Gold – A Portfolio Diversifier Counter-Cyclical Attributes Frank E. Holmes, Chief Investment Officer U.S. Global Investors, Inc.

2 Page Why invest in Gold?3 Critical Drivers4 Reversion to the Mean5 Compare Change Since 9/116 Seasonal Demand for Gold7 Seasonal Response of Gold Stocks8 Cash Flow Valuation9 Counter-Cyclical Investment10 “Currency Without a Country”11 Unhedged North Americans Have Generated Superior Performance12 Exploration Expenditure for Gold has Fallen Sharply13 Mine Supply to Contract Rapidly from Less Hedging Reduces Supply Pressure15 Aggregate Producer Hedge Book to Fall16 Aggregate Central Bank Holdings Opportunity vs. Risk18 Mergers and Acquisitions19 Important Reason for Diversification XAU Index vs. S&P 500 Index20 XAU Index vs. Nasdaq Index21 Philadelphia Gold and Silver Index (XAU) and its Components US-FUNDS Table of Contents

3 Important factors helping gold prices are: 1.Under-performing equity markets‒gold is negatively correlated with the S&P Deficit spending and zero real rates of return on T-Bills trigger a weaker dollar. 3.Gold mining companies have announced a continued reduction of hedge programs. 4.Continued presence of physical demand despite real price rises. 5.Renewed fund interest has seen hedge fund position on COMEX rise to levels seen in Investment demand in Japan has risen five fold over the past year. 7.Changes in the supply side due to falling new gold mine production are bullish for bullion prices US-FUNDS Why invest in Gold?

4 War on Terrorism Deficit Spending $450B Weaker U.S. Currency Higher Gold Prices Possible Ramifications EffectCause Weak Economy Low Interest Rates Low Gold Prices Cuts in Exploration Higher Gold Prices Weaker U.S. Currency 40-year Low in Interest Rates Falling Production Hedging Curtailed Less Supply Higher Gold Prices MergersRationalization Decreasing Production Higher Gold Prices We have a unique situation where all the critical drivers for gold are pointing in the same direction US-FUNDS Critical Drivers

5 R eversion to the Mean Will Equities Move Down to Their Mean.. Will Gold Move Up? January 1970 – January 1999 Source: World Gold Council US-FUNDS

6 *Data as of 9/5/ US-FUNDS Price on 9/10/01 Price on 9/10/02 $ Change%Change Gold Bullion$ $317.75$ % XAU Gold & Silver Index % Gold Shares Fund 5 $ 2.69 $ 4.79$ % World Precious Minerals Fund 5 $ 5.07 $ 8.93$ % DXY Trade Weighted Dollar Index % 3-Month T-bill % Dow Jones Industrial Average Index 9 9, , , % S&P 500 Stock Index 1 1, % Nasdaq Composite Index 4 1, , % M3 Supply*7.90% Data as of 9/13/02 Compare Change Since 9/11

7 Seasonal Demand for Gold Source: RBC Capital Markets through Martin Murenbeeld & Associates Inc.; from US Bureau of Census Program  The first three months of the year tend to be the best period for the year for gold demand.  Key demand factors are post-holiday jewelry restocking, post-Ramadan demand, the Chinese New Year and the wedding season after the harvest period in the Indian sub- continent.  After weak seasonal demand for gold in Q2 and Q3, October was the strongest month as pre- holiday season inventory buildups usually helps gold demand US-FUNDS

8 Seasonal Response of Gold Stocks  Gold equities tend to lag the movement of gold in January and show seasonal strength in February and March.  A mixed response from gold stocks in the summer months is often followed by a rally in September in anticipation of stronger pre-holiday demand for the commodity.  Gold stocks are often the victims of tax-loss selling in the fourth quarter of the year US-FUNDS Source: RBC Capital Markets through Martin Murenbeeld & Associates Inc.; from US Bureau of Census Program

9 Cash Flow Valuation Source: RBC Capital Markets  At a sub-$300 gold price, the Tier I producers tend to trade up to a 13x cash flow multiple.  As gold trades above $300, cash flow multiples should expand to 16x.  As the Tier I companies dwindle, the high quality Tier II companies are trading in line or ahead of the Tier I companies due to internal growth prospects US-FUNDS FORWARD CASH FLOW MULIPLE PEAKS

10 Counter-Cyclical Investment Source: BNP Paribas 12  Gold and gold stocks have traditionally offered counter-cyclical investment opportunities relative to the general stock market.  In the early 1990’s, gold stocks tripled in value over a three-year period. Over the past year*, gold indices are up 50% against an S&P loss of 30% *May 2001 – May 2002 Gold vs. S&P US-FUNDS

