Q: Do companies need to be a certain size to be considered for the fund?
The Holmes Growth Fund is classified as a mid-cap growth fund,
and that is the universe where most of our stocks are selected.
However, just as we are global in our outlook, we are also agnostic as far as market capitalization is concerned. We are not and will not be defined by a Morningstar style box as we work to generate returns for the fund shareholders.
Q: How has the fund evolved in 2006? Are there any specific investment themes you are following?
Our primary themes that are longer term in nature have not changed. These include the growing demand in China for resources and the global demand for oil. Looking at the four-year presidential cycle, we were a bit cautious in our market outlook for 2006. We have carried a higher-than-usual level of cash at some points in 2006 as a more defensive posture. We were also less extreme in terms of our sector bets this year, as there seemed to be no clear and sustainable leadership that could be latched onto.
| Top 10 Industries as a percentage of net assets as of 9/30/06 |
| Oil — Field Services |
4.53% |
| Finance — Investment Banker/Broker |
3.59% |
| Investment Management/Advisor Services |
3.36% |
| Retail — Apparel/Shoe |
3.21% |
| Oil Refining & Marketing |
3.08% |
| Medical Products |
2.71% |
| Oil Companies — Exploration & Production |
2.38% |
| Engineering/R&D Services |
2.38% |
| REITS — Apartments |
2.37% |
| Wire & Cable Products |
2.19% |
Q: What is your outlook for the fund for the rest of 2006 and into 2007? What major economic trends might impact the fund next year?
The market has been much more resilient than expected thus far in 2006. We think this may continue in the fourth quarter. What could be different in the fourth quarter, however, may be a rotation away from the larger-cap names into the mid- and small-cap universe.
Q: What is your outlook for the fund for the rest of 2006 and into 2007? What major economic trends might impact the fund next year?
The market has been much more resilient than expected thus far in 2006. We think this may continue in the fourth quarter. What could be different in the fourth quarter, however, may be a rotation away from the larger-cap names into the mid- and small-cap universe. For 2007, a lot will depend on the housing market. If we just see a slowdown in housing, as opposed to a “bursting of the bubble,” the American consumer should be fi ne, and if the consumer is fi ne, the economy as a whole will hold up as well.
Q: How might a harder landing for the economy affect the fund?
That depends on how hard a landing it is. If it’s one that tilts us into recession, the markets will be challenging. If we get a slowdown that avoids recession but prompts the Federal Reserve to start cutting rates, the markets should be kind.
Q: What sectors do you think might bring surprises in 2007?
Energy will be a wildcard in 2007. If we get a major slowdown around the world, energy prices should move lower and energy would probably underperform as a sector. If world economies continue growing as they have in 2006, the fi nancial sector would be a place to be underweight because interest rates could move higher. A soft landing around the world would be an ideal investment scenario. Cyclical stocks would provide a positive surprise in that scenario.
Q: What types of investors should consider taking a look at what the Holmes Growth Fund has to offer?
The fund is appropriate for an investor looking for a little bit more return and able to withstand the additional risk that accompanies the search for faster growth. The risks associated with investing money in the Holmes Growth Fund include the risk of a declining stock market or that certain sectors in the fund might underperform the market as a whole. A detailed list of the fund’s risks are included in its prospectus, which I urge all potential investors to read before investing.
Please consider carefully the fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Investing in small- and mid-cap stocks may be more risky and more volatile than investing in large-cap stocks. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Foreign and emerging market investing involves special risks such as currency fl uctuation and less public disclosure, as well as economic and political risk. Gold funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The price of gold is subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 3% to 5% of your portfolio in gold or gold stocks. Tax-exempt Income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The S&P MidCap 400 Index is a capitalization-weighted index, which measures the performance of the mid-range sector of the U.S. stock market.