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Stay the course You’ve no doubt seen the wisdom during the past three months of staying the course and holding on to your investments in a turbulent market. The same forces that are shaping our future are also creating ripples of volatility in the stock market. We seem to be in a period of faster and more volatile sector rotation, which is confusing for short-term investors. However, as a long-term investor, you know that, if the economy is moderating and demand imbalances are improved, then the total returns for equities should turn strikingly positive in the second half, according to the "Weekly Market Comment" study by Donaldson, Lufkin & Jenrette on July 10, 2000. Based on recently released key economic indicators, DLJ analysts forecast that stocks should rally as they did in the 1995 post-Fed (Federal Reserve Board Federal Open Market Committee) rate hike period. Conflicting indicators signal softening Although we foresee a soft economic landing for the U.S. markets in the coming six to nine months, we do expect market volatility to occur from time to time against a backdrop of technological innovation and economic growth. Recent earnings warnings by some of the largest corporate powerhouses – Nokia, Unisys, Computer Associates, and Maytag – indicate that a gentle recession may be in the offing for early 2001. However, initial earnings reports for the second quarter showed more strengths than weaknesses. This conflicting information from the markets – one day key indexes are up slightly, the next day they’re down again – highlights the need to diversify, invest regularly and stay invested for the long haul. Savvy investors recognize that economic cycles are natural. A booming economy cannot, and should not, go unchecked forever. Thus, we anticipate the possibility of bargains to be had in the market and an abundance of investing opportunities. Improving the process To respond to the rapid pace of technological change, we are redesigning the processes and methodologies we use to manage the funds. As a result, we have reengineered our industry selection and stock picking based on a more dynamic earnings system of screens. This new dynamic architecture is more responsive to changes in earnings. Those stocks that qualify under the new process and methodology will be considered for potential investment by the appropriate fund. Our All American Equity, Equity Income, Global Resources and gold funds are changing to accommodate the new pace and volume of volatility, and the focus is shifting toward more earnings-driven and cash-flow performance. In particular, the All American Equity Fund now uses models based on earnings growth and a shift to high technology and energy-related stocks. The Global Resources Fund, in contrast, is focused on companies with strong and growing cash flow models. Global boom continues We’ve been on the road lately because the world’s economies are truly more linked now than at any previous time. It is crucial that our portfolio managers stay connected to developments in Europe, Asia and the rest of the Western Hemisphere. Our analysts, including Dr. Michael Ingraham and Dr. Jerry Lu, have been to China and Hong Kong several times this year, while Rahim Kassim-Lakha traveled to Malaysia and Singapore to gauge investment strategies and gather information. They found that the Chinese are privatizing manufacturing operations with newfound entrepreneurial eagerness, and other countries in the Southeast Asia region are reaching across borders to cooperate on attracting new capital. I have also joined the search for investment opportunities abroad this year, including trips to Central Europe, Hong Kong and mainland China, in an effort to pick up on emerging trends and attend investment conferences. The on-going political stabilization process in Eastern Europe continues to have a favorable effect on the economic climate in Poland, the Czech Republic, Hungary, Russia, Slovakia and others where broad privatization has put thousand of companies once owned by the state in the hands of private investors. Coupled with Germany’s recent tax cut, this is very bullish for the region, since Germany is the single most powerful economic entity in Europe. Back on the home front Long-time financial guru and good friend Terry Savage reveals her top picks for websites to assist in financial decision-making for individual investors in her guest column on page 12. A business commentator and frequent guest on nationally syndicated broadcasts, Terry has written one of Amazon.com’s 10 best money books of 1999, The Savage Truth on Money. Recognizing that the role women take in managing their personal finances is evolving, we want to encourage and educate women to be more proactive. On page 9, you will find the introductory column in a new series of articles, educational features and case studies designed to assist women in taking charge of their finances. Education IRA Sweepstakes encourages saving Recognizing that the population of the United States and the world is getting younger and more sophisticated about investments and financial planning, we want to help you teach your children now about the benefits of saving toward future goals. That’s why we have added a special feature on Children and Investing to this edition of the Shareholder Report (see Children & Investing). To encourage the families of our shareholders to establish Education Individual Retirement Accounts, our family of funds is offering the Family Ties Education IRA Sweepstakes. By entering our Family Ties Education IRA Sweepstakes, you become eligible to win one of four $500 prizes that can be used to purchase a U.S. Global Investors’ Education IRA or to open a custodial account in a U.S. Global Investors’ fund. You can encourage other family members and friends to learn more about our family of mutual funds by referring their names and e-mail addresses to us. For more information on the Family Ties Education IRA, please see the article Financial Solutions: Funding a college education or visit our website at www.usfunds.com. Opportunities abound for the wise investor who is willing to accept that economic cycles are just part of the process of investing. Our family of funds offers you many investment options, from mid-cap growth stocks focused on U.S. companies to global emerging markets, from precious metals to U.S. government money markets. "Dishonest money dwindles away, but he who gathers money little by little makes it grow" (Proverbs 13:11). Stay the course and stay positive. Soft landings are merely the springboard for future upward momentum. |
Sincerely,
Frank Holmes Chairman & CEO |
| For a prospectus, including charges and ongoing expenses, please click here or call an investor representative today at 1-800-US-FUNDS. Please read it carefully before you invest or send money. |