11  Not dependent on any corporation or government’s “promise to pay”.  Hedges against:  bank failures  foreign-exchange controls  currency devaluation  Particularly relevant to emerging markets US-FUNDS “Currency Without a Country”

12 Unhedged North Americans Have Generated Superior Performance Source: BNP Paribas  Investment bias to unhedged producers has resulted in significant stock outperformance. Hedged vs. Unhedged US-FUNDS

13 Exploration Expenditure for Gold has Fallen Sharply Source: UBS Warburg Exploration Expenditure and Average Gold Price  Declining gold prices combined with low rates of return and an increasing cost of equity discouraged gold producers from spending on exploration and new project development—this tightens future supply US-FUNDS

14 Mine Supply to Contract Rapidly from 2002 Source: UBS Warburg Year-on-year Percentage Change in New Mine Supply  The concentration of ownership and convergence of larger companies make tighter investment spending hurdles.  Limited exploration reduces the potential of new discoveries US-FUNDS

15 Less Hedging Reduces Supply Pressure Source: BNP Paribas  As the gold price fell, gold hedging increased.  The trend is now reversing.  Newmont acquires Normandy and Franco Nevada to become the world’s largest gold producer, and gold rises. 8 A growing trend for producers to curtail or trim hedging US-FUNDS

16 Aggregate Producer Hedge Book to Fall Source: UBS Warburg Aggregate Industry Hedge Book  Positive for the gold price. The trend is now reversing.  Growing trend for producers to curtail or trim gold hedging practices US-FUNDS

17 Aggregate Central Bank Holdings Source: UBS Warburg Almost Back Where We Started in US-FUNDS

18 Opportunity vs. Risk Opportunities  Consolidation  Low Real Interest Rates  Japanese Buyers  Unwinding Hedge Positions  Cash Flow Multiples Remain Low  Purchasing Parity Implies US$330/oz. to US $360/oz.  Gold Stocks Offer 3 to 1 Leverage Over Bullion Price Risks  Central Bank Sales  Rising U.S. Dollar  Economy Fails to Rebound  U.S. Government Stops Deficit Spending  Real Interest Rates Rise US-FUNDS

19 Mergers and Acquisitions 8  Franco Nevada / Normandy / Newmont Largest Gold Producer in the World  Barrick / Homestake  Delta Gold / Gold Fields Australia  Harmony / Hill 50 Gold  Kinross / TVX / Echo Bay Mines  Placer Dome / Orion Waiting shareholder approval  Anglogold / Goldfields Yet to Find a Bride US-FUNDS

20 Source: Bloomberg Compare the 43% difference... XAU Gold Index +23% S&P 500 Index -20% US-FUNDS Important Reason for Diversification XAU Index 3 vs. S&P 500 Index 1 September 28, 2001 — September 30, 2002

21 XAU Index 3 vs. Nasdaq Index 4 Source: Bloomberg Compare the 45% difference... XAU Gold Index +23% Nasdaq Index -22% US-FUNDS September 28, 2001 — September 30, 2002

22 Philadelphia Gold and Silver Index (XAU) 3 Source: Bloomberg US-FUNDS Newmont Mining25.12% Barrick Gold19.65% Gold Fields Ltd.13.18% Anglogold Ltd.12.99% Placer Dome7.19% Harmony Gold5.77% Goldcorp Inc.4.41% Freeport McMoran4.28% Meridian Gold3.89% Agnico-Eagle Mines2.44% Apex Silver Mines Ltd.1.09% Data as of 9/30/02 XAU Index 3,8 Components

23 For more information on the Gold Shares Fund 5 and World Precious Minerals Fund, 5 Please call US-FUNDS Or visit our website: 1. The S&P 500 Stock Index is a widely recognized index of common stock prices in U.S. companies. 2. The Toronto Stock Exchange Gold and Precious Minerals Index is a capitalization-weighted index designed to measure the performance of the gold and precious minerals sector of the TSX 300 Index. 3. The Philadelphia Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. 4. The Nasdaq Composite Index is a market value-weighted index that measures all domestic and non-U.S.-based securities listed on the Nasdaq Stock Market. 5. The fund 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 6. Performance data quoted represent past performance and investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. 7. For more complete information about any U.S. Global fund, including charges and expenses, obtain a prospectus by visiting us at or call US- FUNDS. Read it carefully before you invest or send money. Distributed by U.S. Global Brokerage, Inc. 8. This article should not be considered a recommendation for the securities of any company mentioned. 9. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.