engage in currency transactions
including cash market purchases at the spot rates, forward currency contracts,
exchange listed currency futures, exchange listed and over-the-counter options
on currencies, and currency swaps for two purposes. One purpose is to settle
investment transactions. The other purpose is to try to minimize currency risks.
All currency transactions involve a cost. Although foreign exchange dealers
generally do not charge a fee, they do realize a profit based on the difference
(spread) between the prices at which they are buying and selling various
currencies. Commissions are paid on futures options and swaps transactions, and
options require the payment of a premium to the seller.
A forward contract involves a privately negotiated obligation to purchase or
sell at a price set at the time of the contract with delivery of the currency
generally required at an established future date. A futures contract is a
standardized contract for delivery of foreign currency traded on an organized
exchange that is generally settled in cash. An option gives the right to enter
into a contract. A swap is an agreement based on a nominal amount of money to
exchange the differences between currencies.
The Fund will generally use spot rates or forward contracts to settle a security
transaction or handle dividend and interest collection. When the Fund enters
into a contract for the purchase or sale of a security denominated in a foreign
currency or has been notified of a dividend or interest payment, it may desire
to lock in the price of the security or the amount of the payment in dollars. By
entering into a spot rate or forward contract, the Fund will be able to protect
itself against a possible
Statement of Additional Information - Regent Eastern European Fund
Page 10
<PAGE>
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund may use forward or futures contracts, options, or swaps when the
investment manager believes the currency of a particular foreign country may
suffer a substantial decline against another currency. For example, it may enter
into a currency transaction to sell, for a fixed amount of dollars, the amount
of foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the securities transactions and the value of securities involved generally
will not be possible. The projection of short-term currency market movements is
extremely difficult and successful execution of a short-term strategy is highly
uncertain.
The Fund may cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to decline in value relative to
other currencies in which the Fund has (or expects to have) portfolio exposure.
The Fund may engage in proxy hedging. Proxy hedging is often used when the
currency to which a fund's portfolio is exposed is difficult to hedge. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and simultaneously buy U.S. dollars. The amount of
the contract would not exceed the value of the Fund's securities denominated in
linked securities.
The Fund will not enter into a currency transaction or maintain an exposure as a
result of the transaction when it would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. The Fund will designate cash or
securities in an amount equal to the value of the Fund's total assets committed
to consummating the transaction. If the value of the securities declines,
additional cash or securities will be designated on a daily basis so that the
value of the cash or securities will equal the amount of the Fund's commitment.
On the settlement date of the currency transaction, the Fund may either sell
portfolio securities and make delivery of the foreign currency or retain the
securities and terminate its contractual obligation to deliver the foreign
currency by purchasing an offsetting position. It is impossible to forecast what
the market value of portfolio securities will be on the settlement date of a
currency transaction. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the securities are less than the amount of
foreign currency the Fund is obligated to deliver and a decision is made to sell
the securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver. The Fund will realize gains
or losses on currency transactions.
The Fund may also buy put options and write covered call options on foreign
currencies to try to minimize currency risks. The risk of buying an option is
the loss of premium. The risk of selling (writing) an option is that the
currency option will minimize the currency risk only up to the amount of the
premium, and then only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy the
underlying currency at the loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund may also
be required to forego all or part of the benefits that might otherwise have been
obtained from favorable movements on exchange rates. All options written on
foreign currencies will be covered; that is, the Fund will own securities
denominated in the foreign currency, hold cash equal to its obligations or have
contracts that offset the options.
The Fund may construct a synthetic foreign currency investment, sometimes called
a structured note, by (a) purchasing a money market instrument that is a note
denominated in one currency, generally U.S. dollars, and (b) concurrently
entering into a forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future date and at a
specified rate of exchange. Because the availability of a variety of highly
liquid short-term U.S. dollar market instruments, or notes, a synthetic money
market position utilizing such U.S. dollar instruments may offer greater
liquidity than direct investment in foreign currency.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. Under the Code, gains or
losses attributable to fluctuations in exchange rates which occur between the
time the Fund accrues interest or other receivables, or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies or from the disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign
Statement of Additional Information - Regent Eastern European Fund
Page 11
<PAGE>
currency between the date of acquisition of the currency or security and the
date of disposition also are treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "section 988" gains or losses, increase or
decrease the amount of the Fund's net investment income (which includes, among
other things, dividends, interest and net short-term capital gains in excess of
net long-term capital losses, net of expenses) available to be distributed to
its shareholders as ordinary income, rather than increasing or decreasing the
amount of the Fund's net capital gain. If section 988 losses exceed such other
net investment income during a taxable year, any distributions made by the Fund
could be recharacterized as a return of capital to shareholders, rather than as
an ordinary dividend, reducing each shareholder's basis in his Fund shares. To
the extent that such distributions exceed such shareholder's basis, they will be
treated as a gain from the sale of shares. As discussed below, certain gains or
losses with respect to forward foreign currency contracts, over-the-counter
options or foreign currencies and certain options graded on foreign exchanges
will also be treated as section 988 gains or losses.
