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“Unique” does not begin to describe it. “Uncharted” is not totally accurate either, as seasoned
shareholders will recognize and remember the telltale signs of market volatility from previous
market downturns. We have weathered changes of this nature before; yet the historical trend
is that the stock markets – both domestically and abroad – continue their gradual upward climb
over time.
In previous issues of the Shareholder Report, I have discussed the impact that Presidential elections inevitably have on the equity markets and people’s confidence about investing. The unprecedented 10-year-long economic expansion has cast a longer shadow than normal on investors’ expectations and the economy in general. Yet, the fundamentals of investing continue to hold true. 
The serious investor has thoughtfully considered his or her ultimate financial goals and plans to
remain invested for the long term, continues to invest often and diversifies potential risks through
holdings in different asset classes. The serious investor also routinely adjusts personal investment
portfolio holdings to better match current circumstances and changes in risk tolerance,
using tools such as the asset allocation tool.
The 5 E's The market’s volatility has been significant, because of the convergence of five issues that concern stock prices, with the most significant being earnings. The other e’s are economy, energy, euro and election. The questions then become, what are the critical success factors for powerful earnings? Will rising rates create a “hard economic landing,” will higher energy prices hurt earnings; will the falling euro hurt international companies’ earnings; and what are the best/worst sectors to be invested in, in light of the new administration’s planned initiatives? In light of these 5 e’s our position remains that a key benefit of mutual fund investing is the ability to leave analysis and buy/sell decisions up to professional investment managers. These portfolio team members understand what it takes to deftly manage a fund, even in a shakeout such as we are experiencing now. They can focus on potential investments’ earnings growth, as well as other significant factors. U.S. Global Investors’ policy is to change the investment model or team if poor performance persists for three quarters in a row. Recently, we changed the gold team with the goal of performing in the top half of our peer group. Market shifts benefit funds Turmoil in the Middle East, coupled with rising energy demand and investors’ longing for solid values has served several of our funds well. The Global Resources Fund, a diversified natural resources fund focused on long-term growth of capital while providing protection against inflation and monetary instability, is poised to reap the results of high demand and constrained supply for oil and natural gas. Further, analysts expect global demand for crude oil to grow by 2.5 percent in 2000. The long term fundamentals are very encouraging for oil and gas, while in the short term, prices could correct to $25/barrel. However, long term, the picture is brighter considering that the four countries with the largest gross domestic product (GDP) - the United States, Japan, China and Germany - are all net oil importers. Our MegaTrends Fund takes a dynamic, flexible and conservative approach to growth and capital preservation. Portfolio Manager and Personal Finance newsletter editor Dr. Stephen Leeb looks for undervalued corporate stocks that are currently out of favor with the markets. Leeb’s 20-plus years of experience in market psychology make him uniquely qualified to detect future financial trends, and his flexible portfolio fund has benefited from this contrarian philosophy. Other developments within our two precious metals funds - the Gold Shares Fund and the World Gold Fund - include execution of a new investment model to emphasize reserve production and cash flow growth profiles for companies involved in production of precious minerals in addition to gold. Profiting in the gold markets is more challenging in light of the Bank of England’s gold sell-off. Current growth opportunities are in platinum, palladium and diamonds. Analyzing market surges and purges We have taken a different tack with this issue of the Shareholder Report in an effort to keep you abreast of factors behind the current market swings. Our Director of Research, Dr. Michael Ingraham, discusses what’s hot and what’s not in his page 11 piece on sector rotations. Our oft-repeated mantra for shareholders – to remain invested at all times and to avoid timing the market – is convincingly related on page 10 by Graig Ponthier, Executive Vice President of United Think “ABC” this holiday season Just in time for holiday gift giving, we bring you a special limited-time offer that makes investing affordable and convenient for your family. Simply open an account in the Bonnel Growth Fund using our ABC Investment Plan® between now and Friday, December 29, 2000, and we will waive the $1,000 minimum initial investment! This is our holiday gift to our loyal shareholders. Please feel free to share this offer with your family and friends, so that your loved ones can begin investing toward the goal of financial independence. For more information, see page 8, call an investor representative at 1-800-US-FUNDS or visit our website at www.usfunds.com. While we are on the subject, you still have an opportunity to register for the Family Ties Education IRA Sweepstakes before the December 31, 2000, deadline. Four $500 prizes, to be used toward the purchase of Education individual retirement accounts or UGMA/UTMA accounts, will be awarded on January 12, 2001. For more information on entering and a copy of the rules, please go to www.usfunds.com or call 1-800-US-FUNDS. Remember when planning for the future, “This one thing I do, forgetting those things which are behind, and reaching forth unto those things which are before, I press toward the mark for the prize” (Philippians 3:13-14). Please accept my best wishes for a happy holiday season and for health, happiness and peace of mind in the coming year for you and your family. |
Sincerely,
Frank Holmes Chairman & CEO |
