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

1. Gold – A Portfolio DiversifierCounter-Cyclical AttributesFrank E. Holmes, Chief Investment OfficerU.S. Global Investors, Inc.

2. Table of Contents Page Why invest in Gold? 3 Critical Drivers 4 Reversion to the Mean 5 Compare Change Since 9/11 6 Seasonal Demand for Gold 7 Seasonal Response of Gold Stocks 8 Cash Flow Valuation 9 Counter-Cyclical Investment 10 “Currency Without a Country” 11 Unhedged North Americans Have Generated Superior Performance 12 Exploration Expenditure for Gold has Fallen Sharply 13 Mine Supply to Contract Rapidly from 2002 14 Less Hedging Reduces Supply Pressure 15 Aggregate Producer Hedge Book to Fall 16 Aggregate Central Bank Holdings 1950-2001 17 Opportunity vs. Risk 18 Mergers and Acquisitions 19 Important Reason for Diversification XAU Index vs. S&P 500 Index 20 XAU Index vs. Nasdaq Index 21 Philadelphia Gold and Silver Index (XAU) and its Components 22 www.usfunds.com 1-800-US-FUNDS

3. Why invest in Gold? • Important factors helping gold prices are: • Under-performing equity markets‒gold is negatively correlated with the S&P 500. • Deficit spending and zero real rates of return on T-Bills trigger a weaker dollar. • Gold mining companies have announced a continued reduction of hedge programs. • Continued presence of physical demand despite real price rises. • Renewed fund interest has seen hedge fund position on COMEX rise to levels seen in 1996. • Investment demand in Japan has risen five fold over the past year. • Changes in the supply side due to falling new gold mine production are bullish for bullion prices. www.usfunds.com 1-800-US-FUNDS

4. Critical Drivers Cause Effect Possible Ramifications Weaker U.S. Currency Higher Gold Prices Deficit Spending $450B War on Terrorism Higher Gold Prices Weaker U.S. Currency 40-year Low in Interest Rates Weak Economy Low Gold Prices Cuts in Exploration Higher Gold Prices Falling Production Hedging Curtailed Low Interest Rates Higher Gold Prices Less Supply Decreasing Production Higher Gold Prices Mergers Rationalization We have a unique situation where all the critical drivers for gold are pointing in the same direction. www.usfunds.com 1-800-US-FUNDS

5. Reversion to the MeanWill Equities Move Down to Their Mean . . Will Gold Move Up? 1 Source: World Gold Council January 1970 – January 1999 www.usfunds.com 1-800-US-FUNDS

6. Compare ChangeSince 9/11 Data as of 9/13/02 *Data as of 9/5/02 www.usfunds.com 1-800-US-FUNDS

7. Seasonal Demand for Gold • 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. Source: RBC Capital Markets through Martin Murenbeeld & Associates Inc.; from US Bureau of Census Program www.usfunds.com 1-800-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. Source: RBC Capital Markets through Martin Murenbeeld & Associates Inc.; from US Bureau of Census Program www.usfunds.com 1-800-US-FUNDS

9. Cash Flow Valuation FORWARD CASH FLOW MULIPLE PEAKS • 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. 34 40 28 27 27 25 23 19 17 16 14 13 12 Source: RBC Capital Markets www.usfunds.com 1-800-US-FUNDS

10. Counter-Cyclical Investment Gold vs. S&P 5001 • 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. 1 2 *May 2001 – May 2002 Over the past year*, gold indices are up 50% against an S&P 5001 loss of 30% Source: BNP Paribas www.usfunds.com 1-800-US-FUNDS

11. “Currency Without a Country” • 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. www.usfunds.com 1-800-US-FUNDS

12. Unhedged North Americans Have Generated Superior Performance Hedged vs. Unhedged • Investment bias to unhedged producers has resulted in significant stock outperformance. Source: BNP Paribas www.usfunds.com 1-800-US-FUNDS

13. Exploration Expenditure for Gold has Fallen Sharply 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. Source: UBS Warburg www.usfunds.com 1-800-US-FUNDS

14. Mine Supply to Contract Rapidly from 2002 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. Source: UBS Warburg www.usfunds.com 1-800-US-FUNDS

15. Less Hedging Reduces Supply Pressure A growing trend for producers to curtail or trim hedging. • 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 Source: BNP Paribas www.usfunds.com 1-800-US-FUNDS

16. Aggregate Producer Hedge Book to Fall 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. Source: UBS Warburg www.usfunds.com 1-800-US-FUNDS

17. Aggregate Central Bank Holdings 1950-2001 Almost Back Where We Started in 1950 Source: UBS Warburg www.usfunds.com 1-800-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 www.usfunds.com 1-800-US-FUNDS

19. Mergers and Acquisitions8 • 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 www.usfunds.com 1-800-US-FUNDS

20. Important Reason for Diversification XAU Index3 vs. S&P 500 Index1 Source: Bloomberg September 28, 2001 — September 30, 2002 www.usfunds.com 1-800-US-FUNDS

21. XAU Index3 vs. Nasdaq Index4 Source: Bloomberg September 28, 2001 — September 30, 2002 www.usfunds.com 1-800-US-FUNDS

22. Philadelphia Gold and Silver Index (XAU)3 XAU Index3,8Components Newmont Mining 25.12% Barrick Gold 19.65% Gold Fields Ltd. 13.18% Anglogold Ltd. 12.99% Placer Dome 7.19% Harmony Gold 5.77% Goldcorp Inc. 4.41% Freeport McMoran 4.28% Meridian Gold 3.89% Agnico-Eagle Mines 2.44% Apex Silver Mines Ltd. 1.09% Source: Bloomberg Data as of 9/30/02 www.usfunds.com 1-800-US-FUNDS

23. For more information on the Gold Shares Fund5 and World Precious Minerals Fund,5 Please call 1-800-US-FUNDS Or visit our website: www.usfunds.com • The S&P 500 Stock Index is a widely recognized index of common stock prices in U.S. companies. • 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. • 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. • 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. • 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 • 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. • For more complete information about any U.S. Global fund, including charges and expenses, obtain a prospectus by visiting us at www.usfunds.com or call 1-800-US-FUNDS. Read it carefully before you invest or send money. Distributed by U.S. Global Brokerage, Inc. • This article should not be considered a recommendation for the securities of any company mentioned. • The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.