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As the last year of the old millennium – or the first year of the next thousand years, depending on
which theory you subscribe to – came to a close, the only certainty was that 2001 will probably
look nothing like its predecessor.
The odds, and historical trends, favor the domestic stock markets hitting bottom in the first half of 2001, followed by the economy’s tumble toward the end of the year. Also true to form, the markets could rebound just about the time the economy begins its descent. Historically, in either up or down markets the stock market is six to nine months ahead of the economy. 
Not only is the U.S. economy now slowing but also an energy/power
crisis of serious proportions is igniting on the West Coast. The West
Coast regional economy, heavily reliant on gas-generated power for its
mobility and agility, could be faced with an energy financial crisis
along the lines of the Orange County, California, financial debacle of
the mid-1990s.
As a nation, we consume about 40 percent of the world’s energy resources, making us dependent on the whims and moods of OPEC. The Global Resources Fund is positioned to participate in the current global demand for energy and basic materials. Despite the history-making details of the election, investors are satisfied that we now have a President and Congress who can get down to building a greater America. However, the quirkiness of this last election and subsequent legal challenges left a fragile balance of power in Washington. The fallout may contribute to early stalemates or tactical changes in President Bush’s approach to his campaign platform. I believe the American public is much more centrist and pragmatic in its thinking and expects cooperation to develop between the two political parties quickly. Only a bottom- line plan of action for results instead of finger pointing and accusations will satisfy voters who, in turn, are investors and consumers of this slowing economy. Gold has had a very difficult time holding its value during the past five years. Gold industry mutual fund assets have contracted from $5 billion in 1996 to $1.7 billion in 2001 as investors have given up on the precious metal as a component of their asset allocation guidelines. On the flip side, gold stocks have not only dropped in price but are also at their lowest valuations based on earnings and cash flow multiples. The largest gold producer in the world, Anglogold (2.07% of the Gold Shares Fund’s total net assets as of 12/31/00), offers an eight percent dividend yield, while another South African mining company, Harmony (9.10% of the Gold Shares Fund’s total net assets as of 12/31/00), trades at seven times its trailing earnings. I suggest that you visit the website of the World Gold Council (www.gold.org) to learn more about the long-term significance of having gold as part of your diversified financial plan. Once central bank selling of gold is behind us, analysts believe gold will rise to higher levels, as experienced by other commodities like oil and natural gas. To put things in perspective, one Internet incubator company, CMGI Inc. fell 94%, greater than the entire Philadelphia Stock Exchange Gold and Silver Index (the XAU, which lost less than 30 percent for the year, is a capitalization- weighted index that includes the leading companies involved in the mining of gold and silver). For comparative purposes in dollar terms, investors lost over $45 billion in market value from this one Internet stock as compared to the combined decline of all mining stocks on the XAU, which has a market cap of only $22 billion. Potential investment opportunities abound for our All American Equity, Bonnel Growth, Equity Income and MegaTrends Funds. In fact, the All American Equity Fund now takes a growth stance toward potential new big cap investments. Healthcare stocks have recently been a sizeable portion of Art Bonnel’s investments for the mid-cap Bonnel Growth Fund. And Stephen Leeb’s value-oriented investing strategy seeking “companies that have the ability to grow, come what may” has served the MegaTrends Fund well in the fourth quarter of 2000. By the way, did you know that Leeb is also the editor of Personal Finance newsletter, which has a subscriber base of some 140,000? Despite the Internet/dot.com backlash by investors and the media during the latter half of last year, I am convinced that the Internet is and will be the most powerful source of information and business communications yet developed. Like all investments, Internet stocks that generate revenue, cash flow and earnings are good investments for the long term, since the Internet is revolutionizing all forms of communication. The fact that it is interactive allows for a more natural discussion of issues and ideas with results measured and tabulated almost instantaneously.
Managing expectations I realize that this may have been a disappointing quarter for your investments. Please realize that the market went through a series of up-and-down corrections during 2000, a phenomenon that had not happened on such a scale since 1994. Other than a normal, periodic evaluation of the allocation of your assets, I urge you to look at your big picture and your financial goals before making decisions that have a long-term impact on your plans for retirement. And while you’re at it, study the chart above to get a perspective on the impact of investing in equities over time. Please give a thoughtful read to this issue of The Shareholder Report, with its emphasis on retirement and financial security. I think you will find it enlightening and reassuring. As we embark on a new odyssey, please accept my wishes for your prosperity and financial independence in 2001. Sincerely, 
Frank Holmes Chairman, CEO & Shareholder |
| *A moving average is an indicator that shows the average value of a security's price over a period of time. Moving averages are used to emphasize the direction of a trend and smooth out price and volume fluctuations or "noise" that can confuse interpretation. |
