Dear Shareholder:
Message from the Chairman
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In order to live a happier life, psychologists recommend we
learn how to manage our expectations better.This advice is also
helpful when looking at investments.In previous reports,we
discussed our concerns that investors were expecting returns
that far exceeded the long-term average return of the stock
market.
Also, psychologists report that we become anxious,
uncertain, and fearful when there is a lack of visibility
about our future.When there is so much confusion, lack
of direction,and uncertainty about war,the economy,
interest rates, unemployment, and corporate ethics, we can
become catatonic towards investing.
My suggestion is to look at the big picture over a longer
period of time, and this exercise will put the recent
activities into a more balanced perspective. To help us
manage our financial expectations better, compare the
long-term return for 90-day Treasury Bills, intermediate-term bonds,
and big cap stocks.
| 1926 – 1998 |
% per annum*
(compounded)
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| T-Bill |
3.8 |
| Intermediate Bond |
5.3 |
| Big Cap |
11.2 |
| *Ibbotson Associates |
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The trillion-dollar question today is what will it take to win
back the confidence of investors in the stock market? We
believe the critical missing drivers are earnings and modest
growth in money supply. We have learned from our
analysis of stock market cycles, investors ’ confidence improves when earnings are
rising year-after-year and money supply is growing at a 5-to 8-percent rate.
According to First Call, estimated earnings for the S&P 500 may turn positive for
the year ending September 2002. This past quarter ending March 2002 was still
down 10 percent from last year. Nevertheless,we believe that the bull market is
on track, with certain sectors like telecommunications and technology remaining
in a down cycle until information technology capital expenditures turn positive.
So where are the bright spots?
Tax-free bonds are still attractive because interest rates will remain low until the
broader economy —not just consumer-related sectors —rebounds.Also,resource-
based stocks are generating excellent returns.Historically, resource stocks perform
well at the beginning of a bull market because manufacturing companies need to
rebuild their inventories.
Further, since September 11, 2001, gold stocks have performed spectacularly.
There are several key factors driving the renewed interest in bullion and gold
stocks.First,the U.S.federal budget has gone from a surplus to an
estimated $450 billion deficit.Second, real interest rates have declined; and, third,
gold mining companies are hedging less.Interestingly, the direction of the price
of gold is the most significant factor influencing the price of gold stocks.
Historically, for every 1 percent move in gold bullion, gold stocks move 3 percent
on average.
The chart on the cover comparing the XAU Philadelphia Gold Index with the
S&P 500 is a powerful example of the importance of building a diversified
portfolio.We recommend investors use our ABC Investment Plan®
to build up to a 5 percent weighting in our gold funds.Take the time to visit our website
(www.usfunds.com)to investigate the gold funds.The major difference between
the World Precious Minerals Fund and the Gold Shares Fund is that the World
Precious Minerals Fund will invest in micro-cap exploration companies and
diamond companies, and the Gold Shares Fund remains focused on large-cap
gold producers.
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Investment Professionals 