Forward currency contracts and certain options entered into by the Fund may
create "straddles" for U.S. Federal income tax purposes and this may affect the
character of gains or losses realized by the Fund on forward currency contracts
or on the underlying securities and cause losses to be deferred. The Fund may
also be required to "mark-to-market" certain positions in its portfolio (i.e.,
treat them as if they were sold at year end). This could cause the Fund to
recognize income without having the cash to meet the distribution requirements.
PORTFOLIO TRANSACTIONS
The Sub-Adviser may use research services provided by and place agency
transactions with Regent European Securities, an affiliated broker-dealer of the
Sub-Adviser, if the commissions are fair, reasonable and comparable to
commissions charged by non-affiliated, qualified brokerage firms for similar
services. Regent European Securities was established in 1995 as a specialist
broker-dealer in the Russian securities market and has since developed into a
significant participant in the growing Russian market. For the period from March
31, 1997, commencement of operations, through October 31, 1997, the Fund paid no
commissions to Regent European Securities out of total commissions of $22,365.
The Fund's management buys and sells securities for the Fund to accomplish its
investment objectives. The Fund's investment policy may lead to frequent changes
in investments, particularly in periods of rapidly changing markets. The Fund's
investments may also be traded to take advantage of perceived short-term
disparities in market values.
A change in the securities held by the Fund is known as "portfolio turnover." A
high portfolio turnover rate may cause the Fund to pay higher transaction
expenses, including more commissions and markups, and also result in quicker
recognition of capital gains, resulting in more capital gain distributions that
may be taxable to shareholders. Any short term gain realized on securities will
be taxed to shareholders as ordinary income. See TAX STATUS.
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.
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- -----------------------------------------
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.
Statement of Additional Information - Regent Eastern European Fund
Page 12
<PAGE>
NAME AND ADDRESS TRUST POSITION PRINCIPAL OCCUPATION
- ------------------- -------------- -----------------------------------------
Clark R. Mandigo Trustee Business consultant since 1991. From 1985
1250 N.E. Loop 410 to 1991, President, Chief Executive
Suite 900 Officer, and Director of Intelogic Trace,
San Antonio, Texas Inc., a nationwide company which sells,
78209 leases and maintains computers and
telecommunications systems and equipment.
Prior to 1985, President of BHP Petroleum
(Americas), Ltd., an oil and gas
exploration and development company.
Director of Palmer Wireless, Inc., Lone
Star Steakhouse & Saloon, Inc. and
Physician Corporation of America.
Formerly a Director of Datapoint
Corporation. Trustee for Pauze/Swanson
United Services Funds from November 1993
to February 1996.
Frank E. Holmes (1) Trustee, Chairman of the Board of Directors and
President, Chief Executive Officer of the Adviser.
Chief Since October 1989 Mr. Holmes has served
Executive and continues to serve in various
Officer positions with the Adviser, its
subsidiaries and the investment companies
it sponsors. Director of Franc-Or
Resource Corp. from November 1994 to
November 1996. Director of Adventure
Capital Limited from January 1996 to July
1997 and Director of Vedron Gold, Inc.
from August 1996 to March 1997. Director
of 71316 Ontario, Inc. since April 1987
and of F. E. Holmes Organization, Inc.
since July 1978. Director of Marleau,
Lemire Inc. from January 1995 to January
1996. Director of United Services Canada,
Inc. since February 1995 and Chief
Executive Officer from February to August
1995.
Susan B. McGee Executive Vice Executive Vice President, Corporate
President, Secretary and General Counsel of the
Secretary, Adviser. Since September 1992 Ms. McGee
General has served and continues to serve in
Counsel various positions with the Adviser, its
subsidiaries, and the investment
companies it sponsors. Before September
1992 Ms. McGee was a student at St.
Mary's Law School.
