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(Surprise! As I write this message, the Federal Reserve has just announced a much needed but unexpected
50-basis-point interest rate drop. Looking forward, there are three reasons for hope that the markets
could be on an upswing: 1) falling interest rates, 2) $2 trillion sits in money market funds waiting
to be invested, and 3) a proposed tax cut appears close at hand.)
Greetings from the home of the once-and-future champions of the National Basketball Association - the San Antonio Spurs. In South Texas, where the Spurs represent our only major professional sports franchise, fans have been overheard for months saying, "It feels just like 1999 (the year our Spurs won their first NBA championship) all over again." But if it doesn’t feel like 1999 in your pocket, purse or investment account any more, just pause for a few moments to consider the big picture. Given that investors are only human, it is natural that the markets both here and abroad reflect people’s emotions coupled with economic trends. These markets regularly move from an overvalued (represented by the pink "sell" area in the chart on our cover this quarter) position to one of undervaluation (represented by the blue "buy" area). There is an almost rhythmic heartbeat-type motion to these cycles. Viewing these rates of change in percentage terms is a healthy exercise to assess market price risk. 
This chart shows the emotional component of market price swings from "overbought" to "oversold."
Making money, and the monetary decisions that allow you to make money, would not be
that difficult if it were not for the powerful emotions of fear and greed. If you follow the ups and
downs of the S&P 500, there have only been six or seven major decisions to make since 1965.
Look at the long term. Your price risk is very low right now. The S&P
500 Index is coming into low-risk buying range now versus the high-risk
buying range of 12 months ago.
It’s time to put things in perspective. Just like the Spurs, who have put together a winning team heavy on experience and maturity yet sparked with youthful talent and athleticism, our funds benefit from both seasoned hands-on management and new talent and ideas. We think you should know that these market movements are not out of line with corrections that occur on a regular basis in the history of financial markets. Two of our portfolio managers, Art Bonnel of the Bonnel Growth Fund and Dr. Stephen Leeb of the MegaTrends Fund, are veterans of both bull and bear markets. Bonnel, a money manager since 1970, has weathered and learned from his experiences in six previous bear markets — those of 1973-74, 1976-78, 1981-82, 1987, 1990 and 1998 — defined as a market correction of 20 percent or more in the Dow Jones Industrial Average. Leeb’s 20-plus years of observing and commenting on the markets has led to a unique investment philosophy summed up as the optimal balance of growth and protection for shareholders through investments in stocks, bonds and money market instruments. To put things in perspective and remain calm and confident as long-term investors, remember that the average bear market usually lasts 14 months. If the peak of the bull market came in March 2000, then we could now be at the bottom. However, we are mindful that it is unrealistic to expect any portfolio manager to guess the exact top or bottom of stock prices. "Pay-as-you-go" the only way to go Because of Y2K, companies overbuilt anything that dealt with technology. Earnings for the technology sector peaked in the first quarter of 2000, just as the stock market was peaking. Since then, the markets have suffered from indigestion while these overbuilt inventories are digested and sold off even as new products are created that stimulate consumers’ appetites. This, in turn, could lead to a turnaround in the fortunes of technology and telecommunications companies. Who could predict the market and economic events of the past year? No one. And that is exactly the reason to stay invested at all times. While the value of a portfolio may have dropped since its peak in 1999 or early 2000, this is precisely the time when investors should seek out bargains and experienced money managers. Looking at the recent net asset values of our funds, one can deduce that the All American Equity and Bonnel Growth funds are "on sale" at bargain prices right now. There is no better way to take advantage of this buyer’s market than through regular investing with a dollar-cost averaging program, such as the ABC Investment Plan.® And, because the amount you invest stays the same, your money buys more when the price is low and fewer shares when the price is high.* You can become a millionaire We have created special educational tools to fast-track young investors on their discovery of wealth-building strategies. U.S. Global has taken the initiative to put the sound investing concepts of compounding and regular savings into a financial formula for accumulating wealth. If seeing is believing, please check out the new flash chart on our website, www.usfunds.com, by clicking on the "Power of Compounding" graphic on our homepage. As you’ll note in this quarter’s Women & Investing focus on page 9, we encourage people in their twenties and just beginning their working lives to think ahead, open an individual retirement account now and contribute diligently until age 65, in this case. Magnify your opportunities You will also want to explore the numerous new web-based features designed for your investing convenience. At U.S. Global Investors, we’re making saving and investing easier for you. Among the latest innovations is a magnification option that allows you to increase the type size of the Investor Alert, our weekly market summary, to a larger print size that is definitely easier on the eyes. Our interactive state-by-state look at tax equivalent yields can give you a graphic idea of the U.S. Government Securities Savings Fund’s tax-advantaged features. Please visit our website, www.usfunds.com, and share your ideas for making it more beneficial by e-mailing me at fholmes@usfunds.com. And if you would like to have the Investor Alert and other noteworthy news articles sent directly to you, please provide your e-mail address to an investor representative at 1-800-US-FUNDS or shsvc@usfunds.com. Sincerely, 
Frank Holmes Chairman, CEO & Shareholder |
| *A program of regular investing doesn’t assure a profit or protect against loss in a declining market. You should evaluate your ability to continue in such a program in view of the possibility that you may have to redeem fund shares in periods of declining share prices as well as in periods of rising prices. |
