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Investment Strategy–May 24, 2021

Annual Report

The Coronavirus

Economic growth has strengthened significantly in the last nine months after being weak last Spring due to the coronavirus. Much knowledge has been gained and much progress has been made in the last year regarding this virus. For example: (1) medical supplies have substantially increased, (2) much has been learned about treatment, (3) there have been important break throughs regarding antibodies and vaccines, (4) we have FDA approvals of vaccines and antibody treatments, and (5) a very substantial number of vaccinations have been done. Monetary and fiscal stimulus are very strong to counter the economic effects of the virus.

The U.S. Economy

The U.S. economic recovery that started in mid-2009 ended in the first quarter of 2020 due to effects caused by the coronavirus. The economy then began a recovery starting in the summer of 2020. The economy has been helped by among other things: (1) very strong government stimulus spending, (2) a very accommodative Federal Reserve, (3) much improved consumer confidence, and (4) a strong housing market. U.S. Gross Domestic Product (“GDP”) decreased -3.5% in 2020, after increasing 2.2% in 2019, 2.9% in 2018, and 2.5% in 2017. GDP is estimated to have increased at an inflation-adjusted annual rate of 6.4% in the quarter ended March 31, 2021 after increasing 4.3% in the quarter ended December 31, 2020. GDP is forecasted to increase 9.8% in the quarter ended June 30, 2021. GDP is forecasted to increase 7.0% in calendar 2021. The unemployment rate was 8.1% in 2020, 3.7% in 2019, 3.9% in 2018, and 4.4% in 2017. Unemployment was 6.2% in the quarter ended March 31, 2021 after being 6.8% in the quarter ended December 31, 2020. Unemployment is forecasted to be 5.8% in the quarter ended June 30, 2021. Unemployment is forecasted to average 5.5% for 2021.

U.S. inflation, as measured by the Consumer Price Index, increased 1.2% in 2020, 1.8% in 2019, 2.4% in 2018, and 2.1% in 2017. Inflation increased at an annualized rate of 1.9% in the quarter ended March 31, 2021 after increasing at an annualized rate of 1.2% in the quarter ended December 31, 2020. Inflation is forecasted to increase at an annualized rate of 4.0% in the quarter ended June 30, 2021. Inflation is estimated to increase 3.3% for the year ended December 31, 2021.

Opportunistic Investing in Companies of Various Sizes and Diversified Among Various Industries

The Blue Chip Fund usually invests in companies of various sizes as classified by their market capitalizations. A company’s market capitalization is calculated by taking the number of shares the company has outstanding multiplied by its current market price. Other considerations in selecting companies for the Fund include revenue growth rates, product innovations, financial strength, management’s knowledge and experience, plus the overall economic and geopolitical environments and interest rates. The Fund’s investments are diversified among various industries.

The long-term strategy of the Blue Chip Fund is to emphasize investment in worldwide “Blue Chip” growth companies. These companies are defined as companies with a minimum market capitalization of U.S. $1 billion. In the long-term, these companies build value as their earnings grow. This growth in value should ultimately be recognized in higher stock prices for these companies.

Low Long-Term Interest Rates are a Positive for Stock Valuations

Long-term U.S. interest rates are at lower than normal levels. Low long-term interest rates usually result in higher stock valuations for many reasons including:

(1) Long-term borrowing costs of corporations are lower resulting in higher business confidence.

(2) Long-term borrowing costs of individuals are lower which usually increases consumer confidence.

(3) A company’s stock is usually valued by placing a present value on that company’s future stream of earnings and dividends. The present value is higher when interest rates are low.

For more information, please download the latest Shareholder Report.