David J. Clark Treasurer Chief Financial Officer, Chief Operating
Officer of the Adviser. Since May 1997
Mr. Clark has served and continues to
serve in various positions with the
Adviser and the investment companies it
sponsors. Foreign Service Officer with
U.S. Agency for International Development
in the U.S. Embassy, Bonn, West Germany
from May 1992 to May 1997. Audit
Supervisor for University of Texas Health
Science Center from April 1991 to April
1992. Auditor-in-Charge for Texaco, Inc.
from August 1987 to June 1990.
- ------------------------------------
(1) This Trustee may be deemed an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
PRINCIPAL HOLDERS OF SECURITIES
As of January 21, 1998, the officers and trustees of the Fund, as a group, owned
less then 1% of the outstanding shares of the Fund. The Fund is aware of the
following persons who owned of record, or beneficially, more than 5% of the
outstanding shares of the fund at January 21, 1998:
NAME & ADDRESS OF OWNER % OWNED TYPE OF OWNERSHIP
------------------------- ------- -----------------
Charles Schwab & Co., Inc. 11.54% Record(1)
San Francisco, CA 94104
Statement of Additional Information - Regent Eastern European Fund
Page 13
<PAGE>
NAME & ADDRESS OF OWNER % OWNED TYPE OF OWNERSHIP
------------------------- ------- -----------------
Donaldson, Lufkin & Jenrette 5.11% Record (1)
Jersey City, New Jersey
(1) Donaldson, Lufkin & Jenrette and Stenand Fordham and
Charles Schwab & Co, Inc., broker-dealers, have
advised that no individual client owns more than 5%
of the Fund.
INVESTMENT ADVISORY SERVICES
The investment adviser to the Fund is U. S. Global Investors, Inc., a Texas
corporation, pursuant to an advisory agreement dated September 21, 1994. Frank
E. Holmes, Chief Executive Officer and a Director of the Adviser, as well as a
Trustee, President and Chief Executive Officer of the Trust, beneficially owns
more than 25% of the outstanding voting stock of the Adviser and may be deemed
to be a controlling person of the Adviser.
In addition to the services described in the Fund's Prospectus, the Adviser will
provide the Trust with office space, facilities and simple business equipment,
and will provide the services of executive and clerical personnel for
administering the affairs of the Trust. It will compensate all personnel,
officers, and trustees of the Trust, if such persons are employees of the
Adviser or its affiliates, except that the Trust will reimburse the Adviser for
part of the compensation of the Adviser's employees who perform certain legal
services for the Trust, including state securities law regulatory compliance
work, based upon the time spent on such matters for the Trust.
The Trust and the Adviser, in connection with the Fund, have entered into a
sub-advisory agreement with another firm as discussed in the Prospectus. The
Adviser pays the Sub-Adviser a sub-advisory fee equal to one-half of the
management fee. The Fund will not be responsible for the Sub-Adviser's fee.
The Trust pays all other expenses for its operations and activities. Each of the
funds of the Trust pays its allocable portion of these expenses. The expenses
borne by the Trust include the charges and expenses of any transfer agents and
dividend disbursing agents, custodian fees, legal and auditing expenses,
bookkeeping and accounting expenses, brokerage commissions for portfolio
transactions, taxes, if any, the advisory fee, extraordinary expenses, expenses
of issuing and redeeming shares, expenses of shareholder and trustee meetings,
and of preparing, printing and mailing proxy statements, reports and other
communications to shareholders, expenses of registering and qualifying shares
for sale, fees of Trustees who are not "interested persons" of the Adviser,
expenses of attendance by officers and Trustees at professional meetings of the
Investment Company Institute, the No-Load Mutual Fund Association or similar
organizations, and membership or organization dues of such organizations,
expenses of preparing, typesetting and mailing prospectuses and periodic reports
to current shareholders, fidelity bond premiums, cost of maintaining the books
and records of the Trust, and any other charges and fees not specifically
enumerated.
The Sub-Adviser's compensation is set forth in the Prospectus and is paid by the
Adviser.
The Adviser may, out of profits derived from its management fee, pay certain
financial institutions (which may include banks, securities dealers, and other
industry professionals) a "servicing fee" for performing certain administrative
servicing functions for Fund shareholders to the extent these institutions are
allowed to do so by applicable statute, rule or regulation. These fees will be
paid periodically and will generally be based on a percentage of the value of
the institutions' client Fund shares. The Glass-Steagall Act limits banks in
engaging in the business of underwriting, selling or distributing securities.
