|
| ||
 Investment Professionals Access Account Open Account Fund PerformanceRetirement |
||
| Webcasts Press Center Forms and Prospectus About the AdvisorFrank Talk |
||
|
|
|
According to Chinese wisdom, a picture is worth a thousand words, so I have included
two powerful illustrations to demonstrate two important themes for you to seriously
consider when it comes to investing.
On the front cover is a chart, which shows the long-term cyclical forces of the stock market. As you can see, the market moves from extremely overbought conditions (the top of the bull market) to an oversold environment (September 11, 2001) indicating the clutches of a severe bear market. The significance of this long-term chart is its historical cyclical perspective. Only the 1973-74 bear market was as long and severe as the past two years. As the chart clearly portrays, the odds favor that the worst is behind us, and we are most likely at the beginning of another bull market cycle. The "perfect storm" that hit both the economy and stock prices in 2001 seems to finally be passing; however, the sun is still hidden behind the clouds. Earnings for companies in the S&P 500 Index have fallen for five straight quarters, and the good news is the quarter ending June 2002 could be the turnaround in earnings according to First Call. The bottom line, I believe, is that better times are ahead, and with the committed Federal Reserve policy, my confidence has improved substantially since the life-changing event and personal experience of 9/11. 
The second chart is an example to help you appreciate the benefits of diversification with a small exposure in gold investments. From February 1, 2001, to February 1, 2002, gold stocks, as measured by the Philadelphia Gold & Silver Index (XAU), have outperformed the Nasdaq by almost 60%. Historically, investing in gold has been associated with poor government policy and rising inflation. However, today it is recognized simply as a strategic asset class to diversify your portfolio. What shocks me is the amount of negative press gold seems to receive as an investment, when more wealth has been destroyed in a shorter period of time from the Internet boom than from gold investments for the last 20 years. The big question is, "What is driving the interest in gold stocks?" When the 90-day Tr easury bill’s yield falls below the CPI inflation rate, institutional investors aggressively increase their diversification into bullion and gold stocks. Second, the federal government budget has gone from a surplus to a $450 billion deficit, and this trend reversal from surplus to deficit has usually been good for gold. We are deeply intrigued that the countries for the past seven years who have been committed to selling their gold reserves have seen their currency decline against the U.S. dollar. Further, since England began its gold auctions in the summer of 1999, its currency has declined 10% against the U.S. dollar. Even with the theme of diversifying a portion of your assets into gold-related investments, we think that gold should only be a 3-5% weighting in a diversified portfolio. Over the past year, the mutual fund industry has been hit with many challenges in addition to falling stock market prices. We have been, as your investment adviser, totally focused on creating the best of practices as an investment adviser. We have enhanced our systems and policies so that they are more attuned to earnings trends and dynamically responsive to turbulent markets. Our goal is to make incremental progress without taking unnecessary risks. For the China Region Opportunity Fund, we have completely redesigned the methodology for overweighting/underweighting countries and industries. So year to date for 2002, we have been encouraged by its guidance and improved relative performance. Our largest fund, the U.S. Government Securities Savings Fund, still remains at the top of its form. One of our priorities is to keep the dividends exempt from state and local income taxes, which is a big benefit to many of our shareholders in states with income taxes. Good news! Near-Term Tax Free Fund has achieved the 5-star Morningstar Rating. It is important for all money market fund investors to explore diversifying their sources of monthly income with this fund. It consists of investment grade, short term municipal bonds, which pays a tax-free monthly income. Our sub-adviser for the Regent Eastern European Fund has achieved a 4-star Morningstar Rating. For shareholders who are investing in emerging markets, we strongly recommend you review the opportunities of Eastern Europe and the excellent money management expertise of the Regent group. In fact, the Regent group has changed its name to Charlemagne Capital Ltd. For those who enjoy history, Charlemagne was the emperor Charles the Great, King of the Franks, founder of the Holy Roman Empire and one of the foremost rulers in European history between 742 and 814 AD. I wish everyone a better bull market through 2002. Please feel free to e-mail your comments or suggestions to fholmes@usfunds.com. Sincerely, 
Frank Holmes Chairman, CEO & Shareholder |