However, in the Adviser's opinion, such laws should not preclude a bank from
performing shareholder administrative and servicing functions as contemplated
herein.
The 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 was approved by shareholders of the Fund at the initial meeting of
shareholders. The advisory agreement provides that it will continue initially
for two years, and from year to year thereafter, with respect to each fund, as
long as it is approved at least annually both (i) by a vote of a majority of the
outstanding voting securities of such fund [as defined in the Investment Company
Act of 1940 ("Act")] or by the Board of Trustees of the Trust, and (ii) by a
vote of a majority of the Trustees who are not parties to the advisory agreement
or "interested persons" of any party thereto cast
Statement of Additional Information - Regent Eastern European Fund
Page 14
<PAGE>
in person at a meeting called for the purpose of voting on such approval. Thea
advisory agreement may be terminated on 60 days' written notice by either party
and will terminate automatically if it is assigned.
Both the Adviser and Sub-Adviser provide investment advice to a variety of
clients . Both the Adviser and the Sub-Adviser also provide investment advice to
other mutual funds. Investment decisions for each client are made with a view to
achieving their respective investment objectives. Investment decisions are the
product of many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security are, as far as
possible, averaged as to price and allocated between such clients in a manner
which, in the Adviser's or Sub-Adviser'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 Adviser and
Sub-Adviser employ professional staffs of portfolio managers who draw upon a
variety of resources for research information for the clients.
In addition to advising client accounts, the Adviser and Sub-Adviser invest in
securities for their own accounts. The Adviser and Sub-Adviser have adopted
policies and procedures intended to minimize or avoid potential conflicts with
their clients when trading for their own accounts. The investment objectives and
strategies of the Adviser and Sub-Adviser are different from those of their
clients, emphasizing venture capital investing, private placement arbitrage and
speculative short-term trading. The Adviser uses a diversified approach to
venture capital investing. Investments typically involve early-stage businesses
seeking initial financing as well as more mature businesses in need of capital
for expansion, acquisitions, management buyouts, or recapitalization. Overall,
the Adviser invests in start-up companies in the natural resources or technology
fields.
The Fund pays the Adviser a management fee based on varying percentages of
average net assets. For the period from March 31, 1997, commencement of
operations, through October 31, 1997, the Fund paid $0 in management fees .
TRANSFER AGENCY AND OTHER SERVICES
In addition to the services performed for the Funds and the Trust under the
advisory agreement, the Adviser, through its subsidiary USSI, provides transfer
agent and dividend disbursement agent services pursuant to the transfer agency
agreement as described in the Fund's Prospectus under MANAGEMENT OF THE
FUND--THE INVESTMENT ADVISER. In addition, lockbox and statement printing
services are provided by USSI. For the year ended October 31, 1997, the fund
paid USSI a total of $0 for transfer agency, lockbox, and printing fees. The
Board of Trustees recently approved the transfer agency and related agreements
through March 8, 1998.
USSI maintained the books and records of the Trust and of each fund of the Trust
until November 1, 1997, at which time Brown Brothers Harriman and Co. assumed
such responsibility. Daily net asset value is calculated as described in the
fund's prospectus under MANAGEMENT OF THE FUND--THE INVESTMENT ADVISER. For the
year ended October 31, 1997, the fund paid USSI a total of $0 for portfolio
accounting services.
A & B Mailers, Inc., a corporation wholly owned by the Adviser, provides the
Trust with certain mail handling services. The charges for such services have
been negotiated by the Audit Committee of the Trust and A & B Mailers, Inc. Each
service is priced separately.
DISTRIBUTION PLAN
As described under DISTRIBUTION EXPENSE PLAN in the Prospectus, the Fund has
adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act
("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
Statement of Additional Information - Regent Eastern European Fund
Page 15
<PAGE>
understanding and dealing with the Fund, and travel and out-of-pocket expenses
(e.g., copy and long distance telephone charges) related thereto.
The total amount expended pursuant to the Distribution Plan may not exceed 0.25%
of the Fund's net assets on an annual basis. For the period from March 31, 1997,
commencement of operations, through October 31, 1997, the Fund paid a total of
$6,003 in distribution fees. The majority of these fees were used to pay for
printing and mailing of prospectuses. Distribution expenses paid by the Adviser
or other third parties in prior periods that exceeded 0.25% of net assets may be
paid by the Fund with distribution expenses accrued pursuant to the 12b-1 plan
in the current or future periods, so long as the 0.25% limitation is never
exceeded.
Expenses that the Fund incurs pursuant to the distribution plan are reviewed
quarterly by the Board of Trustees. The distribution plan is reviewed annually
by the Board of Trustees as a whole, and the Trustees who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Distribution plan
("Qualified Trustees"). In their review of the Distribution plan the Board of
Trustees, as a whole, and the Qualified Trustees determine whether, in their
reasonable business judgment and considering their fiduciary duties under state
law and under Section 36(a) and (b) of the 1940 Act there is a reasonable
likelihood that the Distribution plan will benefit the Fund and its
shareholders. The Distribution plan may be terminated at any time by vote of a
majority of the Qualified Trustees, or by a majority vote of the outstanding
voting securities of the Fund.
The Fund is unaware of any Trustee or any interested person of the Fund who had
a direct or indirect financial interest in the operations of the Distribution
plan.
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.
Beginning September 3, 1998, U.S. Global Brokerage, Inc., a subsidiary of the
adviser, has agreed to market the fund and distribute shares through selling
brokers, financial planners and other financial representatives.
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 Adviser, which reserves the
right to reject all or any part of the securities offered in exchange for shares
of the Fund. On any such "in kind" purchase, the following conditions will
apply:
(1) the securities offered by the investor in exchange for shares of the Fund
must not be in any way restricted as to resale or otherwise be illiquid;
(2) securities of the same issuer must already exist in the Fund's portfolio;
(3) the securities must have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
AMEX, the NYSE, or NASDAQ;
(4) any securities so acquired by any fund shall not comprise over 5% of the
Fund's net assets at the time of such exchange;
(5) no over-the-counter securities will be accepted unless the principal
over-the-counter market is in the United States; and,
(6) the securities are acquired for investment and not for resale.
The Trust believes that this ability to purchase shares of the Fund using
securities provides a means by which holders of certain securities may obtain
diversification and continuous professional management of their investments
without the expense of selling those securities in the public market.
Statement of Additional Information - Regent Eastern European Fund
Page 16
<PAGE>
An investor who wishes to make an "in kind" purchase should furnish a list
(either in writing or by telephone) to the Trust with a full and exact
description of all of the securities he or she proposes to deliver. The Trust
will advise him or her as to those securities it is prepared to accept and will
provide the investor with the necessary forms to be completed and signed by the
investor. The investor should then send the securities, in proper form for
transfer, with the necessary forms to the Trust and certify that there are no
legal or contractual restrictions on the free transfer and sale of the
securities. The securities will be valued as of the close of business on the day
of receipt by the Trust in the same manner as portfolio securities of the Fund
are valued. See the section entitled HOW SHARES ARE VALUED in the Prospectus.
The number of shares of the Fund, having a net asset value as of the close of
business on the day of receipt equal to the value of the securities delivered by
the investor, will be issued to the investor, less applicable stock transfer
costs or taxes, if any.
The exchange of securities by the investor pursuant to this offer is a taxable
transaction and may result in a gain or loss for Federal income tax purposes.
Each investor should consult his or her tax adviser to determine the tax
consequences under Federal and state law of making such an "in kind" purchase.
ADDITIONAL INFORMATION ON REDEMPTIONS
SUSPENSION OF REDEMPTION PRIVILEGES. The Trust may suspend redemption privileges
or postpone the date of payment for up to seven days, but cannot do so for more
than seven days after the redemption order is received except during any period
(1) when the NYSE is closed, other than customary weekend and holiday closings,
or trading on the Exchange is restricted as determined by the Securities and
Exchange Commission ("SEC"); (2) when an emergency exists, as defined by the
SEC, that makes it not practicable for the Trust to dispose of securities owned
by it or to determine fairly the value of its assets; or (3) as the SEC may
otherwise permit.
REDEMPTION IN KIND. The Trust reserves the right to redeem shares of the Fund in
cash or in kind. However, the Trust has elected to be governed by Rule 18f-1
under the Investment Company Act of 1940, pursuant to which the Trust is
obligated to redeem shares of the Fund solely in cash up to the lesser of
$250,000 or one percent of the net asset value of the Fund during any 90-day
period for any one shareholder. Any shareholder of the Fund receiving a
redemption in kind would then have to pay brokerage fees in order to convert his
Fund investment into cash. All redemptions in kind will be made in marketable
securities of the Fund.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN. The Fund may advertise performance in terms of average annual
total return for 1-, 5- and 10-year periods, or for such lesser periods as the
Fund has been in existence. Average annual total return is computed by finding
the average annual compounded rates of return over the periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1+T) = 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.
The average annual total return for the fund for the period from March 31, 1997
(commencement of operations), through October 31, 1997, was 11.90%. This number
has not been annualized.
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
Statement of Additional Information - Regent Eastern European Fund
Page 17
<PAGE>
commencement of the Fund's operations. In addition, the Fund may provide
nonstandardized total return results for differing periods, such as for the most
recent six months. Such nonstandardized total return is computed as otherwise
described under TOTAL RETURN except that no annualization is made.
TAX STATUS
TAXATION OF THE FUND--IN GENERAL. As stated in its prospectus, the Fund intends
to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended ("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 ("90% test"); and (2) satisfy certain diversification requirements at
the close of each quarter of the Fund's taxable year.
The Code imposes a non-deductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount equal to
the sum of: (1) at least 98% of its ordinary income for the calendar year; (2)
at least 98% of its capital gain net income for the twelve-month period ending
on October 31 of the calendar year; and (3) any portion (not taxable to the
Fund) of the respective balance from the preceding calendar year. The Fund
intends to make such distributions as are necessary to avoid imposition of this
excise tax.
TAXATION OF THE FUND'S INVESTMENTS. The Fund's ability to make certain
investments may be limited by provisions of the Code that require inclusion of
certain unrealized gains or losses in the Fund's income for purposes of the 90%
test and the distribution requirements of the Code, and by provisions of the
Code that characterize certain income or loss as ordinary income or loss rather
than capital gain or loss. Such recognition, characterization and timing rules
generally apply to investments in certain forward currency contracts, foreign
currencies and debt securities denominated in foreign currencies.
TAXATION OF THE SHAREHOLDER. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November or December and paid to
shareholders of record in such a month, will be deemed to have been received on
December 31 if a fund pays the dividends during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just before a distribution. The price of such shares
purchased then includes the amount of any forthcoming distribution. Investors
purchasing the Fund's shares immediately before a distribution may receive a
return of investment upon distribution that will nevertheless be taxable to
them.
A shareholder of the Fund should be aware that a redemption of shares (including
any exchange into other funds offered, affiliated or administered by U. S.
Global Investors, Inc.) is a taxable event and, accordingly, a capital gain or
loss may be recognized. If a shareholder of the Fund receives a distribution
taxable as long-term capital gain with respect to shares of the Fund and redeems
or exchanges shares before he has held them for more than six months, any loss
on the redemption or exchange (not otherwise disallowed as attributable to an
exempt-interest dividend) will be treated as long-term capital loss to the
extent of the long-term capital gain recognized.
DISTRIBUTOR
U.S. Global Brokerage, Inc., 7900 Callaghan Road, San Antonio, Texas 78229, is
the exclusive agent for distribution of shares of the funds. The distributor is
obligated to sell the shares of the funds on a best-efforts basis only against
purchase orders for the shares. Shares of the funds are offered on a continuous
basis.
CUSTODIAN, FUND ACCOUNTANT AND ADMINISTRATOR
Beginning November 1997 Brown Brothers Harriman & Co. began serving as
custodian, fund accountant and administrator for all funds of the Trust. With
respect to the funds owning foreign securities, Brown Brothers Harriman & Co.
may hold
Statement of Additional Information - Regent Eastern European Fund
Page 18
<PAGE>
securities outside the United States pursuant to sub-custody arrangements
separately approved by the Trust. Prior to November, Bankers Trust Company
provided custody services and USSI provided fund accounting and administrative
services. Services with respect to retirement accounts will be provided by
Security Trust and Financial Company of San Antonio, Texas, a wholly owned
subsidiary of the Adviser.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 700 North St. Mary's, San Antonio, Texas 78205, is the
independent accountant for the Trust.
FINANCIAL STATEMENTS
The financial statements for the year ended October 31, 1997, are hereby
incorporated by reference from the U.S. GLOBAL ACCOLADE FUNDS 1997 ANNUAL REPORT
TO SHAREHOLDERS of that date that accompanies this Statement of Additional
Information. If not included, the Trust will promptly provide a copy, free of
charge, upon request to: U.S. Global Investors, Inc., P.O. Box 29467, San
Antonio, Texas 78229-0467, 1-800-873-8637 or (210) 308-1234.
Statement of Additional Information - Regent Eastern European Fund
Page 19
